5. Read the text again and say if the following sentences are True or False:

1. It is very important to price your product properly.

2. There are only two hardships you can meet in pricing.

3. If you price your product for too low, the customers can think that it has low quality.

4. If the price is too high, the customers can think that it has high quality.

1. You should undertake a market research to know your customer.

2. You can undertake some market research: ask your potential clients personally or hire a market research firm.

3. When pricing it is better to factor in only the price of one item.

4. The price of a product includes several components.

5. You can support higher price only if your product has additional value or higher quality.

6. You should always monitor your prices and profit.

6. Answer the following questions:

1. What can happen if you price your product correctly?

2. Why shouldn’t you set too low price?

3. Why shouldn’t you set too high price?

4. How can you conduct a market research?

5. Why is it important to know your target customers?

6. What costs should you factor in when pricing a product?

7. Why should you look at the competitors?

8. Do you need to consider regional differences in pricing?

9. What is the best way to monitor your prices?

10. How do you think, do small businesses need to be more careful when pricing their product?

11. Imagine that you sell handmade staffed toys, what price would you set up? What would you factor in when pricing?

How to Price Your Products

One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome.

At the same time, be aware of the risks that accompany making poor pricing decisions. There are two main hardships you can meet – under pricing and over pricing.

Pricing your products for too low a cost can have a disastrous impact on your bottom line, even though business owners often believe this is what they ought to do in a down economy. Remember that consumers want to feel that they are getting their "money’s worth" and most are unwilling to purchase from a seller they believe to have less value. Businesses also need to be very careful that they are fully covering their costs when pricing products.

On the other hand, overpricing a product can be just as unprofitable since the buyer is always going to be looking at your competitors pricing. Pricing beyond the customer's desire to pay can also decrease sales. Business people sometimes price too high from the beginning. They think that they have to cover all the expenses of people who work for them, the lease, etc. and this is the price to do all that.

Undertaking some sort of market research is essential to getting to know your customer. This type of research can range from informal surveys of your existing customer base that you send out in e-mail along with promotions to the more extensive and potentially expensive research projects undertaken by third party consulting firms. Market research firms can explore your market and segment your potential customers in detail - by demographics, by what they buy, by whether they are price sensitive, etc. Then you can figure out which segment you're targeting and price accordingly.

A fundamental principle of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs. Overhead costs may include fixed costs like rent and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product. 

It's also helpful to look at the competition - after all, your customer most likely will, too. Are the products offered comparable to yours?  If so, you can use their pricing as an initial gauge, then, look to see whether there is additional value in your product; do you, for example offer additional service with your product or is your good of perceived higher quality?  If so, you may be able to support a higher price.  Be careful about regional differences and always consider your costs.

Another key component to pricing your product right is to continuously monitor your prices and your underlying profitability on a monthly basis. It's not enough to look at overall profitability of your company every month. You have to focus on the profitability (or lack of profitability) of every product you sell. You have to make absolutely sure you know the degree to which every product you sell is contributing to your goal of making money each month. Remember: "People respect what you inspect."

Adopted from: http://www.inc.com/guides/price-your-products.html