![]() You’re trying to increase the distance between you and your competitor. “And if you lower your price, I’m going to lower mine by more. “In an aggressive stance, you’re saying ‘If you raise your price, I’ll keep mine the same,’” says Dolansky. The weakness with this approach, Dolansky says, “is that it leaves you vulnerable to not making optimal decisions for yourself because you’re too focused on what others are doing.” Aggressive pricing By doing this, you’re maintaining the status quo.Ĭo-operative pricing is similar to the way gas stations price their products for example. Their two-dollar price cut leads to the same on your part. A competitor’s one-dollar increase leads you to hike your price by a dollar. In co-operative pricing, you match what your competitor is doing. You can take one of three approaches with competitive pricing strategy: Co-operative pricing That’s competitive pricing strategy in a nutshell. “If I’m selling a product that’s similar to others, like peanut butter or shampoo,” says Dolansky, “part of my job is making sure I know what the competitors are doing, price-wise, and making any necessary adjustments.” As a producer of such products, you can stick to your usual cost-plus pricing and lose out on potential profits or you can price your goods based on how customers value your product. For example, if you’re selling insect-repellent products, one bug-filled summer can trigger huge demands and retail stockouts. The major drawback of cost-plus pricing is that the customer is not taken into consideration. Analyzing their value and prices becomes a more worthwhile exercise. Ignore that 80% of your inventory and instead look to the value of the 20% that really contributes to the bottom line, which may be items like power tools or air compressors. It would not be an effective use of your time to analyze the value to the consumer of each nut, bolt and washer. Let’s say you own a hardware store offering a large number of items. Retailers, manufacturers, restaurants, distributors and other intermediaries often find cost-plus pricing to be a simple, time-saving way to price. This strategy brings together all the contributing costs for the unit to be sold, with a fixed percentage added onto the subtotal.ĭolansky points to the simplicity of cost-plus pricing: “You make one decision: How big do I want this margin to be?” The advantages and disadvantages of cost-plus pricing Many businesspeople and consumers think that cost-plus pricing, or mark-up pricing, is the only way to price. To choose the right price within your customer’s acceptable range, consider the main factors that affect price:Ĭhoosing the right pricing strategy 1. Price floor and price ceiling Enlarge the image Above this price, you lose the sale because the customer feels that your price exceeds the value he or she gets from your offer.īetween the floor and ceiling sits a price your customer will find acceptable. The ceiling, or highest price, is the number at which your customer values your offer. In the chart below, the floor of your pricing is your total costs for what you’re selling. Your customer needs to find that your price falls within their range of what’s acceptable, and your ability to price is constrained by your costs. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund ![]()
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