Forbes' Six-Step Guide To Pricing Your Product

Here's the bare bone version of Forbes' Six-Step Guide To Pricing Your Product. If you prefer the real thing, please click here

Step 1: Can You Brand It?

Setting a price starts with a basic question: Is yours a branded or generic product? If it's generic, stop reading, charge the market rate and run your operation as lean as possible to preserve what little profit margin remains. If you think your product has unique features--a new health benefit, greater convenience, sexy style--that you can charge more for, read on.

Step 2: Do Qualitative Research

I'm a firm believer in research. Start to hone in on the right price by running focus groups to get a sense of what customers are willing to pay.

Step 3: Do Quantitative Research

You've done the soft stuff--now it's time for some hard numbers. Business intelligence is key if you want to have an edge over the competition. This step involves in-person or Internet surveys, or perhaps product trials with feedback forms. Sample questions: What price do you pay for applesauce? Would you be willing to pay a higher price for an applesauce with certain characteristics?

Step 4: Plan Your Attack

Before you set your price, decide how you want to attack the market. Will you try to hobble competitors by going low and stealing market share? Or, do you charge a higher price and capture a smaller, but perhaps more committed--and profitable--customer base?

Step 5: Pull The Trigger

Large corporations often start off with running tests on smaller target markets to determine a product's saleability. However many small companies don't have this luxury. So take what information you have, marry it with your strategy and pick your price.

Step 6: Don't Let Success Go To Your Head

Be careful: It's much harder to jack prices than it is to lower them; indeed, you could send shoppers running the other way.

If sales are sluggish, consider lowering the price--but not by too much. For consumer packaged goods, even a 1% decrease in price can lead to a 5% increase in sales, says IRI. Slash prices, though, and you could tarnish your brand's image permanently.

Take careful consideration to deciding how you would want to price your product. Consider too your company's image. Are you the classy chick in the bar? Do you want to be Starbuck's or Seattle's Best? Will you target those that shop in designer boutiques or do you prefer the Walmart discount shopper?

These factors should affect your pricing decision, and will overall drive the success or failure of your product sales.