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Setting Prices: How Do You Decided What Price to Charge?

How do you decide what price to charge?

How well is that working?

As I sat down to write this post the lyrics of an old Johnny Lee song, Lookin’ for Love, came to mind.  Most business owners/leaders look at their competitors’ pricing when establishing prices.  That’s the wrong place.  Here’s why.

Most of us know the shortcomings of our offerings and immediately ascribe higher value to our competitors’ offerings – even though we know that there are aspects of our offerings that outshine theirs.

A better alternative is to look at businesses who target the same market you do, but who don’t compete directly with you.  For example, if you’re selling mid-range bourbons like Seagram’s VO instead of its high-end Crown Royal or low-end Seagram’s 7, you might want to check the pricing at a J.C. Penney’s store to see how their prices compare to Nordstrom’s and Walmart.  You’ll quickly get a sense for the types of price premiums these organizations are getting what premiums are available to you as well.

Don’t just choose one group though, you could get a distorted view of the market.  In our example, in addition to looking at J.C. Penney’s you might look at confectioners to see how mid-range chocolates are priced versus the high and low-end chocolates.  Or you could look at the premiums that Toyota gets for its Camry versus the Avalon or Yaris.  While the premiums might be less for a big-ticket item like a car, this kind of comparison can help you establish a floor for the premiums you charge.

It’s counter-intuitive, but looking at non-competing companies who serve the same markets you do can provide a more objective evaluation of what premiums are available to you than you’ll get  from looking at your competitors’ pricing.

Author – Dale Furtwengler