nuggets for New Businesses

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                                      Nuggets for a New Businesses

Businesses all over the world are confronted with different challenges. There exists the already established ones, and we have the new businesses. Sometimes the business environment is like a jungle, where the big businesses operate like predators, while the smaller businesses operate like preys. Jus as we have it in the animal kingdom, where the little animals devise survival strategies , small businesses are also expected to map out survival strategies. Some of the Challenges might be, what kind of pricing strategy to adopt? Understanding the nature of the goods. The following tips may be helpful for your business:

·         Have a Feasibility study of the kind of business you intend to venture into, by taking into consideration the strength, weakness, opportunities of your business product. This you can do by carrying out a market research.

·         Understand the nature of the product or goods that you are selling or dealing in. You will nee to know how responsive or sensitive consumers will be when you either decide to increase or reduce the price of a product. This is what is referred to as elasticity. For a product that is elastic in demand, a reduction in price will lead to a greater proportionate increase in quantity demanded. This implies that, demand is very sensitive to price changes. The recommendation is for the seller of the good or service to  reduce price in order to stimulate demand.  However, for  a product that is relatively inelastic in demand, a change in price will lead to little or no proportionate change in quantity demanded. The implication of this insensitivity to price change for an inelastic good, is that when prices go up, there will be little effects on consumer’s attitude to buy the product. This means that revenue can be maximized by adopting a price increase.

·         Adopt an appropriate pricing strategy. For a new business to compete in an existing market, there are two major pricing strategies:

a)The price-penetration strategy and Market skimming. For price penetration, you enter the market with a lower price relative to that of your competitors, and as your market share increases , then you gradually increase the price of your product.

b)Another Pricing strategy is Market Skimming. For market skimming, you enter the market with a high price and subsequently reduce the price as your market share increases. This is suitable for products that are considered to be ostentatious in demand or snob-appeal. It can also be used for products with a short life cycle e.g. Mobile phones, Computers, and any product that is subject to rapid changes in technological advancement .

·         Another way to help new businesses succeed, is to plow back its profit after taking care of other necessary expenses for the business. As a business owner, you must discipline yourself by avoiding unnecessary drawings. As a rule, never dip your hand into your main capital

·         Avoid unnecessary interference from friends and family members. Business activities should be treated as being official, and not casual. There must be a well defined coporate culture.

·         Spend money on advertising to promote and create awareness for the success of the product.

·         Take advantage of tax holidays usually given by Governments to new businesses.

Conclusion: The pricing strategy adopted by a new business and an understanding of the nature of its elasticity, coupled with a proper market  research is a major determinant  of  the success or failure of a new business.

·          

Simeon Olagbenro

Businesses all over the world are confronted with different challenges. There exists the already established ones, and we have the new businesses. Sometimes the business environment is like a jungle, where the big businesses operate like predators, while the smaller businesses operate like preys. Jus as we have it in the animal kingdom, where the little animals devise survival strategies , small businesses are also expected to map out survival strategies. Some of the Challenges might be, what kind of pricing strategy to adopt? Understanding the nature of the goods. The following tips may be helpful for your business:
• Have a Feasibility study of the kind of business you intend to venture into, by taking into consideration the strength, weakness, opportunities of your business product. This you can do by carrying out a market research.
• Understand the nature of the product or goods that you are selling or dealing in. You will nee to know how responsive or sensitive consumers will be when you either decide to increase or reduce the price of a product. This is what is referred to as elasticity. For a product that is elastic in demand, a reduction in price will lead to a greater proportionate increase in quantity demanded. This implies that, demand is very sensitive to price changes. The recommendation is for the seller of the good or service to  reduce price in order to stimulate demand.  However, for  a product that is relatively inelastic in demand, a change in price will lead to little or no proportionate change in quantity demanded. The implication of this insensitivity to price change for an inelastic good, is that when prices go up, there will be little effects on consumer’s attitude to buy the product. This means that revenue can be maximized by adopting a price increase.
• Adopt an appropriate pricing strategy. For a new business to compete in an existing market, there are two major pricing strategies:

a)The price-penetration strategy and Market skimming. For price penetration, you enter the market with a lower price relative to that of your competitors, and as your market share increases , then you gradually increase the price of your product.

b)Another Pricing strategy is Market Skimming. For market skimming, you enter the market with a high price and subsequently reduce the price as your market share increases. This is suitable for products that are considered to be ostentatious in demand or snob-appeal. It can also be used for products with a short life cycle e.g. Mobile phones, Computers, and any product that is subject to rapid changes in technological advancement .

• Another way to help new businesses succeed, is to plow back its profit after taking care of other necessary expenses for the business. As a business owner, you must discipline yourself by avoiding unnecessary drawings. As a rule, never dip your hand into your main capital
• Avoid unnecessary interference from friends and family members. Business activities should be treated as being official, and not casual. There must be a well defined coporate culture.
• Spend money on advertising to promote and create awareness for the success of the product.
• Take advantage of tax holidays usually given by Governments to new businesses.

Conclusion: The pricing strategy adopted by a new business and an understanding of the nature of its elasticity, coupled with a proper market  research is a major determinant  of  the success or failure of a new business.

Simeon Olagbenro

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