The prices you charge for what you sell have an enormous ability to affect your company’s growth. They can lure some customers and drive others away, produce profits from declining products and turn cash cows into money-losing dogs.

These results can be produced by either lowering or raising prices. Results depend not on whether your prices increase or fall, but on your market, your product, your competition, your goals, and the precise mechanism you employ to adjust prices.

Prices fluctuate constantly for some things, such as food and gasoline, and remain about the same for others over years or even decades. Some products seem to have rapidly changing prices, but in reality the prices don’t change much it’s the products that change. For example, look at personal computers.

The price for a midrange personal computer has been about $2,000 for many years, despite the fact that the computer you paid $2,000 for last year can now be bought for less than half that.

Whether you are in an industry with rapidly changing prices or pricing that seems set in concrete, it’s a good idea to evaluate your pricing periodically to see if you could generate some growth by tinkering with it. There are several ways to decide what your prices should be. They include matching the competition, charging whatever the market will bear, and marking up from your own costs.

Competitive pricing seeks to match what others charge for the same product or service. All pricing has to take competitors into account. When you are a small company in a large market, you will almost be forced to follow others’ lead on pricing. That means pricing your product neither very far above or below what others charge.

As you grow larger, you will be able to exert more independence in pricing, especially if you can differentiate your offering as exceptionally high in value. You can take the lead in pricing, forcing others to match your low prices, when you gain enough experience and volume to truly become the low-cost producer.

Using the cost-based pricing technique, you calculate what it costs to produce your goods or services including such items as salaries and benefits, materials and supplies, and sales and overhead and then add whatever amount you think is appropriate for your gross profit margin.

Some businesses, such as those that perform repairs, have prices explicitly based on adding a preset profit margin to whatever it costs to do the job. However, customers are generally not concerned about what it costs you to provide a good or a service. So while cost have to be a consideration in your pricing, your costs are rarely justification for higher prices in the marketplace.

The main thing you should be concerned about with pricing is neither what others are charging nor what it costs you to compete. It is maintaining a proper balance of supply and demand. Simply put, if you have more business than you can handle, raise prices.

If you are sitting around with nothing to do, reduce prices. If competitors follow suit, you may have to discount again until you capture enough business to sustain your operation. If you can’t reduce prices enough to make money, you will have to cut costs somehow.

Various tactics can be used within these strategies. Skimming is the practice of charging high prices, usually for new products, to take advantage of the willingness of early adopters to pay more. Skimming can allow you to recoup development costs of new products and services.

Buying market share is what companies call it when they charge initially low prices with the intent of getting people to try their product and, hopefully, like it enough to pay more for it later on.

Managing the competing interests of supply, demand, cost and competition is a lot to ask. But pricing is up to the challenge. Finding the sweet spot between your cost and the highest price customers will tolerate, given existing competition, requires near-constant tinkering with prices, observation of the results, and frequent analysis of what you could do better.

You’re starting your own business. You know what to sell and who your customers are. But how will you decide what your marketing materials should look like or even what you’ll charge for your products or services?

You need to become an amateur sleuth and gather competitive intelligence to create an on-target marketing program and tailor your services or products to position against the competition.

It’s important to complete a competitive analysis during the start-up phase of your new business, about the time you’re putting together your marketing plan. In fact, if you get underway without performing a competitive analysis, you run the risk of creating marketing tools and product or service offerings that are way off the mark.

This can cost you valuable time and money during the critical early months. You should also plan to gather competitive intelligence as your business grows, in order to stay competitive.

Who’s Your Competition?

One of the biggest mistakes new entrepreneurs make is failing to recognize the range of competitors for their businesses. Your new company will have two types of competition-real and perceived. For example, imagine you’re a former college athlete who’s decided to start a personal fitness training business.

Your competitors will fall into two categories: other personal trainers, and gyms and health clubs that offer trainers or advisors on staff. Although you’d directly compete only with the other personal trainers, your prospects-people who want to shape up-would perceive the gyms that offer these services as a viable alternative to hiring you. So to complete your competitive analysis, you need to evaluate the marketing materials and services both types of competitors offer.

Get the Facts

The first step in your competitive analysis is to collect all the marketing materials used by your competitors-both perceived and real. Begin by clipping your competitors’ ads. Then request copies of their brochures and other marketing materials-not so you can copy their ideas, but so you can check out marketing strategies and formats, competitive pricing, special offers, the key benefits (or promises made), and clues to marketing niches that may be underserved.

If possible, you may even want to “mystery shop” your competitors-go out and actually buy their products or services so you can experience the purchasing process with their store personnel or salespeople. If your competitors are large enough, you can gather information about them on the Net.

