Decide on your basic pricing philosophy: Will your prices be above the market, competitive or below the market? You may have already answered this question when you decided what kind of business and image you wanted and formulated your business plan.
Pricing for profit is vital to your business. But pricing should not be driven by profit motives at the expense of fair, ethical tactics and competition. Profits should be the result of smart business, not a means to an end. With good business relationships and products priced correctly, you will generate sufficient sales to provide the capital you need to stay in business and enjoy some profits.
In making your pricing decisions, you need to answer these questions:
- What prices are shoppers willing to pay for the merchandise?
- Where do you want to be in comparison with your competitors’ pricing equal, above or below?
- What is the suggested real price proposed by the supplier?
- What are the qualities or characteristics of the merchandise that influence a shopper’s perception of quality and value-style, perishability, scarcity, richness, commodity or other?
Narrowing the decision-making process even further, give careful consideration to your specific pricing objectives:
- Return on investment: Establish retail-selling prices that will yield a specific return-of-profit percentage on your investment.
- Maximum profit: Set prices designed to produce the highest possible profit percentage you can expect to earn on the goods you sell.
- Sales increase: Work up prices that should produce a specified percentage increase in overall shop sales. Usually this involves reducing prices to sell more merchandise.
- Improved cash flow: Establish short-term prices to bring more sales dollars into your business.
Sometimes feelings of guilt are involved in pricing. Some price specialists claim that most consumers with limited discretionary income often have guilt feelings about buying certain items, especially non-necessities.
However, if the retailer can appease these guilt feelings, the customer is more apt to buy. Therefore, consider giving incentives to buy expensive items, give a shirt, or tie away with a three-piece suit.