Home-Based Business Pricing Methods: Competitive Pricing
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Home-Based Business Pricing Methods: Competitive Pricing

Competitive pricing is generally used when there is an established market price for a particular product or service. To employ competitive pricing properly and effectively, it is imperative that you know exactly what prices each of your competitors has established.
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Competitive pricing is generally used when there is an established market price for a particular product or service. If you do windshield repair and replacement and all your competitors are charging $100 for a replacement windshield, for example, that's what you should charge. Competitive pricing is used most often within markets where it is difficult to differentiate one product from another. If a major player in the market acts as the market leader that company will often set the price that other, smaller companies within that same market will be compelled to follow.

To employ competitive pricing properly and effectively, it is imperative that you know exactly what prices each of your competitors has established. Call your competitors and ask for their pricing information. You don't have to tell them that you are starting a similar business; just say you are interested in their products and/or services. Determine what price you would like to set in an optimum situation. You must then gauge your prices against the market as a whole and decide based on direct comparison, whether you can defend the prices you have set. If you wish to charge more than your competitors, you have to be able to make a case for the higher price, such as providing a superior product or offering additional services. For instance, if you run a windshield repair service and your competitors charge $100 for a replacement window, you can charge more if you offer something extra: window tinting at no extra cost, a money-back guarantee, or on-site replacement (meaning you go to your clients' home or place of business). In your marketing and advertising efforts, call attention to these extra services in order to justify the higher price.

Before making a final commitment to your prices, it is advisable to determine the level of price awareness within the market.

If you wish to use competitive pricing to set the fees for a service business, be aware that, unlike a situation in which several companies are selling essentially the same products, services vary widely from one firm to another. You could conceivably charge a higher price for better quality of service and still be considered competitive within your market.

For example, if you are a wedding coordinator, you may offer your clients more choices when it comes to hiring a photographer, florist, or caterer. Or, you may provide services such as honeymoon travel plans for the bride and groom, or travel planning for out-of-town wedding guests. Extras like these can give you a competitive edge even if your prices are higher.

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Comments (1)
David Smith

I found this article informative, thank you.

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