 |
|
|
| Think of cost as the floor–you must set prices above the floor to cover costs or you will quickly go out of business. (If you decide to set prices at or below cost it should be for a temporary, specific purpose such as to gain market entrance.) Think of customer "perceived value" as the ceiling–this is the maximum price customers will pay based on what the product is worth to them. This is sometimes described as "what the market will bear." |
|
|
|
|
| Perceived value is created by an established reputation, marketing messages, packaging, and sales environments. An obvious and important component of perceived value is the comparison customers and prospects make between you and your competition. |
|
|
|
|
| Before you can decide upon a fair price for your product, you need to know how much it's costing you. You'll need to know this no matter which pricing method you use. Once you've identified costs, you can determine your break-even point. This is the point at which you neither make nor lose money in producing a product or delivering a service. This establishes the floor pricing for your product. |
|
|
|
|
| First, establishing a high price to make high profits initially. This strategy recovers high research and development costs or maximizes profits before competitors enter the market. Second, increase cash flow by setting a low price on one or more products to make quick sales to support another product in development. Third, set prices to meet a desired profit goal. For example, if the desired profit per unit is 20 percent and unit costs is $10, set your price at $12. |
|
United States
(change country or region)