Setting price

If you follow that you are in business to make a profit, the following model helps explain how your business works;

The manufacturer is the maker of the product and supplies this product to the market, i.e. the buyers, at a set price. If the price is set at the correct level and there are enough buyers, then the manufacturer makes a profit - simple !

But, if a manufacturer sets the price at a level where no profit is generated, who actually wins ? The buyers may get a good deal in the short term but their chosen manufacturer will eventually go out of business. But the buyer then moves onto a new manufacturer and the cycle starts again.

Setting the correct price is not easy but manufacturers must build their business on the premise that their product(s) will achieve some brand loyalty that will generate the profit levels required and keep them in business over the longer term.

Too many manufacturers set their price at a level where they believe the buyers will be happy to pay - this is a false starting point and will only lead to one end. Manufacturers must commence their business planning by answering some fundamental questions; why are they in business ? what levels of profit do they want to achieve ? what product(s) will they offer the market ? how will these generate brand loyalty ? 

I have come across too many companies setting price at a level to match what they believe to be the competition and what they believe their customers will pay. Often, these companies are very busy but make no profit ! Some even sale very little and also make no profit.

Clearly, buyers will not pay any price, they do want to feel ripped off or feel as though their tight budget is being squeezed by a greedy manufacturer.

Setting price at the correct level is one of the most important tasks of any company - get it right and the company will make a profit.