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Setting the price

In setting the prices for your products and services, among the facts
to be considered are the reactions of your customers, the stiffness of
the competition, and the state of the economy. Strange as it may seem,
a price that’s too low can be just as much of a turnoff to customers
as a price that’s too high. Low prices are often interpreted as
signifying low value or inferior merchandise. As for the competition,
because your business doesn’t exist in a vacuum, you must recognize
the role of the other businesses in influencing your prices. You may
decide to go head-to-head with competitors on prices, matching them
dollar for dollar, or to undercut them, or to charge higher prices.
The strategy you choose is crucial to your pricing. Take care also not
to overlook the state of the economy. Unemployment, inflation,
interest rates, government policies, and levels of investment all have
an effect on consumer spending and therefore on your prices.

You must also consider another factor, the profit. If your prices are
so low that they fail to cover your expenses, or so high that an
insufficient number of people want to buy from you, the result is a
loss of profits. Your goal is to meet the demands of customers, keep
an eye on competitors and the economy, and assure yourself of
satisfactory profits.