Feb 10
22
Learn from an ex-FBI Agent! (Part 2)
If you haven’t done so already, read part 1 to this post.
Where you set your prices can actually make or break your business. When starting out, most companies cripple themselves by trying to be the low-price leader. This is a naive way of thinking.
First of all, the right way to set your prices should be based on a combination of production/operation costs and your desired perceived value and profit objectives – not what the competition is charging.
The reason why is that you don’t know what they’re costs are. Maybe they are more efficient at manufacturing. Or they get lower wholesale pricing. Or there marketing is more effective. Set your prices on what you do know, not what your competitors know.
Let’s say it costs you $10 to make whatever it is you sell. These costs include everything… production, labor, insurance, utilities, rent, marketing, taxes… everything. To “beat” the competition by a buck, you set your retail price at $14. In order to make $100, you’d have to sell 25 units.
On the other hand, if you raised your price to $20, all you’d have to sell is 10 units to make $100. It’s multiple times easier to find 10 people willing to pay $20 than it is to find 25 to pay $14. All you have to do is add value to what you sell in order to set yourself apart (better packaging, faster service, free delivery, etc.).
Anyway, there’s more to say about pricing, but as promised in the last post, I was going to tell you how to win in a low price war. The secret is… nobody wins!
Prices can only go so low right? And there will ALWAYS be someone out there that is willing to make less than you. And the lower you go, the closer you get to zero.
This is a failing business model. True, it works for Walmart, but when you get the vast distribution equal to the world’s top retailer, then you can have the tagline, “Always low prices, always!”
~Brodie