Are You Charging "The Ideal Price?"

Larry Galler
 


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The price you ask for the products and services is critical.

If you charge too much customers leave and go to the competition. If you charge too little then profits are diminished, sometimes to the point of loss. So the right price is somewhere between “too much” and “too little. ” I’d like to advise you to charge “The Ideal Price” but have to admit that unfortunately there is no such thing as the “Ideal Price. ”

So how do you establish the prices you charge? A simplistic overview of pricing strategies covers a wide range of options. Some charge a percentage markup of the cost because that is the “industry norm. ” Others charge a price based on pricing charged by their competitors. Those with excess fulfillment or production capacity can increase sales volume and profits by lowering prices while others choose a pricing structure based on what they think their customers will pay.

Complicating the pricing conundrum is the fact that some customers will pay more for a given product if, for some reason, they find more value or have a greater need while others will only purchase that same service when the price is reduced by being “on sale, ” with a rebate, or via negotiations. An example is the pricing differentiation in air travel; there are substantially different prices for the same flight depending on whether the ticket is purchased two weeks or two hours in advance and there are different prices depending on the amenities one wishes to purchase (coach / business class / first class).

No matter what you sell and the pricing structure you currently use, consider your pricing strategy based on the goals you have established for growth, profit, and market share. Basing your prices on an industry formula, your competition, or the costs associated with delivering your product is the starting point but, if you can add value and deliver your product / service in the manner you customer most desires, it is quite possible that you can raise your price while your customer gains more satisfaction from the transaction. When you can do that, you’ve found the “Ideal Price. ”

Larry Galler coaches and consults with high-performance executives, professionals, and small businesses since 1993. He is the writer of the long-running (every Sunday since November 2001) business column, “Front Lines with Larry Galler" Sign up for his free newsletter at http://www.larrygaller.com Questions??? Send an email to larry@larrygaller.com

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