Saturday, November 8, 2008

How to maximize profits and how pricing effects this

In a capitalist society business run on many principals. One of these principals, which I've addressed in the past is pricing tolerance. This is a post from a previous thread regarding this:

I believe I used the term "pricing tolerance" let me expand by posting a portion of an article regarding this:

Random Price Testing
One basic technique to determine the Indifference Band for any give product is to quote a higher
price – e.g. $110 for any given $100 “widget” – every 20th visitor to your site (AKA randomly), and
then to compare purchase rates. If you find an increasing tolerance for the price at the high end
of the Indifference Band, you should probably consider raising the price.
Note, however, that the purpose of this exercise is to test, to gather information . . . not revenue.
In order to avoid possible negative publicity (AKA what happened to Victoria’s Secret when they
were pricing products differently to the same audience), you may wish to consider refunding the
difference as soon as the purchase order is completed by adjusting the invoice or sending a
follow-up email. “As a special customer, the $110 widget you just purchased is now only $100.
It’s our way of thanking you for your business . . . .”
Once the pricing tolerance has been identified, the price on the “widget” should be adjusted to
$110 across the board.

What I refer to is not over or under pricing. It is correct pricing. If I walk into a gallery and they are priced to the down side of my pricing this speaks to their patrons not my work. On the other hand same gallery with high side pricing may mean your work is not appropriate to hang there.

So, how to find your market position in terms of pricing:

Find what people will pay per inch x complexity of your work based solely on your market experience. Then using this simple matrix establish CONSISTENT pricing and stick to it! (I find this easy, I just look at what folks have said yes compared to no over a time period in the region I'm in) I know it sounds difficult, but look at it on the face of the issue, It Is Not. You know what people have paid in the past.

Now for the most important part. Adjust. Increase your matrix when demand calls for it, and discount as the unthinkable happens and demand diminishes and if you must sell.

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