Pricing strategies play a big role in successful small businesses.
Business owners who know when to adjust prices consistently outperform the competition while pricing novices never seem to find the traction for steady growth.
Although pricing scenarios should be assessed on a case-by-case basis, there are certain instances in which it almost always makes sense to change your prices.
When you have negative cashflow.
If your company is bleeding cash it could be because you have priced your products or services way too low. Unless your pricing structure is capable of covering your costs, you won't have a healthy business. Determine how much it costs to produce your products or services, then adjust your prices accordingly.
When demand nosedives.
Demand is the canary in the pricing coalmine. If demand suddenly plummets following a price increase, then you need to change your prices back to the original level ASAP. But what if demand drops without a price increase? It could mean that your competition has found a way to offer the same product for a lower price and you need to explore ways to match their pricing structure.
When demand skyrockets.
Conversely, if your products are flying off the shelves or if the phone is ringing off the hook for your services it's probably time to think about raising your prices. Will you lose a few customers? Maybe. But that's okay because the price increase will generate increased revenues and unless the new price is exorbitant, most of your current customers will continue to buy your product at the higher price.
When you're in a competitive market.
Companies in competitive markets live and die by their ability to surf the tides of pricing strategy. In a competitive marketplace with similar product offerings, price becomes the primary way companies differentiate themselves from the competition. Cost still plays a role, but in competitive environments prices constantly change based on the movements of the marketplace. If you can't adjust your pricing to the marketplace, you simply won't survive.
When you have differentiated your products or services.
Differentiation is the process of separating yourself from the competition by presenting a unique value proposition, a reason that warrants a higher price for your products or services. Once you have differentiated your products, it's time to increase prices. If the marketplace responds badly to your price increase, then your attempt at differentiation has failed and you will need to either redouble your efforts or come up with a new plan.