The price you choose for your product or service can be one of the most critical decisions affecting the success or failure of your business venture. Many factors will influence your pricing strategy including the intended market for the product and how you choose to position the product in the marketplace. For example, do you intend to market your product as high-end, or are you trying to appeal to the more budget-conscious consumer? Pricing is not an exact science; few entrepreneurs have the luxury of knowing what a new product might potentially command in the marketplace. Taking an inventory of competing products and charting their prices is one method that can be used to find a reasonable range of prices. The Internet is often a good resource for price discovery, but be careful to use comparable markets. If you are offering a product that no one else is selling, use the price of your closest competitor as a base, and add on some estimate of the value to consumers of the unique feature of the new product you are selling.
In the early stages of your business, you may wish to establish a price for your product that suits your intended position in the market, but offer discounts, introductory offers, and coupons. The goal is to entice customers to try your product or service without devaluing the product.
In the long run, the optimum price for your product will fall somewhere between the cost of production and what consumers are willing to pay, also called what the market will bear.
It should be noted that when a product is new to the marketplace, the entrepreneur should plan to experience short-run losses. Costs of production may be high due to inexperienced managers and inefficiencies related to a low volume of production. Most consumers are not willing to subsidize a business during the start-up phase by paying more for a product than its value to them as a consumer.
In most cases, the marketplace will define the price based on the perceived value of the product by the consumer and the amount of competition. It is up to the entrepreneur to find a way to produce his or her product efficiently enough and market it effectively enough to make it a profitable venture.