Can I ask you all a stupid question?

[tatiana1]

Originally Posted by Humanoid

The idea that you have to price competitively with similar business is not all that accurate.

In the extreme case you have things like Veblen goods, which completely violate the standard supply/demand curve. Veblen goods are products that are desired because of their high price, if you lowered the price you'd likely sell nothing. With most product classes there is a huge range of prices for what amounts to the same product packaged/branded in different ways.

With the business I'm involved with we produce a number of goods all of which are priced very competitively (less than the majority of other similar businesses). We target the "budget market" and we do very little advertising as the prices drive sells. There are some other similar businesses that are selling the same goods (there is no different in quality etc) for more than double ours, but they have a rather good marketing machine and spend a lot on advertising. So, despite the products being very similar, they've created a brand/image that gives their products a "specialness" that ours do not.

Anyhow, you shouldn't be thinking about what price you "need" to sell a product first. You first need to think about what market segment you want to sell your product to and then determine what price the market is likely to bare. With some markets if you price too low the product won't sell.

There is also the issue that you don't need to sell your product for one price. Almost every major business utilizes some form of price discrimination (usually via market segmentation) to sell their products for a variety of prices. The basic idea behind price discrimination is that you want to know what the maximum each client is wiling to pay for your product and charge them that amount. Of course, there is no way to know this so you have to use a variety of strategies to approximate matters.

Thanks guys! You've all given me "food for thought", so I guess I have a long way to go before I say I'm finished. My homework has only began. Again, thanks to all!!!

[Padgett2]

Another thing to look at is how much of your sales figure do you expect to be cash, and how much credit card.

For example, a local company that I know of, sells high quality bedding at a good price. Naturally, they will have more credit card than cash sales. They do not take a certain name-brand card as the service fee would cost them an additional 1%. That's 1% could make a difference in whether or not sales for the month could pay the bills.

If you extend credit to your customers, don't forget that Slow Pay and Bad Debt customers will break you even if business is good.