Pricing strategies

Once you have your product, you need to define what price you’re going to set it at. Obviously a big part of this will be based on the market research you will have conducted in finding out how much people would be willing to pay. But you still need to ensure that your pricing strategy will not only stimulate demand, but also cover your costs. There are several different types of pricing strategies, a few are listed below:

  • Cost plus – calculate your costs, and then add on a percentage which gives you your retail price
  • Loss leader – selling your product at cost or lower than cost price in order to attract people to the other products which you sell
  • Market-orientated – setting your price depending on what your target market say they are willing to pay
  • Penetration – setting an initial low price to help you enter the market and gain market share, before raising the price in the future once these targets have been achieved.
  • Skimming – setting a high price, sacrificing high sales, but making up for it by the higher profit margin on those products you do sell

There are several more pricing strategies; however, these are the main ones to consider initially as a start-up.

Some of these may not even be appropriate. For example, if you only have 1 product in your portfolio, a loss leader strategy would not be an option. Similarly, if you are not an established brand within the market place, skimming is unrealistic as consumers are only likely to pay higher prices for a brand they know and trust.

That leaves 3 realistic strategies: cost plus, market-orientated and penetration. As you are a start-up, covering your costs is essential, particularly if this is your sole method of income. But your pricing strategy could then be a mixture of other strategies. If you are in a heavily populated market place, and your USP isn’t clearly visible, penetration pricing could be a good option in order to establish your product. Similarly, it is always important to find out what the consumer thinks and what they are willing to pay, so your pricing strategy needs an aspect of market-orientated pricing about it.

Whichever you choose, ensure that you calculate accurately your costs and that your price reflects a healthy profit margin. As your business expands and you add other products to your portfolio, or your market share differs, you change your strategy. So as with everything with start-ups, your initial decision doesn’t have to last a lifetime.

Thank you for all your views and support thus far, have a Merry Christmas and see you in 2013!

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The positives of ‘failure’

The word failure has such negative connotations, but can be defined in such a variety of ways. In sport for example, Christine Ohuruogu, the 400m runner who competed in the London 2012 Olympics, may feel that she ‘failed’ by getting a silver medal rather than a gold. However to anyone else, that medal represents her being the second fastest female 400m runner in the world…no mean feat! The same is true in business. According to a Harvard Business School report conducted in 2011, 90-95% of start-ups ‘fail’ to achieve their original revenue projections. However, the majority continue trading and many go on to be very successful, just with revised figures.

Even in what many consider to be the ultimate failure for start-ups: having to cease trading, there are undoubtedly lessons learnt, and experiences gained which will help you in the future. This is definitely something I’ve found with Access Regional. I spoke in an earlier post about the bumps in the road we’ve had along the way. Setting up a business is a monumentally steep learning curve, and the easiest way to learn is from mistakes you make. This has helped me, and I’m now in the process of creating a second company, which is running far more smoothly than the first given the pitfalls I know to avoid this time.

It is easy to take the negatives from the current job market too. Like everyone, I’ve had my fair share of job rejections, and it’s very easy to get demotivated by it – a stage I went through, as I’m sure everyone else does. However, even then, there can be positives: experience of writing job applications, experience in interviews, or if all else fails, hopefully it will fuel your desire to succeed next time.

I am not saying that failure should be sought out, far from it, but it is part and parcel of life and business, particularly in start-ups. So before you get depressed thinking that your start-up has encountered a failure, step back and look at what the damage actually is, then the lessons you have learnt from it. Even if you have encountered the ‘ultimate failure’ and your company ceases trading, I can guarantee that you won’t make that same mistake again with your next company! 

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What’s my U.S. what….?

You may have come across the acronym USP before, but if you’re not familiar with business, have had no idea what it stands for. First and foremost, a USP is a Unique Selling Point (or Proposition to some). Fundamentally, this means something that helps you stand apart from competitors. This may give you your ‘competitive advantage’ – your advantage over your rivals.

This can come in many shapes and sizes, but a lot of the time, companies try to express it in a simple slogan showing how they do things better or differently from others. A good example is Subway, whose slogan, ‘Eat Fresh’, implies that their product is freshly made; giving them the edge over competitors who may sell pre-prepared packaged sandwiches.

In order to identify what makes you unique, you need to analyse your business and concept and ask yourself a few questions. If you’re first to market (so no competitors yet exist), your USP is obvious as the very nature of you creating this market makes you unique. However if you’re entering a market with existing competitors, ask yourself a few of these questions:

  • What do you do? Is there a key service which you offer which others don’t?
  • How do you deliver your business? Is there a special way in which you conduct your business, maybe quicker turnaround or free delivery?
  • Who are your customers?  As well as age and interests, location could provide something new; do customers exist in other parts of the world that do not currently have access to the product?
  • What does the consumer want? Do they want low-cost or high-quality, or do they want a ‘personal touch’ when buying the product.

Hopefully within those questions, you’ll find something unique about you. If you don’t, analyse your competitors and ask consumers who currently buy their products what ‘extras’ they would want or what they wish could be provided which is not currently on offer. Your USP could in fact be you, and your experience and knowledge within the sector.

Unless you’ve unearthed an untapped market, chances are you’re going to be competing with more established and experienced rivals, making it absolutely crucial that you can attract customers by standing out from the crowd.

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