Mistakes to avoid when setting a price

It´s through the sale of goods and services that companies live. For this, the price must be think out carefully and planned. Establishing prices in a business is demanding, since it is essential that the responsible person present´s knowledge in accounting, management, economy and marketing area. Therefore, this parameter require a special attention from companies, contrary to what often happens, leading to mistakes in this regard. In this article, we consider some that we think should be avoid. Establishing lower prices Reduce your products or service prices without taking measures to reduce the associated production costs is completely wrong, if you want to do this, try to adapt these costs in order to be able to cover them later. By the way, this mistake in very common, because in the beginning it allows easy entry into the market, however it affects the way that consumers view our company. Despite being seen as a good strategy it is necessary to make a careful analysis of the feasibility before putting it into practice. Establishing higher prices The main objective of this practice is achieving a market position for the company right from the start, reaching a less price sensitive market segment, in order to attract customers and achieve prestige at an early stage, to make the company more solid on the market. We frequently associate this with skimming, which means assign prices above the market average to obtain competitive advantage. However, our product needs to differentiate itself from the competition, bringing something new, in order to justify the prices difference and consequently to attract customers. Otherwise, we will not be able to retain the customer, and he will be looking for something more attractive and of the same type, for a lower price. Production costs aren´t expected to fully influence prices When setting a price we clearly should count all the production costs associated, however it is not only define by these factors. It´s fundamental that the sale of product or sale is able to cover the fixed and variable costs associated with the production or provision of the same and must still allow the collection of profits. However, we must also attend to the value that a potential customer can offer to our service and understand what it is willing to pay for it. When fixing prices we should already take the future expenses and not just consider the costs associated with their production or performance. Price diversity The price diversity works as a competitive advantage. Therefore, the company achieve many types of customers and target audiences. People like to choose and getting involved.We have the example of the strategy used by the fast food companies, that have a variety of different sizes, and in the case of mobile phones, the strategy is offer several ranges associated with one or more products where price changes and where, many times, the small details make the difference for many. Establish the price according to the competition Although in the Marketing area it is mention that price is never a differentiation or positioning strategy, it must reflect and reproduce the product/service quality which is introduced and that often differs from the competition. The same way, the costs, competition profit margin of the competition will certainly not be the same, so the PVP must be adjust to the reality of each company.