When you go into a grocery store and find a box of cereal for $2.99 versus one that’s priced at $4, what’s the first thing that goes through your mind? It seems like a big price difference for two varieties of a commodity product, but it really is only a buck. Steve-Strauss--in-article-Medium.png

On a much larger scale, if you go out car shopping, you expect to pay more for a BMW than a Volkswagen, even though both are quality, German-made autos. The business difference is that BMW aims to sell fewer products at a higher price to a wealthier, and maybe more discriminating, audience, while VW goes for high volume and less profit-per-sale. Both are valid strategies, and both work.

You may not be selling cars or cereal, but as you can imagine, the pricing of your product or service cannot be underestimated. It has a big impact on both your brand and on the decisions of your consumer.


When you pay more for an item, you expect more from the product. The price of your product carries a great psychological impact with it. You expect more from a car that costs $50,000 than you do from one that costs $19,000. Or you might expect a tastier brand of cereal if you’re buying a $4 box as opposed to a $2.99 box. The direct correlation between price and quality in the minds of most shoppers is no secret. Your task is to use that mindset to your advantage.

For example, marketing experts say that a product with an even-numbered price is considered to be of higher quality than one with an odd-numbered price; the same office chair selling for $500 is thought of as better quality than if it sells at a different store for $389.79. So if you are seeking to sell high-end items, you might want to price them with an even number. However, if you’re looking to sell more items at a lower price, you should consider odd-numbered pricing. One study found that merchandise sold better in lots of 3 for $1.77 per item, than at $1.69 each. A price of $3.33 might also catch someone's eye.

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Certainly, when you take steps to price the products or services you offer, you need to consider both the brand that you’re creating and the customer to whom you are selling— are they high-end, low-end or something in between?

There is more to setting the right price point than simply determining your target audience. Determining your optimum price— the one that affords you the greatest number of sales at the greatest profit— is actually a four-step process.

1. Figure out your base cost: If you are selling widgets, you need to know exactly what it costs you to sell just one widget. This includes the price of materials, rent, labor, insurance, etc. Once you know that, you will know the minimum that you need to charge to break even.

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2. Determine your target market: Again, you can sell a lot of items for less money and a lower profit, fewer items for more money and a higher profit, or something in the middle.


3. Create a price that fits with your brand and image: Your price has to reinforce your existing brand and image, or else people won’t buy from you. For example, if Volkswagen started selling nothing but luxury cars, their original brand positioning would be futile, and consumers might start getting confused. Make sure that, whatever you charge, you don’t lose sight of the brand you’ve created for yourself.

4. Test your price: Your first price is not set in stone. Try pricing a bit lower, and a bit higher, and compare the results. Even s

mall business owners who have been in business for a long time should occasionally test new prices for old products. You never know, there may be a hidden gold mine in your store, simply awaiting your discovery.

What tactics do you currently use to determine pricing? Share your tips below.

About Steve Strauss


Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss


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