06.08.07
Setting Your Price Point
It’s not always easy to know if you are setting your prices too high or too low. You know if you set it too high, customers won’t buy and too low and your’e basically “giving the store away”. So, as a small business owner, how do you know you are setting a realistic and competitive price point?
Kent Monroe, a professor at the University of Illinois at Urbana-Champaign, who has been teaching the subject of pricing nearly 37 years says consumers and business people alike make a common mistake. They often assume that price has everything to do with cost. According to Monroe quoted in a recent FastCompany article, that’s wrong. ”You have to know the cost so that you can understand the profitability implications of price,” says Monroe, “but not for the purpose of setting price.” Businesspeople assume that if they are in a competitive situation, and prices drop, they have to match. Wrong. “The natural tendency to match is foolish,” he says. Executives who are devoted to using “data” in all kinds of other arenas think it’s perfectly acceptable to set prices based on “history” or “experience” or “instinct.” Wrong again.
To read more of determining price points, click here.
