Dear M & M: I am stuck. I need to do something with my pricing. I really don’t have a clue how much I should charge. I know my suppliers have continually raised their prices to me. Should I just pass it on to my customers and raise what I am charging? – Jack
Dear Jack: It’s called a pricing strategy. A strategy is a plan to achieve a certain outcome.
What outcome do you need? More sales, higher gross margins, repeat customers, new customers? Or maybe you just want to move some inventory. Every business can implement several pricing strategies at the same time.
If you are a single product or service company it is OK to shift and change your strategy as you move forward. Below are a few pricing strategies used for products or services.
A value-based pricing strategy is simply setting prices based on what a customer would believe your product or service is worth. Everyone understands a competitive-based pricing strategy. This is setting prices based on what the competition is charging.
Price skimming is setting prices high to skim the top of the market or the people willing to buy at a premium price.
Cost-plus pricing is exactly what you think. It is setting a price adding a certain percentage markup based on the cost of your goods or services.
Penetration pricing is offering your goods way lower than the competition to get people to buy.
Economy pricing is keeping prices lower than the competition with the hope of making your money back with increased volume.
Dynamic pricing is constantly changing your pricing as demand for the item or service changes.
A bundling pricing example is charging $10 for a hamburger and $4 for the french fries separately or $12.00 for a hamburger with fries.
One of my favorite pricing strategies is called psychological pricing. Doesn’t $19.95 sound better than $20?
ASK M&M is prepared and submitted by Mark Schmitt, director of the Small Business Development Center at Cochise College; and Mignonne Hollis, executive director at the Arizona Economic Development Foundation. To ask your questions: Call the Small Business Development Center (SBDC) at Cochise College (520) 515-5478 or email firstname.lastname@example.org or contact the Arizona Regional’ Economic Development Foundation at (520) 458-6948 or email email@example.com; www.aredf.org.