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Tips To Ensure Right Pricing

Your pricing strategy is important for two reasons. For one thing, the difference between what you pay for products or services and what you charge customers determines your margin, which has an immediate effect on your business’s profitability. Also, price directly affects the demand for what you have to offer—if they are right, prices have the power to attract customers.
In making your pricing decisions, 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’s the suggested retail 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, whether it’s perishable, scarcity, richness, commodity, or other?
Narrowing the decision-making process even further, give careful consideration to your specific pricing objectives:
Return on investment. Establish 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. Prices should produce a specified percentage increase in overall store 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.
If you stock mostly branded goods, then your pricing will be largely determined by the competition, either locally or nationally, because there aren’t usually large variations in the prices charged by the major brands to small retailers. After all, a pair of Levi’s 501 jeans is the same product wherever it is purchased, and it’s readily identifiable, so the only comparison a customer needs to make is on the price. On the other hand, if you have products made especially for you or if your products are mostly unbranded, then careful price planning can provide profit opportunities.
Pricing strategies
The most commonly used pricing strategy retailers can employ is cost pricing. Simply stated, you calculate all your expenses—direct and indirect—then add a profit. The second strategy is competitive pricing. This involves meeting the going price for similar products in your local market. The cost you paid isn’t taken into account here. Finally, market-value pricing looks at what the market will bear. This pricing is generally used for unique products or services that have few or no competing products on the market. You can take higher markups here.
Price points are the specific prices you choose within your price line. They’re important because research indicates that more people will buy an item at one price than at another—even if the difference between the two is only a few cents. Suppliers can often help you select the best price points. For example, should you sell an item for $12.95 or $13.50? Stay with the lower price as long as a sufficient gross profit and store image can be maintained.
Applying these three pricing principles can help you achieve your business goals:
Divide your price lines into three zones: prestige, popular, and competitive
The prestige price zone is the one at the top of the line that will improve the image of your store and enhance the rest of the line, but not chase customers away. The popular zone is in the middle, where most purchases are made. The competitive zone is at the bottom, where you might price an item simply to compete with another store located nearby. All prices in a line can fall into any of these zones.
Try to find merchandise that will fit into your predetermined price lines and points
Savvy buyers are specific with their vendors. (“Do you have a silk sweater set that I can retail at $39.95 and get my regular markup?”) Such a buyer knows what will attract customers under current market conditions. Price predetermination is a self-disciplinary skill you’ll want to acquire. Setting specific price points before going to vendors can keep a new entrepreneur from starting out with the wrong inventory.
Be careful not to lock yourself into fixed lines and price points
There are many reasons price lines must be adjusted upward and downward and price points changed. Stay abreast of economic conditions, consumer buying habits, and your competition in all channels.

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