Some business owners think they set their price once, and that's it. But that approach will lead to a lot of lost profits, lost time, and potentially confused customers. Due to variances in economic conditions, seasonal changes, and the introduction of new products and innovations, small business product pricing should be revisited often.
There are dangers in getting product pricing wrong, such as underpricing your products, which can damage your revenue, and overpricing which can deter your customers. Above all, always knowing your customers’ wants and needs is the most important thing.
There are different types of product pricing strategies: competitive pricing, which is basing your price off your competitors, demand pricing, which measures consumer demand into the pricing, and cost-plus pricing, which takes into account operating costs in order to maximize profit margins. The first strategy, competitive pricing, requires researching your competitors’ prices.
It's generally considered to be an effective strategy to start your price high and then reduce as needed if demand is low. If an item is constantly selling out, it's clearly an indicator that demand has gone up. Customers would be willing and accept paying more for a product that is "hot" and in high demand.
You can determine which products aren't selling by analyzing holding costs. For these products you can make a decision to lower the price to entice sales. But consider this decision carefully—don't think that lowering prices will automatically bring in customers. This isn't true. In fact, inaccurate and below market pricing is what causes a lot of startups and small businesses to fail.
Today, it isn't as easy as just looking at what all of your competitors are doing and matching them. While you must do market research in your small business product pricing strategies, you also need to take into account your company's operating costs and your profit margins.