Setting prices in small business

Setting a price for a small business can be a challenge.  Cut the price too much and you loose money. Raise the price and you loose business. An article in the New York Times recounts the experience of some US small business. The basic message is that price is not everything. One  business owner recounts how the quality customers gained outstrips those lost due to a perceived high price. Here’s one story

“About three years ago a computer error caused all of the prices on Headsets.com to be displayed at cost rather than retail. With the lower prices on display for a weekend, Mike Faith, the chief executive, expected sales to soar. Instead, the increase was marginal. “It was a big lesson for us,” Mr. Faith said.”

The basic lesson from this experience is that customers don’t think price is the be all and end all.  The experience of a gluten free flour business showed that competitors prices may not  matter as much as one thinks too. The company managed to raise its price by 20% in the first year in business by convincing customers that the product had more added value than competing flour. The most important lesson mentioned is that costs must be covered in the price charged.  Seem so obvious, but I have written several pieces on this blog about breaking even.