Setting Profitable Prices: A Step-by-Step Guide to Pricing Strategy--Without Hiring a Consultant, + Website

Chapter 4

Environmental Factors That Can Affect Your Pricing

In-a-Rush Tip

Read under the headings “The Economy” and “Competitors,” but you can skip the rest of the chapter. However, skim the headlines to make sure you aren’t skipping a critical area for your industry.

Environmental Factors Overview

Environmental factors that marketers consider in setting prices are factors that are beyond the control of the company. They include:

• The economy
• Competitors
• Government regulation and legal
• Social trends
• Technological change

The Economy

The economy can have a large influence on the optimal price for your new product. But, it won’t affect all prices, so a knee-jerk lower price in a bad economy isn’t your smartest move. Following are some observations based on my years in pricing products and services:

• Don’t be the first competitor to lower prices in a bad economy. Here’s why:
  • Your customers won’t feel any extra loyalty to you for it; in bad economies, consumers think lower prices are just what they deserve. They absolutely will not love you for it—or even thank you for it.
  • Your competitors will probably then lower theirs, resulting in lower prices becoming etched in stone.
  • Maybe if you don’t lower prices, neither will your competitors. Then you’ll have a healthier profit margin in bad times.
• If your product is a necessity, you are less likely to need to discount.
• If you sell to ...