| One of the essential elements for a small business | | | | customer's greatest concern. Reasons to justify |
| owner to assess before starting a small business is to | | | | customers paying higher prices include: - |
| understand their market. This is crucial and the data | | | | * service considerations, including delivery, speed of |
| that is collected will one determine how to | | | | service, satisfaction in handling customer complaints, |
| appropriately price their products and/or service. | | | | knowledge of product or service, and helpful, friendly |
| Assessing a market helps small business owners | | | | employees; |
| define their goals, analyze their competition, and | | | | * a convenient or exclusive location; and |
| develop a unique selling proposition. Marketing research | | | | *exclusive merchandise. |
| also assists in: | | | | Price Lining |
| *creating a primary and alternative sales approaches | | | | This strategy focuses on carrying a product or service |
| to a given market, | | | | in a specific range. For example, a store may wish to |
| * making profit projections from more accurate | | | | attract customers willing to pay more than $50 for a |
| databases, | | | | purse. Price lining has certain advantages: |
| * organizing marketing activities, | | | | * ease of selection for customers, and |
| * developing critical short- and mid-term sales goals | | | | * reduced inventory and storage costs. |
| and establishing the markets profit boundaries | | | | Multiple Pricing |
| There are specific questions that potential the small | | | | This approach involves selling a number of units for a |
| business owners should seek to answer while doing | | | | single price, for example, two items for $1.98. This is |
| their research. These questions include: | | | | useful for low-cost consumer products, such as |
| * Who are the customers? | | | | shampoo or toothpaste. Many stores find this an |
| * Where are they located? | | | | attractive pricing strategy for sales and year-end |
| * What are their needs and resources? | | | | clearances. |
| * Is the service or product essential in their operations | | | | Cost Factors and Pricing |
| or activities? | | | | Every component of a service or product has a |
| * Can the customer afford the service or product? | | | | different, specific cost. Many small businesses fail to |
| * Where can a demand for the service or product or | | | | analyze each component of their commodity's total |
| service be created? | | | | cost, and therefore fail to make a good profit. Once an |
| * Can one compete effectively in price, quality and | | | | analysis is done, prices can be set to maximize profits |
| delivery? | | | | and eliminate any unprofitable services. |
| * How many competitors provide the same service or | | | | Cost components include material, labor and overhead |
| product? | | | | costs. Material costs are the costs of all materials |
| * What areas within the market are declining or | | | | found in the final product, such as the wood, glue and |
| growing? | | | | coverings used in manufacturing a chair. |
| Research on Competitors | | | | Labor costs are the costs of the work that goes into |
| Research on competitors is extremely important. | | | | manufacturing a product. An example would be the |
| Some ideal places to complete additional research on | | | | wages of all production-line workers producing a |
| competitors include visiting industry trade shows to find | | | | certain commodity. The direct labor costs are derived |
| out what competitors are selling and how they are | | | | by multiplying the cost of labor per hour by the number |
| market their products. Similarly, staying current on | | | | of personnel hours needed to complete the job. |
| industry magazines and publications is helpful as well. | | | | Remember to use not only the hourly wage but also |
| Marketing research is not something that ever stops. It | | | | the dollar value of fringe benefits. These include social |
| should be an essential part of an overall marketing | | | | security, workers' compensation, unemployment |
| strategy and plan for any small business owner. | | | | compensation, and insurance and retirement benefits. |
| Pricing Products and Services | | | | Overhead costs are those not readily identifiable with |
| There are several pricing strategies one can select for | | | | a particular product. These costs include indirect |
| a small business. The small business owner should use | | | | materials, such as supplies, heat and light, depreciation, |
| the approach that will make their good or service the | | | | taxes, rent, advertising, transportation and insurance. |
| most competitive and increase profits. Common pricing | | | | Overhead costs also cover indirect labor costs, such |
| strategies are pricing below the competition, pricing | | | | as clerical, legal and janitorial services. Be sure to |
| above the competition, price lining, multiple pricing, and | | | | include shipping, handling and/or storage as well as |
| identifying cost factors and then pricing accordingly. | | | | other cost components. Part of the overhead costs |
| Pricing Above the Competition | | | | must be allocated to each service performed or |
| This approach will reduce the profit margin for a sale. It | | | | product produced. The overhead rate can be |
| requires the following: | | | | expressed as a percentage or an hourly rate. It is also |
| * obtaining the best prices possible for raw materials | | | | important to adjust your overhead costs annually. |
| or inventory, | | | | Charges must be revised to reflect inflation and higher |
| * locating the business in an inexpensive area or facility, | | | | benefit rates. It's best to project the costs semiannually; |
| * closely controlling the inventory, | | | | including increased executive salaries and other costs. |
| * limiting product lines to fast-moving items, | | | | Understanding one's market and pricing products and |
| * designing advertising to concentrate on price specials, | | | | services accordingly, is very important part of any |
| and | | | | small business and an area that should be assessed |
| * limiting non-essential services. | | | | carefully. Completing this important step will help a small |
| Pricing Above Competition | | | | business have an edge over their competition and can |
| This strategy is possible when price is not the | | | | help increase profits. |