Gone are the days when business owners can rely solely on their intuition to ensure success. With so many choices available, today’s customer can afford to be picky. Hence, modern businesses, including those in the home business sector, must utilize all available tools in marketing in order to establish their presence in the market and gain an edge over competition. One of the tools home business owners can use is the marketing mix.
The marketing mix is not a new concept, but it is a fundamental approach to creating a successful marketing program. The marketing mix calls for the right combination of elements: product, price, place of distribution, and promotions. They are the four Ps of marketing and they are inter-related. If you want your home business to succeed, you should integrate your strategic plans for all the four P-elements. This article focuses on one of the four Ps: price.
You may have the best product in the world but if your pricing is off, you will still have difficulty in marketing your product. How you set your price will influence your decisions regarding the product you are offering, your distribution system, and your promotion plans. For example, if you want to set your price low, your costs must also be low, which means you might have to sacrifice a few features of your product or do away with middlemen. And this (your low price) is what you must communicate to your target audience. Thus, be clear about your pricing objectives, whether you want to maximize your profit potentials or generate as much sales as you can even at a narrow margin. Perhaps you feel comfortable at your present profit margins so you will want to make sure your prices stay as they are. What you want your prices to achieve for your home business will determine the pricing strategies and methods you adopt.
If you wish to earn the maximum profits, you will want to skim the market, which means setting your price at a high level. This strategy will work if customers are not concerned about the high price of your product. It is also the logical thing to do if your resources are limited and you cannot produce the volume that can give you large cost-savings. On the other hand, you may have to use the penetration pricing strategy if the market is price-sensitive and so you must set your prices low. You can afford to take this route only if you can foresee a significant increase in the demand for your product if price were reduced. Then again, if you slash your prices suddenly, your competitors might follow suit and that could be the start of a price war.
There are several methods you can use in setting your prices. With the cost-plus method, you add your desired profit margin to your production cost to get your selling price while the target return pricing focuses on the target return on investment (ROI). If you use value-based pricing, you will need to determine the effective value of your product to the customer in order to set your prices. And if you are dealing with a superior quality product, you can always adopt the psychological pricing method.
Although what you normally work on is your list price, you can still enjoy greater flexibility when quoting prices to your customer by using discounts. There are various ways and reasons to give discounts. For one, you can grant outright discounts to buyers of large quantities or base the discount on the cumulative purchases of your customers. Seasonal discounts can help bring in sales during lean months. You can also give a short-term promotional discount anytime of the year when you need to stimulate sales. If you want to improve your cash flow, you may want to give cash discount to customers who pay their bills before a certain date. Still, there is the trade discount that you must give to your distributors or retailers so they bring your product out to the market.
As you go through the process of price setting, do remember that pricing is not a be-all and end-all. Any modifications on your pricing will affect the other components of your marketing mix so monitor what works and what does not and make the necessary adjustments to ensure the success of your home business.
When Should the Holiday Shopping Season Start?
Could you be Defined by the CRA as a Personal Services Corporation?
What is Inventory and why is it Important to your Business?
What is the Difference Between Office Supplies and Office Expenses on Your Business Taxes
Ideas for a Halloween Business
The Top Mistakes New Freelancers Make
Five Skills You Need to Learn Before Starting Your Own Business
Does Your Small Business Need a Consultant?