SETTLING ON a particular price for a product or service is one of the most difficult things an entrepreneur must decide on and competition does not help the situation much either. You need to consider the following factors before you can decide on the price.
Competitors may cut their prices to a shocking level and leave you wondering if they are making money at all. Instead of rushing to price cutting so as to attract customers or avoid looking like the black sheep, you should first hold onto your current price. Observe how the sales behave. If the sales drop drastically, then the price needs to be revised downward. If not, then I would prefer that you stick to your price. Sales may not be affected because customers may interpret the price drop in different ways. While others could interpret it as to mean that they are offering products that are low in quality and no wonder the low price, others may think that products from your company to be of superior quality and hence they do not mind digging deeper into their pockets. The loyal customers may still prefer your products even after the rest have slashed their prices. Slashing the prices can cripple down your business and you might end up closing shop.
Another way of dealing with price cuts from competitors is to introduce other products that are not currently in your line of products. Introducing other products that may have bigger margins which may compensate for the price slashes could be another way of dealing with price cuts from competitors. Design other products that are more unique in the market. This ensures that only a handful of competitors can compete with your products.
Expand on the free content. This means that services that are offered free of charge such as advice and tutorials can be given more time. This will even attract more customers. Still on the prices, it would be interesting to note that customers who love the price cuts are the pushy customers. They are those who love bargains and are usually rude and demanding. In such cases, it is better to get rid of them this way and be left with happy customers who are less demanding.
Businesses should start with setting themselves apart from other businesses because if one provides products that are in the market, you cannot be shielded from price wars. Unique products cannot have such competition.
You can price your products depending on factors such as the demand curve, the cost of production, environmental factors, and what you are planning to achieve. An entrepreneur has to look at the demand and determine how the pricing will affect the demand. The cost of production has to be put into consideration because the main reason why an entrepreneur is in business is to make a profit. The gross margin must be able to cover the fixed overheads.
