Small Business Pricing Methods

The following are the standard small business pricing methods used in many types of businesses. There are also specific pricing strategies for promotional and discount pricing, as well as, new product pricing.

• Competitive Pricing: After surveying your competitors’ prices, you can use their average or mean prices on which to base your prices. You can decide to price above, below or the same as your competitors depending upon your overall marketing and pricing strategy.
  
  Note: This pricing method assumes your cost structure is identical to your competitors, it does not guarantee you will be profitable only competitive.

• Cost plus Mark-Up Pricing: This pricing method focuses on your cost structure as a starting point to build your price list, not your customers’ prices. Knowing your costs, you add the amount of profit margin you want to realize by each product/service you sell. Note: This pricing method will assure you achieve a predictable profit margin per unit sold; it will not assure selling prices that are competitive either with your competitors and/or with the perceptions of your customers possibly stifling sales and total company profit.

• Perceived Value Pricing: This pricing method bases the product/service price on the effective value to the customer, relative to alternative products in the marketplace.
  Note: This is similar to competitive pricing but gives prominence to the customer's perception over the competitors pricing.
  
  Note: This pricing method requires market research to determine real customer perceived value.

• Cost plus Perceived Value Pricing: Sometimes called market-oriented Pricing this pricing method combines Cost plus Mark-Up and Perceived Value pricing to mitigate the drawbacks to each. It starts with the product/service cost and then adjusts the final markup with a price relative to both the competitive and customer market price environment and not just an arbitrary profit margin percent markup.

• Premium Pricing: Use a high price where there is a uniqueness about the product or service. This method is used where a substantial competitive product/service advantage exists.

• Psychological Pricing: - In this method, the price is based on factors such as perception of product quality, popular price points, and what the consumer perceives to be a fair value. This pricing strives to promote a positive psychological impact on the customer. A popular example of this type of pricing is selling a product at $19.95 rather than $20.

• Economy Pricing: This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have the economy or generic brands for soap, spaghetti, at prices lower than branded products.

Small Business B2B Pricing Strategy Matrix

There are a number of additional pricing methods related to special circumstances, where standard pricing methods are not appropriate. One of the most popular categories is promotional pricing.

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