Costs go up, and they go down in this business. Production – distribution – marketing – all of these things become part of your expenses, and we’re still not even talking about what you pay your employees. Sometimes, the hardest part about running your business isn’t really the logistics of getting goods from one place to another, but the question of what price to set for the goods as they are being offered to buyers or consumers is sometimes a headache. It can make you or break you, and there’s nothing worse to see than a great dealer with an equally good product, who has priced himself out of the running. It’s even worse to see when the mistake could have been avoided so easily. Today we’re going to talk about the art of pricing, and how it can give you a competitive advantage.

This can be a complex and lengthy topic to discuss, so we’ll just stick to a few that come up in conversation the most, in order to give you a good idea of what kind of strategy might be best for your business. If you’re a first-time seller or Internet retailer that wants to establish yourself in the market, then the subject of pricing your goods will be extremely important from day one of opening your doors to the public.

Let’s look at Cost-based Pricing, and see what it means to you. Some marketers call this “mark-up pricing,” when a profit percentage is simply added to the cost of the goods that are being sold. In other words, you buy something for a price, and then determine that there’s a percentage you’d like to be making, once the product sells. This is one of the most popular and easy ways for retailers to set their prices, especially if they are running small, independently owned Internet stores. Sometimes you don’t even really know the price of the goods in their parts, but after packaging them and preparing them for distribution, you’ve got a good idea what you’ve spent on them so far. This method works for this kind of situation, too.

Planned Profit Pricing is a good one for manufacturers, and those who have control over the increase or decrease of production. You decide what kind of profit you’d like to make overall, and set your prices according to unit price. It’s necessary to do break-even analysis first, though… because this kind of pricing doesn’t really take competition or demand into account.

Competition-based Pricing has some advantages that the others don’t. It allows you to be simultaneously focused upon your industry and your competition, too. As long as you have good information about what your competition is doing, you can adjust your prices to keep yourself attractive to customers. Of course, this means you need good research and perhaps even some demographic data on your target market.

Sometimes using a Customer-based Pricing strategy works, because it allows you to come into the market at a point that is immediately perceived as customer-centric, and a good value. Knowing what the customer thinks is crucial in this situation, and one downside of this approach can be from poorly educating the customer about your product. If they don’t know how good it is, they won’t attach a lot of value to it. However, once you’ve properly educated them, they’ll be glad to pay for quality.

If your products are unique, then you may need a different approach to setting prices. How specialized is your product? Is it the only one of its kind, or can it be easily copied and reproduced by a cheaper source? These are very important factors to consider, especially if you take low-cost labor markets into consideration, for their ability to produce knock-offs and counterfeits of your original design.

Penetration Pricing could be the key to getting your foot in the door in a new or tough market. This is basically eating some profit for a certain amount of time, until you feel that you’ve gained enough market share, brand recognition, and loyalty from customers. Unfortunately, it also means that you’ll immediately lose a lot of those customers when they see the price jump up, and they will almost certainly start looking around to find something that comes closer to your original price. On the other hand, you’ve made a name and now it’s easier to bring new customers in who haven’t been exposed to the introductory offer.

Finally, you could try Price Bundling if you want to make merchandise move out the door. It’s as simple as it sounds; just put some items together, and sell them as a set. It helps a lot to push dead inventory out with the hotter merchandise, and I often elevates the perception of value, if you put the right goods together.