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How to set a price - Pg. 180

16 How to set a price There are four ways you can increase your profits. You can cut your costs, you can sell more, you can change your product mix or you can increase your prices. Clearly, your aim should be to set your prices initially at the level that gives you your highest profits possible. Needless to say, as with everything else to do with your business, it is easier said than done. There is no clear-cut or agreed method of establishing a price for your product. Some people use the level of costs as a way of fixing price. This may seem a straightforward calculation but it has drawbacks. For example, if your costs are very low, does it automatically mean that your prices should be low too? And even working out the cost can be fraught with possible errors. Other people argue that the price should be set by what the market can bear. But there are no quick and simple calculations that can tell you what this should be. Instead, you have to establish the price by looking at the market you are in and the particular part of it your product appeals to. How does your product rate against others competing in the same marketplace? There are also different strategies you can adopt depending on whether your product is a new or old one. Often overriding all your plans can be the effect that your competitors' pricing policy has on yours. It is probably more realistic to think in terms of a range of prices. The lowest price you should consider setting will be fixed by the cost. You should not go below this price; if you have to, it would be better not to be in business at all. There are a couple of exceptions, where temporarily it may make sense (p. 182). The highest price will be the highest the market can bear without sales disappearing altogether. Between the two will be the price that will give the highest possible profits.