July 22, 2014

Pricing

The Price Is Right

Determining the value of your product or service early on is crucial.

Jeff Zbar | 1/1/2005
Roy Moore knows you only get one chance to price your product right for the market. He bought Marinize Products Corp. in Hollywood in 2002. Its popular product, RustAid, was widely available at Lowe's, Home Depot and Wal-Mart. For 14 years, the rust removal solution has been priced at just under $8 a gallon, or almost a third the price of its closest competitor. TIPS: KNOW YOUR LIMITSWhat's your product or service worth? By studying competition, customers and costs of doing business or bringing a product to market, service and product providers can better set the price of their products, says Lee Goldring, a partner with Centerboard Group, a Parkland product development consultancy. Consider these questions before setting your price:

- What's the demand for your product? Do consumers want it? And what are they willing to pay to get it?

- Will lower price equal higher volume? Being priced below the competition could drive sales higher.

- Will lower costs equal higher revenue? Lowering your costs to produce, package or ship a product may result in greater margins and profits. And it's often easier than attempting a price hike.

- Know your breaking point. If your best retailer threatens removal from store shelves rather than boost the price, Moore says, "Are you going to take that risk for a 3% price increase?"Given cost increases in production, packaging and distribution, a hike might be warranted. But Moore knows better than to hit up his retailers for a price increase. They'd certainly balk, given that they have refused increases to much larger companies, he says. Instead, Moore figures the lower price likely will result in more unit sales, boosting revenue.

Product pricing often is a one-shot opportunity. "You have to price your product right the first time," Moore says, "and that's the highest price you'll ever receive for your product."

Even consultants or retailers offering a service like graphic design, spa treatments or haircuts have to ensure a profitable pricing model when the service debuts, as customers aren't likely to accept an increase.

Katie Adler's two businesses offer a combination of products and services in stores and online. And because one company, children's etiquette store Miss Katie's Charm School, serves two distinct audiences, one in an upscale area of Fort Lauderdale and the other in more cost-conscious Plantation, pricing is a complex, constantly changing issue. Adler frequently checks competitors' prices to make sure she remains competitive. She also runs Glo Spa, a medical spa in South Beach.

The industry standard of doubling the wholesale cost of a product to arrive at a retail price won't work in the age of the e-commerce, Adler says. She differentiates her product by providing special touches that raise the perceived value.

Meanwhile, Moore says he's trying to make sure he doesn't get stuck with an underpriced product again. When GreaseAid debuts this quarter at around $5, its package will be similar to RustAid's to promote brand awareness. And it will be priced to deliver strong sales -- and he hopes solid revenue. Because he knows he'll probably never get a chance to boost the price, Moore is concentrating on increasing efficiencies and reducing costs.

"The bottom line is you have to look at ways to optimize your manufacturing and packaging and learn how economies of scale will allow you to maintain your margins," he says. "That is a constant struggle."

Tags: Florida Small Business, Business Services, Entrepreneur

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