Pricing

3. Pricing Strategy

3.1 Take account of the constraints on your business. For example:

• Investor requirements (eg high short-term returns or long-term growth) and other external influences.
• Your financial resources and your production capacity.
• Your cost structure (see 4).

3.2 The most appropriate strategy will depend on how you want to position the product.

• In many markets, a high price contributes to the perception of a product as being of premium value.
• You may want to establish consistent pricing across your product range, or to position individual products 'up' or 'down' market.
• Different strategies may be appropriate at different stages in the product's life cycle.

3.3 You can charge higher prices if high barriers to entry will prevent the emergence of new competition.

For example, if you have a patent, special skills or strong customer loyalty.

• Customers will be more loyal if purchasing an unsatisfactory alternative carries significant risk to them.
• If barriers are low, you may want to limit your prices (and achieve a merely acceptable return on capital employed) in order to avoid encouraging new entrants.

3.4 You may want to charge different prices for different customers.

• Customers who purchase repeatedly, or buy add-on or related products, are the most valuable.
• Customers who are expensive to satisfy (eg demanding special features or service) will be less profitable, unless you can charge them higher prices.
• One-off sales generally carry far higher costs than repeat business.