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Pricing a new product

August 7, 2009

Pricing a Product:

The ideal price for any product or service is one that is acceptable to both buyer and seller.

From the buyer’s standpoint, the right price is a function of product purchase value and other competitive choices in the marketplace.

From the seller’s viewpoint, there are many potential pricing objectives. But the basic concern for almost all small businesses is to price products to maximize both sales and profits, while providing enough margins to take care of applicable marketing and overhead expenses.

The following steps are recommended for determination of product pricing for any size business,

1.      Analyze the size and composition of your target market.

2.      Evaluate product’s uniqueness.

3.      Select channels of distribution.

4.      Consider product life cycles.

5.      Analyze costs and overhead.

6.      Estimate sales at different prices.

7.      Consider secondary pricing strategies.

8.      Select final pricing levels.
Analyze the size and composition of your target market:

* In setting prices for product or service, one of the first calculations must do is to estimate approximately how large potential sales volume could be, based on a reasonable assessment of potential market share in the product category, at different price levels.

* Knowing the size of the existing market is critical to determining if there are enough customers to establish and grow a business.

* In an established market, in order to sell your product you must cut into your competitors’ market shares.

* Also you will make some Secondary market research questions like,

Who will you compete against?

What are their strengths and weaknesses?

Are any direct competitors vulnerable to your products?

Are any competitive products priced too high or not providing product “value” for the price?

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