How to Create a Pricing Strategy for New Businesses
The pricing strategy that you implement for your new business is one of the most critical components for its success, and establishing the right prices for the products and services that your company provides involves a delicate balance of several factors. Simply put, prices that are too high will deter people from working with your company, yet prices that are too low may undervalue the importance and quality of the products you provide. Now that you’ve poured your efforts into building a sustainable business, it is time to develop a strategy that ensures a successful launch.
Perform a Market Pricing Analysis
Your first step to develop a pricing strategy is to understand how your company fits into the current market. For instance, you may need to choose lower, more competitive prices if your business will be marketing to the same target audience as multiple other retailers. If your business provides a unique product or service that is not currently saturated in the market, then you can expect to set the prices higher.
Understand the Target Audience
As part of your marketing plan, you should already have a few buyer personas that give you a better idea of who will be purchasing your company’s products and services. Now, you will use those personas as well as information from your market research to figure out how prices are perceived by the people that you expect to frequent your business. For instance, products that are designed for families with young children may need to be more price sensitive compared to a business that offers luxury products or packages to people who prefer designer goods and are willing to pay the price for quality.
Research the Competition
While keeping the target audience in mind, you now need to consider what other companies have similar products and services. Ideally, you should be able to identify at least three of your main competitors as well as a few companies that provide indirect competition. Now, take a look at how they price their products. Do they sell value-added packages or offer steep discounts on certain items? If so, then you may need to provide similar types of options to remain competitive in the market. Alternatively, you could set your business apart from the competition by offering a completely different pricing strategy that taps into your target audience’s needs better.
Choose Pricing That Fits Your Goals
Effective pricing strategies should always meet the defined goals for your company. In most cases, your goal when you are first launching your business is to break into the market. For this type of situation, penetration pricing may be the answer since offering dramatically low prices in the beginning can attract customers to your company’s products. However, you still need to make sure that you do not set the prices so low that you turn customers away once you bring them back up. Promotional pricing helps to avoid this common dilemma since it sets the expectation from the beginning that artificially low prices are only temporary.
The right pricing strategy for your business should increase profits without being so high that it stops customers from trying your products. While you may need to set your prices lower in the beginning to stand out from the competition, you should also remember that pricing strategies should remain fluid. Be sure to check the pricing strategy as you launch new products or the market experiences a change so that you can always be sure that the prices set increase profitability for your company.
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