University of Maryland Extension

Where to begin

Author: 
Ginger S. Myers, Extension Specialist, Marketing, University of Maryland Extension and Kim Rush Lynch, Extension Educator, University of Maryland Extension

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Setting your price requires knowing who your customers are and what they are willing to spend on products like yours. It is vital to know your cost of production per item type since pricing below that will mean marketing at a loss. It also requires knowing your competition. You already have a vital piece of the puzzle for determining price from your earlier market research.

Customer demand. How many units of your product can you plan to sell over the production season? The demand for your product is driven by consumers tastes, consumer income, and the availability of other products like yours at different prices. What are your competitors charging for products or services similar to yours? Assess how your offerings measure up in terms of quality. Customers almost always do quality comparisons before they buy. If you only determine your competitor’s price and then charge a little less, it’s no guarantee of success. Being the lowest priced product on the market could create just the opposite effect, because for most customers, buying a product isn’t just about price, but rather about value. These are competition-oriented approaches to pricing that you’ll recognize:

  • Customary pricing. This is when the product “traditionally” sells for a certain price. For example, packs of candy or chewing gum usually cost a predictable amount.
  • Loss-leader pricing. This approach works on the premise of losing money on certain very low priced advertised products to get customers in the door who will buy other products at the same time. Grocery stores use the loss-leader approach, stacking sale items on the end of aisles so customers must pass shelves of other products before getting to them.

    Loss-leader pricing might also be used to sell off or stimulate interest in products considered to be in maturity or in a declining stage of their life cycle. For example, discounting prices in the final hour of a farmers’ market can reduce losses from produce not sold that would not last until the next market.

    Once you have determined your price you may want to consider some special adjustments such as quantity, seasonal or cash discounts. Be cautious when using discounts or sales to attract customers. If you use them too often, customers will come to expect these lower prices all the time.

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