Question:

I own a low-price, high volume kind of place. I think there is money to be made in a more high-end concept. The problem is that we have no experience with this sort of pricing. How do I price items this way?

Answer:

Implied in your question is an important concept: The price of a product or service is an important aspect of the product's image and brand.

The price of your product carries with it great psychological impact. Therefore, it is imperative to understand how to price items accordingly.

When you pay more for an item, you expect more from the product. You expect more for a car that costs $50,000 than you do from one that costs $19,000. That there is a direct correlation between price and quality in the minds of most consumers is no secret. Your task is to use that mind-set to your advantage.

For example, marketing experts say that products with an even-numbered price are considered higher-quality than those with an odd-numbered price. For example, a stereo selling for $200 is thought of as better and higher quality than one that sells for $189.99. If you are seeking to sell high end items then, price them with an even number.

If you want to sell more items at a lower price though, consider odd pricing. One study found that merchandise sold better in lots of 3 for $1.77, than $1.69 each. A price of $3.33 might also catch someone's eye.

So certainly, one of the first things to consider is whether you are seeking to sell to a more affluent clientele or not, and price accordingly.

But there is more to setting the right price-point than simply determining your target audience. Many entrepreneurs make the mistake of charging whatever their competitors charge. "If it works for them, it will probably work for me" goes the thinking. While likely true, that sort of lazy attitude can also mean lost profits.

Determining your optimum price - the one that affords you the greatest number of sales at the greatest profit - is actually a five-step process.
1. Figure out your base cost. If you are selling widgets, you need to know what it costs you to sell one widget. This includes your cost of materials, rent, labor, insurance, etc. Once you know that, you will know the minimum you need to charge to break even.
2. Decide whom your target market is going to be. Again, you can sell a lot of items for less money and a lower profit, fewer for more money and a higher profit, or something in the middle.
3. Create an image to go with your pricing: Your image has to reinforce your price, or else people won't buy from you. If Volkswagen started selling nothing but luxury cars, their entire brand would be worthless.
4. Create a price that fits this image: If your middle of the road competitors sell their products for $19.99, and you are going high-end with a high-end store, then you should sell a better quality product for $35.
5. Test your price: Your first price is not set in stone. Try it a bit lower, and higher, and compare the results.

Even small business owners who have been in business for a long time should occasionally test new prices for old products. You never know, there may be a hidden goldmine in your store, simply awaiting your discovery.

 

Steven D. Strauss

Author of The Big Idea: How Business Innovators Get Great Ideas to Market