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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