It doesn’t take much to make or break a small business and pricing strategy is the chief amongst those factors. If a small business is careful about its pricing strategy, it can have the benefit of a long life, strong customer base and price improvement in its later years. Most small businesses assume that having a low price strategy would win it for them. There is more to pricing than a simple lowering of prices. The following two points should be kept in mind:
#1 Lowering Prices Does Not Necessarily Increase Sales
You cannot depend on pricing alone, if you are a small business. The simple reasons are that larger businesses would have better resources than you to lower their cost and would, thus, make more profits than you. In such a case, low prices could really hurt your business. The following points could be considered –
- Analyze Your Competitors Thoroughly – The analysis has to be with a greater perspective that involves things apart from price. What is their customer base – are they targeting the higher income groups or budget buyers? Do they provide any value added services which make their product more attractive? Your questions should be such that the entire pricing strategy of the competitor comes under scrutiny and not just individual elements.
- Determine The Ceiling Price – Most businesses make the mistake of assuming the highest price that the market has to offer as the ceiling price of the market. Ceiling price can be found out by a thorough survey that involves not only customers from the markets but experts who have the requisite knowledge to determine ceiling price.
- Analyze The Industry – You need to analyze the industry in which you are working. Try to find out the factors that influence it and in what direction demand and supply go due to changes in those factors?
#2 Avoid Price Wars
Price wars are responsible for the death of many businesses and needless to say, small businesses suffer more than large ones. Some things to consider:
- Focus On Exclusive Products – If you have a product that no one else has, you are protected from price fluctuations.
- High Maintenance Products Should Be Dropped – Find out about your products that entail a high cost of maintenance and don’t even have a decent customer base. It is always prudent to drop these products.
- Develop Your Own Brand Name – A brand would last you longer than any of your products. A brand not only gives you a customer base but a loyal one that buys your product repeatedly and even promotes it. Hence, it is necessary that you focus on building your brand.
As a small business, your focus should be to develop strategies with solid foundations. Price wars and cutting prices can have a detrimental affect on your business.