Monday, February 4, 2008

Why is Research So Important

My last post touched on a few sources to check out when you are researching for your new business. As I said, it’s imperative to starting a business. You want to know as much as you can when you are putting together your business plan. No amount of research will prepare you for every single thing you come across once you actually start, but it will give you a level of confidence to get over any hurdle you come across. Not to mention prepare you to not only sell your product and possibly secure the business loan you may need to get started.

Pricing – What is too high or too low?

Before I started my business, I spent a lot of time researching similar products and what the price point was for that product. Many of the books I suggested in the last post will provide you with a formula and walk you through pricing a product, whether it’s wholesale or retail. I sell both wholesale and retail, so I actually have two price points. Without using these formulas and following their advice, you run the risk of under pricing or over pricing your product. Both of which can be fatal. (Click here for a document provided by the SBA on pricing a product.)

Under pricing can eat away at your profits and you may not even realize it. Over pricing can be detrimental to sales, resulting in no profit at all. You must consider several factors when determining your price; such as cost of raw materials, cost of your time or employees, packaging, etc. These formulas walk you through that process.

I have changed my pricing many times over the course of 6 years. I initially priced my product at a low price. I thought I was being competitive by undercutting my competitor, but soon realized I was actually giving the perception that my product wasn’t as superior as theirs. My sales were okay and I even had retailers balk at the “high” price. Oddly enough, when I raised my price by $8 to match my competitor’s price, I not only got more sales, but the balking stopped. I can only assume that retailers believed my products were worth that price instead of being a cheaper version of my competitors.

Don’t panic. If you get it wrong the first time, you can always adjust the pricing. It’s not going to kill your business, unless you just don’t pay attention to your bottom line. And remember, it’s always easier to go down in price, than to go up. Aside from the typical price increase due to manufacturing costs, those are expected, within reason. Luckily for me, I raised my prices early in the game before I was really out in the market place.

The Competition

Competition also plays a part in pricing among other things. You want to stay competitive in your market if you want to sell anything. But that doesn’t mean you have to price it the same as your competitors. There are other factors to consider.

Are your products of a better quality? Is your customer service superior? Is your turnaround time faster? All of these factors can warrant a higher sale price. But be realistic, don’t convince yourself your items are of better quality unless you know for a fact they are. I have purchased many competitors products to personally inspect their products on quality. Don’t go by the picture on the internet, because as we all know photos can be deceiving and colors can be altered. Also, you don’t want to miss-represent your product to your customer; they WILL know in the end and won’t hesitate to tell you so.
Keeping Up

Checking out the competition is important. It’s important to know how their products are made, what they promise their customers and what their rankings are in the search engines. I regularly do searches for my keywords on Google and yahoo to see where I pop up in that list. Are your competitors buying keywords on these search engines? Are they advertising? Are customers finding their websites before they find yours? Have they introduced a new line? All of this has an affect on your sales. Although you don’t want to be consumed or obsessed by your competitors, you do want to periodically check them out. Believe me, they are checking you out! Here's a great blog on Competition and how it's good for your business!

Don’t let all of this scare you, it’s not as complicated as it all seems. I promise! A little research will give you the confidence you need in setting your prices. It will let you know what you are up against with the competition and help you put together a game plan for launching your product.

1 comment:

Carrie-in-TN said...

London, this is a great post! Thank you. I needed some reminding.