The Price is Right!...Right?

How do you decide how to price a product? Do you guess how much your market would be willing to pay for it? Or do you price it according to how much it cost to make?
While Pricing is the easiest of the four P's (Product, Promotion, Placement, Price) to change, it is also the easiest to get wrong!
The very bottom line with pricing is YOU HAVE TO COVER COSTS. This often means covering the cost of any promotion or prime placement as well as the cost of making the product. Each product has a base line price that you can not go under without suffering a loss-UNLESS you have a stragic pricing stragedy.
If you are having an introductory sale, you may want to begin by selling you product UNDER COST to get people hooked on it. While this method is effective in getting people to try your product, it may backfire once you raise the price. You could potentailly loose all the customers, and not make up the cost of selling below cost of producing the product.
A confusing and baffling part of pricing are the luxery items that are sold so far over cost that how they determine what, exactly, the price should be, is often a mystery to me. I am speaking of the $650 handbags by design houses such as Coach or Fendi,
and of the $700 pairs of shoes.
One reason a customer would be effected to pay so much is for the status the item brings. If they can buy a $650 purse, and everyone else KNOWS that purse cost that much, then surely they are wealthy, successful, and happy.
Perhaps the price managers for high end items keep their finger on the pulse of the consumer, and decide how much such a consumer is willingly to pay for the status symbol. But Sometime it seems that they are setting impossible prices so that once a person is able to pay them, the person feels that they have arrived.
Whatever a particular pricing strategy, I personally still love shopping at the Dollar Store, and yet I do love the feeling of owning a good $50 bag, and think of it as an investment. Investment into to what exactly? My wardrobe? I'd like to think so, but realistly it's an investment into the product producer's pocket.