Pricing is one of the trickiest aspects of any business, but it is especially hard for entrepreneurs who are fairly new in their markets. Reuben Swartz writes an excellent blog on pricing, and I just found his Dangerous Pricing Advice post where he adds a fourth mistake to the list in Three Mistakes: When Pricing Your Products from Forbes.com. The three mistakes Forbes lists are:
* Pricing for the Short-Term
* Ignoring the Competition
* Not Keeping Customers in the Loop
and Swartz adds his fourth: Failing to consider value pricing. He makes a good point. So how do you know the value people place on your products — or services? Ask them and they’ll invariably tell you a lower price than they might actually pay. That’s human nature. The more research you do the closer you’ll come to an answer, but that takes time.
The main thing you need to decide early on is whether you’re going to try to do value-based pricing. It all depends on your market and customers. Are they the sort of customers who will seek information about value and pay for it? Is your product or service in a category where value pricing makes sense? If it does, then the investment of some time to find what customers value can mean greater profitability down the road.