Sample Paper on Pricing

It’s no secret that small businesses play a vital role in the US economy. However, most non-employer small businesses average just $44,000 a year in annual revenue, with many of these companies earning $25,000 or less. While various factors can affect a business’ revenue potential, one of the most important is the pricing strategy utilized by its owners.

Good pricing strategy helps you determine the price point at which you can maximize profits on sales of your products or services. When setting prices, a business owner needs to consider a wide range of factors including production and distribution costs, competitor offerings, positioning strategies and the business' target customer base.

While customers won’t purchase goods that are priced too high, your company won’t succeed if it prices goods too low to cover all of the business' costs. Along with product, place and promotion, price can have a profound effect on the success of your small business.

Here are some of the various strategies that businesses implement when setting prices on their products and services.

1. Pricing at a Premium

With premium pricing, businesses set costs higher than their competitors. Premium pricing is often most effective in the early days of a product’s life cycle, and ideal for small businesses that sell unique goods.

Because customers need to perceive products as being worth the higher price tag, a business must work hard to create a value perception. Along with creating a high-quality product, owners should ensure their marketing efforts, the product's packaging and the store's décor all combine to support the premium price.

2. Pricing for Market Penetration

Penetration strategies aim to attract buyers by offering lower prices on goods and services. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business.

Over time, however, the increase in...