THERE ARE A NUMBER of factors that affect the prices of goods and services in the market.  The level of competition is one thing that will cause prices to fluctuate.  Most entrepreneurs would prefer to sell their products with high margins.  As competition is determined by the number of companies dealing in a given product, if you are the only company offering your product or service in your industry, then competition will naturally be low.  As such, you will likely have more control over the price of your product(s).  Conversely, if there are a lot of companies selling the same type of product as you, you may be able to make more money in the long run by selling your products at a lower cost than your competition in order to sell more of them.

When you want to come up with a pricing strategy for your products or services, the issue of competition is one thing that you need to consider seriously.  Depending on the intensity of the competition in the field you are in, the more flexible your pricing strategy should be.  It is good to analyze the situation so that you can come up with a price that will help you defeat your competitors.

The perceived value of your product is another thing that will determine the pricing.  The bottom line here is that your products are only worth what people who are looking to buy them are willing to pay. If you think that your products are “worth” $15 each because it costs you $15 to produce them, I’m afraid you’re mistaken.  If the value of your product in the eyes of consumers is high, then the price will have to be higher.  It is therefore good to strive and come up with high quality products that will allow you to sell them at higher prices.  In the eyes of customers, low quality products will typically sell at low prices.  This means that if your product is valued at a low price, customers will tend to see it as a low quality product.  This isn’t necessarily bad because sometimes, people deliberately look for a low-quality or not-fancy product. Before you price your product, it is good to strike a balance between the perceived value and the price of the product.

Another factor that will affect the pricing of your product is the product development cost.  This is determined by the prevailing market’s economic situation.  Never price your product below the actual market price or else you will to realize losses.  Furthermore, never price your products lower than what it costs you to produce them, even temporarily. That is known as “price gouging” and is illegal in the United States. The total cost of production plus the popularity of the product (supply and demand) will determine the price.  Additional expenses of production like taxes and shipping should be factored when calculating the price of a product.  If the production cost of the product is high, the price of the product is likely to be high at the end of the day. This is why manufacturing in China because so popular toward the end of the last century—it cost less to make things in China because of the global monetary exchange rate.

The prevailing economic trend will also determine the price of the product.  As an entrepreneur, you should be aware of economic trends like taxes, labor costs, inflation, and exchange rates. These are factors that will determine the price of products in the market.  On top of this, you should also consider the market demand.  If the market demand of the products is high, the price is also likely to be high.  On the other hand, if the demand is low, then the price of the product will be relatively low.  As an entrepreneur, take advantage of high demand to sell your product at high prices.