Pinpoint Pricing Problems

Pricing is not a strategy for gaining a sustainable competitive advantage. Competitors will always be close behind in matching your price or beating your offer with a better sale, product or service. Pricing, however, is a crucial component in the success of your business. With the correct pricing structure, you will keep customers happy. Charging too much will turn business away, while too deep of a discount could hurt your bottom line. Entrepreneur.com columnist, Lisa Girard, offers some advice on recognizing a faulty pricing structure, with the following signs that indicate you may need to make a change.

Develop a Pricing Structure to Bring in Profits

1) Competitors are charging more for inferior products. Lowering prices to beat out a well known competitor always seems to be the first strategy when opening up a new business, or possibly a fall back for those retailers experiencing sluggish sales. While consumers would love to purchase your products for next to nothing, you have to ask yourself how such a strategy will keep you in business. Is there really a need to drastically lower prices? The products or services you supply are the only thing that will set your business apart from the competition, and hopefully provide you with a sustainable advantage when it comes time for your customers to make purchasing decisions. If your competitor is charging more for an inferior product or service, you are doing yourself an injustice. Girard recommends, “Only if you can produce a product more cheaply and maintain a decent profit should you consider a lower price.”

2) Your storefront is covered with sale signs. The intention of opening a store was to service a certain kind of customer. Sales and promotions boost foot traffic, but can also alter the intended clientele. It’s about fitting the budget of your target market. As Girard suggests, “Look at the purchasing motivation and requirements of your target market, and set prices based on how much the customers in that market are willing to pay.”

3) Your cash on hand takes a dive at the end of the fiscal year. If you aren’t seeing the signs, the cash you have at the time the books are closed at the end of the fiscal year will tell you a thing or two about your prices. Chances are your costs aren’t getting smaller, so if you have less this year than last year, your prices may need to be altered. The rule of thumb, according to Girard, is that when your costs go up, your prices should too.

4) Business is attracting bargain hunters. This goes hand in hand with the advice given about too many sale signs and promotions. Your prices are attracting customers only looking to pay cheap. Profit margins will be thin, and any plans you had to market your products will be unsuccessful. Don’t let pricing set the value of your products and your store.

This article was adapted from Entrepreneur.com.

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