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The Price is Right

The cost of your product can make or break a deal. Is your price on point?
Magazine Contributor
3 min read

This story appears in the June 2007 issue of Entrepreneur. Subscribe »

Imagine that you've created the best product in the world . . . but you've set the wrong selling price. Price it too high, and would-be customers will cringe and walk away. Price it too low, and they'll perceive it as second-rate. The right price point, however, can make your product fly off the shelves--just like the 99-cent reusable shopping bags created by Earthwise Bag Co. Inc. in Commerce, California. The co-founders, Stan Joffe and his nephew Steve Batzofin, envisioned an earth-friendly product that was simple for customers to buy. "We saw [it] as an easy way for people to make a difference on a daily basis," says Batzofin.

One key part of their strategy was setting an enticing price point, thus making environmentalism both convenient and practical for customers. "Ninety-nine cents is a really attractive price point," says Joe Kennedy, author of The Small Business Owner's Manual. "[And] recycling and reusing grocery bags has its appeal to just about everybody."

Joffe, 59, and Batzofin, 29, created their bag concept after seeing the success of a similar reusable bag program in Australia. "Reusable bags have been tried by a number of stores, and we had some resistance [from retailers] in the beginning," says Joffe. "However, there was a great deal of interest in the environment, and the price point seemed to be really attractive."

With earlier canvas versions priced at $7 and up, customers were reluctant to buy the bags. However, the pair got retailers to test-market them at the lower price point, and the reaction was enormous. Within the first year, they sold more than 2 million bags at stores like Albertsons, Kroger and Stater Bros.--2007 sales are projected to hit $3.75 million.

To set the right price point for your product, you must understand the market in a local context, says Kennedy. Also note the perceived value of your product: Are you aiming to be a low-price leader, or should your product command a premium price to reflect its high quality or extra features? Research how your product fits into the market, and put yourself in the buyer's shoes. Even ask a third party for an unbiased opinion on why they would or would not buy the product at your proposed price. Says Joffe, "You have to go out there and do some market research on what competitors' products are being sold for and what the perceived value of your product will be to the consumer."

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