Product Pricing: Price your product or service

Raising or lowering prices

There will be times when you need to change your prices. But before you do, you should analyse the impact on your profitability of any proposed price change.

There are two key questions you will need to answer:

1. What effect will the price change have on the volume of sales?
2. What will the effect be on the profit per sale?

Remember that if you are increasing prices, your profitability can still rise even though your turnover may drop.

If you are increasing your prices, always explain to your customers why you are doing it. You can use the price change as an opportunity to re-emphasise the benefits you offer. A good explanation can also strengthen your relationship with a customer.

There are ways that you can hide price increases. For example, you might:

• introduce new, higher-priced products or services and make old, cheaper ones obsolete
• lower the specification - and your costs - while maintaining the same price

But be aware that hiding price increases can risk adverse reactions from customers if they realise what you are doing.

You should never take the decision to lower prices lightly. Low prices often go hand-in-hand with poor-quality service - is this the image you want to create for your business?

Concentrate on building profits rather than cutting prices to build up sales. In most circumstances, your customers decide to buy from you because of the benefits you offer, along with your price. It is rare for the decision to be made on price alone.

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