Agriculture Reference
In-Depth Information
produce a quality product, and sell it for $0.50 per pound when you have to
spend $0.75 per pound to create it. The same problem applies to all pricing
strategies where you base your prices on what other people charge.
You also have to look at who you are comparing prices with. For instance,
you visit the local supermarket and find that conventionally grown 'Fuji'
apples are selling for $1.89 per pound and organic 'Fuji's are selling for $2.29
per pound. You immediately go back to your roadside stand or farmers' mar-
ket and price your organic 'Fuji's at $2.29 per pound, which is the full retail
price for organic. There is a problem with this strategy. One of the reasons
people shop at roadside stands, farmers' markets, and other direct outlets is
because they are looking for bargains. Customers may need to travel farther
to visit your stand than they would to shop at the neighborhood store, and
they are certainly missing the convenience of one-stop shopping that they
would get in a supermarket.
Of course you can advertise your produce as being fresher than that in
the supermarket (not necessarily true, by the way), locally grown, or some-
how better than supermarket produce, but the bottom line is that customers
often expect to pay less than full retail price for direct market goods. The
obvious solution is to set your price somewhere between what growers who
sell to the supermarket receive (wholesale price) and what the supermarket
that sells the product receives (retail price). You make more than your com-
petitors and your customers find a bargain.
You may choose to set your prices lower than the competition. This
strategy gets many new enterprises into trouble. Customers, of course, love
price wars, and you can gain a definite marketing advantage if you consist-
ently price lower than the competition and still make a profit. Discount de-
partment stores have done this for years. Making a profit is the hard part,
and price gougers soon go out of business. The established competition may
have to lower their prices for a while, but once you are gone the prices will
come back to sustainable levels.
You might choose to set your prices higher than the competition. It may
be that your product has some special advantage that you believe makes it
