Small Business Marketing
How to Set Product Prices
Written by Brenda Stokes for Gaebler Ventures
The difference between wholesale and retail prices is going to determine how much of a profit you make. So how do you set your retail prices so that you are reasonably priced, but still making a reasonable profit?
Setting your product prices is the most important thing you will ever do in your business.
You have to set your prices so that there is a reasonable difference between wholesale and the price in which you are selling your products.
In Southern Ohio, John Gillenwater of Countryside Greenhouse says, "We set our product prices by first figuring how much it costs us to provide a quality product. We then attempt to set a price which not only allows us to show a profit but also allows our customers to feel good about their purchase.
Competition is also something that provides incentive for properly pricing your products. There are large retailers that make buying certain items very easy for the general public. You have to have pricing that competes with this convenience, as well as the low prices they tend to offer because of their purchasing power. Sometimes, it is difficult to price products as low as major retailers.
Gillenwater states, "It is sometimes difficult to maintain our business when large businesses such as Walmart, Lowes, Krogers, etc., have the ability to sell some of their lesser quality items at lower than cost pricing, while mixing in other products that are vastly overpriced."
If you are unable to price products as low as the major retailers, then you will need to rely solely on the quality of your product. You are more likely to succeed if your product is one that not everyone sells. In the case of Countryside Greenhouse, despite the pressures that major retailers place on them, they are able to achieve the competitive pricing and stay afloat due to the quality of the plants they are offering.
Proper product pricing
The proper pricing of products is what is going to make or break your bottom line. Here are some pricing strategies that you can use:
Mark-up pricing - You can add a pre-set percentage to the wholesale price. This percentage is one you use throughout the entire business.
Manufacturer Suggested Retail Price (MSRP) - A manufacturer may advertise a minimum advertised price in their ads, but may also suggest the retail price. This can give you an idea of the product price that will benefit you.
Competitive pricing - You can compare your prices to that of your competitors and price products based on this information.
Psychological pricing - This is when you price a product in a way that the customer believes it to be fair. It is all in the numbers. For instance, a customer is more likely to round down a price of $9.95 to $9 rather than $10, whereas $9.99 is easily rounded to $10 and can break a purchase.
Multiple pricing - Two for one deals tend to gain a lot of attention amongst customers.
Discount pricing - Discounting items is amongst the best pricing strategies because you still make a profit. Show the customer what the price was and what it is now and they feel they are getting a great deal.
So whether you are a small business such as Countryside Greenhouse or you are another type of retailer, how you set product prices can make a great deal of difference on your bottom line.
Brenda is a graduate of California State University and a professional writer covering a variety of business topics. To learn more about Brenda, check out her website at The Digital Inkwell.
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