Whether you’re selling a product or a service, there are some key considerations to keep in mind when setting prices
Determining pricing can be one of the trickier aspects of business. A quality product or service will attract attention on its own, but the right price point can go a long way in ensuring sustained success. Is a down economy the right time to lower your cost, or is it a perfect opportunity to bump it up? Are there any disadvantages to staying the course? These factors weigh heavily when making the best decision for projected growth.
When it comes to setting a price, Robert Schindler, a professor of marketing at the Rutgers School of Business-Camden, and one of the world’s leading pricing scholars, says that there are two situations—setting a first-time price (a new product or one that is new to the seller) and modifying a price for existing items. One of the first things to consider is the item’s value, which varies from its price. Schindler, who recently authored the book Pricing Strategies: A Marketing Approach, says there are a lot of factors that go into value, including the convenience of getting that item from a particular location.
“A hammer is more than a hammer,” he explains. “If the shopper doesn’t buy the hammer at your hardware store, maybe they’d have to go to Home Depot. Maybe that’s a lot farther away and maybe that store won’t give them the same kind of specialized attention your hardware shop does. These are the types of factors that might allow you to price your hammer a little higher.”
While many South Jersey businesses report the desire to raise prices, the economic downturn has made it difficult. Ed Letts, who co-owns Stoveworks in Medford says that increasing prices isn’t a reality right now. Even though he’s selling a product that has the long-term potential of saving the buyer money because of the high cost of fuel prices, he’s found buyers are struggling in the here-and-now, and that makes keeping prices low a priority. “If you and your husband are fearful you won’t have a job in the future, you’re not going to worry about an investment that saves you money in the long run,” he says. “You’re going to worry about whether you have enough money for your family. Raising prices in this kind of market is not a possibility for me.”
Ultimately, for any business, the stability of the marketplace is what’s going to drive pricing up or down. “That’s the main factor,” says K.C. Isdaner, chief operating officer at The Bloom Organization, a third-generation real estate development, construction and management firm based in Mount Laurel. “Where I’m coming from… in commercial real estate, we are not really seeing buildings being built, so it comes back to space being vacant right now.”
When business is getting done, Isdaner cites three areas that help drive pricing within the industry. Who is the company signing the lease, a national versus local company? How long is the lease? And what type of tenant improvements have to be made? “Those three factors heavily impact pricing as well,” he says with an optimistic view toward the future. “Pricing is currently below 2008 levels, but higher than 2010. None of those marketing strategies apply to us; [our] pricing is dictated by the market, by supply and demand.”
For Stuart Weiss, owner of Viking Furniture in Cherry Hill, it’s not only the economy, but the Internet that has made pricing a battle. “With consumers having more access to information through apps like ShopSavvy, it’s challenging to hold firm on prices,” he admits. “A customer can just scan the barcode of an item or even go to a specific manufacturer’s website and find a product cheaper or with free shipping. With the economy the way it is, we’re to the point where we have to do what it takes to close a sale, whether that means lowering the price or throwing in free delivery.”
One of the most common marketing tools used in attracting customers is “just-below pricing,” which are 99-cent or 99-dollar endings. In a meta-analysis that Schindler conducted he found that this can be a great strategy in some products but it doesn’t always work. “In situations when the customer really cares about price such as branded goods or gasoline, you should use 99 endings,” he advises. “When price is the bottom line, 99 endings do attract customers because it makes the product seem less expensive—particularly when the first number changes such as going from 50 dollars to 49.99. It’s an emotional reaction.”
But with that being said, when price isn’t all that matters, the 99 endings can actually have a negative effect. “They can create the idea that a product is cheap or that the seller is of questionable integrity,” Schindler says. “So there are definitely products you don’t want to do those endings with such as anything luxury or anytime you’re trying to create a relationship with the customer.”
Schindler says this is particularly true of businesses that offer a service, where there can be a real psychological impact on the way price is set. “Round number endings for a service just seems classier,” says Schindler. “And reputation is what it’s all about with service. A price of $400 for a paint job just appears more serious than $399. Even though it’s essentially the same price, saying $399 seems a little bit more like you might nickel and dime the customer.”
In the end, though, it seems that all buyers are looking for is the most bang for their buck in this economy. For Stacey Blacker, owner of Red, White & Brew, a boutique liquor store in Mount Holly, that has led to thinking outside the box and creating an entire “experience” around selling her products. “I do a ton of wine tastings, dinners, and presentations,” she says. “In this market you have to differentiate yourself and be creative.”
Blacker says she hasn’t changed the way she’s marked up bottles, but she has had to retool the way she does business. Acceptance of a new reality of what customers are spending has helped her weather hard times. “Right now the average bottle of wine in my store is $15,” she says. “I had to accept the fact that people aren’t coming in for $100 bottles of wine like they used to. Now they might come in and buy a couple bottles of $10 and $20 wines. Buyers value their dollars more than ever and I try to cater to that. I go out of my way to find things that are top quality for my customer’s hard-earned dollars.”
Published (and copyrighted) in South Jersey Biz, Volume 1, Issue 10 (October, 2011).
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