4. General Pricing approach. Value based pricing, everyday low pricing (EDLP) and high-low pricing. Value based pricing
Source:http://www.smallbusinessnotes.com/operating/marketing/pricing/valuebased.htmlHow high can a price be before the product or service is priced out of the market?To understand the customer's perception of the value of your product or service, look at more subjective criteria such as customer preferences, product benefits, convenience, product quality, company image and alternative products offered by the competition. * How do your customers describe what they get for their money? * Do they save a great deal of money or time by purchasing your product or service? * Do they gain a competitive advantage from using your service? * Is it more convenient to use your service rather than try to do it themselves? * What are the customer's choices? * What does the competition charge?With this information, you can begin to understand the maximum price the customer will pay for the benefit received. Often, a customer may think it's worth paying $75 per hour for the convenience and security of dealing with a local business, rather than a paying an impersonal chain $30 per hour. If the customer, however, is only willing to pay $30 per hour, you have to ask yourself whether you can make any money in this business.A few value-based pricing strategies are listed below that take into account the break-even point, but are heavily weighted with subjective judgments - not just the numbers. * Price the same as competitors. This strategy is used when offering a commodity product, when prices are relatively well established (such as with professional services) or when you have no other means to set prices. Your challenge then becomes to determine how to lower your costs so you can produce a higher profit than your competitors. * Establish a low price (compared to the competition) on a product in order to capture a large number of customers in...
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