For businesses, it’s essential to learn to properly set prices due to the fact that if you charge too much, customers won’t buy. If you charge too little, you’ll fail to make a profit. But there’s enough room between those two extremes to confuse even the most savvy of business owners and marketers. Just how do you set your prices to make the most of your sales?
While pricing isn’t an exact art, there are a few common pricing mistakes that I see many businesses make. By planning your strategies to avoid these errors, you’ll reduce your losses and increase your bottom line.
1. Failing to Surge Price
As Duetto Research points out, successful hotels base rates on consumer demand. Customers know even before they plan a vacation that they’ll pay more for rooms on weekends, holidays, and peak times of year. This same business model is being implemented by other businesses, including crowdsourcing services like Uber and Lyft.
Don’t be afraid to adjust your pricing to reflect seasonal demands. Have big sales on some items to bring in interest during peak traffic times but also raise rates on some services to make up for those sales.
2. Ignoring the Competition
Customers today are engaging in multi-channel shopping, researching products on mobile devices, PCs, and in stores before making a purchase. For that reason, businesses can’t afford to ignore what their competitors are doing. If an item is lower priced online, a customer could very easily order the item directly from a smartphone while standing in your store. Sign up for some of the price-watching services your customers are doing to make sure each of your items is priced competitively.
3. Pricing Too Low
While it may seem the best way to win customers is to offer bargain-basement prices, you can actually price your products or services too low. Some customers see that low price as a sign of low quality and move on to another brand. Instead spend time showing the value of your products and charge the rates you feel customers will pay for them. This can be tricky but looking at what competitors are charging for similar items can help. (See #2 above)
4. Basing Price on Cost of Manufacturing
Often when choosing a price, a company will look at the cost of manufacturing the item and getting it in the hands of customers and price accordingly. A product may be marked up ten or twenty percent, for instance, regardless of what the market will bear. This can be a mistake because customers may be willing to pay much more for an item you only paid $.50 to make.
Consider conducting market surveys to determine the best price, as well as researching similar items, and try pricing based on that, rather than your own cost plus the profit you want. This will allow you to scale your business even more than before.
5. Becoming Stagnant
Businesses hate to raise prices, fearing they’ll scare off loyal customers. But this can be a mistake. Over time, leaving your prices exactly the same will lead to a gradual loss of profits that will hurt your business. Instead consider occasional price increases and offer additional benefits in exchange for the increase.
You may offer free in-store returns of online purchases, for instance, or VIP events where your most loyal customers get special discounts. You can also raise your prices but increase the number of coupons and special sales you have throughout the year to show customers they’ll still be able to get a deal.
Pricing your products or services may take a keen eye on the market, but with careful research, you can set your prices perfectly. You’ll remain competitive while also bringing in enough of a profit to grow your business. You’ll be surprised how understanding your loyal customers are of your need to price your items in a way that is competitive, yet honors their value.
This article was syndicated from Business 2 Community: 5 Pricing Mistakes That Are Killing Your Profits
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