Use major search engines to look for recent press releases and articles about them. There are even free sites on the Web that allow you to customize your own daily news page, such as NewsPage by NewsEdge Corp. (www.newspage.com).

And don’t forget to check out your competitors’ Web sites. How do your direct and perceived competitors use the Net to attract customers and sell products? This will give you important clues about information a Web site of your own should contain.
Put It All Together

Now you’re ready to draw some conclusions about the types of competitive offers and pricing your new business should use. Best of all, you’ll have clear guidelines for developing your marketing tools. Complete your analysis by answering these questions:

• What size are their materials? Do most of your competitors use standard mailing envelopes, or are they using large folders with inserts?
• Do your competitors use photography or illustrations in their materials?
• Do they have Web sites, and how deep are they? Do they sell products online or just offer information?
• How are your competitors’ products or services similar to yours? How are they different?
• What key benefits do their marketing materials communicate? Can you offer additional benefits that are valuable to prospects?
• What special product, service or pricing offers do your competitors use to stimulate responses to brochures and ads?

Once you discover the answers to these questions, create the marketing tools that will work harder than you do.

Which advertising plan is best: $2,000 in direct postcards reaching roughly 3,500 people, or $2,000 in a newspaper ad reaching 750,000 readers?

The answer is a simple one: It depends entirely on what you say in your ad. If your impact quotient is high enough, your best bet will be the newspaper. If the direct postcards are delivered precisely to “the perfect target” (which is not very likely), then the direct-mail route is preferable.

My guess is that neither the direct postcards nor the newspaper will work for you. My advice is that you keep your $2,000 in your pocket until you come up with an actual plan. These are the hard questions you need to answer:

1. What do you have to say that matters to your customer? I’m your prospective customer. I know you want my business, but why should I care? What’s in it for me? Most ads are written under the assumption that the reader, listener or viewer has a basic level of interest and is paying close attention to the ad. But customers tend to ignore all ads that do not speak directly to them.
2. Can you say it persuasively? Most ads are ineffective because the writer was trying to say too much, include too much and be too much. Fearful of leaving someone out, these writers write vague, all-encompassing ads that speak specifically to no one. “We Fix Cars” is a terrible headline for an ad.
3. Are you speaking to a felt need? Let’s say the “We Fix Cars” auto mechanic has a great deal of affection for older BMW 2002s. He knows that 2002 owners love their cars like few drivers on the road and that the only weakness of the 2002 is its evil Solex carburetor. Every 2002 owner knows this, too.
4. How long is your time horizon? Some ads build traffic, some build relationships and others build your reputation. If you don’t have the financial resources to launch a true branding campaign focused on building relationships and reputation among potential customers, you’re going to have to settle for traffic-building ads until you can afford to begin developing your brand. To what degree do you have financial staying power?
5. What is the urgency of your message? If you need an ad to produce immediate results, your offer must have a time limit. This technique will simultaneously work for and against you. On one hand, customers tend to delay what can be delayed, so limited-time offers generate traffic more quickly since the threat of “losing the opportunity” is real.
6. What is the impact quotient of your ad? How good your ad must be depends on the quality of your competitors’ ads. A .22-caliber pistol is a weapon against an opponent with a peashooter. But aim that pathetic pistol at an opponent holding a machine gun, and you can kiss your silly butt goodbye. How powerful is the message of the opposition? If your competitor carries a machine gun, don’t go where he goes. In other words, don’t use the media he uses.
7. How long is the purchase cycle? How long it will take your advertising to pay off is tied to the purchase cycle of your product. Ads for restaurants work more quickly than ads for sewing machines, because a larger percentage of people are looking for a good meal today than are looking for a machine that will let them make their own clothes.

Not hiring a professional ad writer is often far more expensive than hiring one. If you’d like to read more about this stuff, most libraries and bookstores are full of books on advertising.

All types of advertising will work if they’re used properly — not just “tried.” The fact that the various forms of media utilize each other illustrates that no one kind of advertising is superior.

Radio stations promote themselves on television and bus cards, TV stations list their programs in the newspaper, and newspapers use outdoor billboards to increase circulation. You’ve probably also noticed the large number of ads by dot.com companies in these traditional forms of media.

If you’re going to use advertising correctly, you must meet these four requirements:

1. Demographics. You must know what segments of the population comprise your customer base and be able to define them according to the standard age and gender groups used by the media to define their audiences.
   • Gender: Male, female or adults (includes a balance of male and female).
   • Age range: Depending on your business, you may choose more than one of these: 12-24, 18-34, 18-49, 25-54, or 50+

   Your customer base can shift with the opening and closing of other local businesses, universities, military bases, the influx or departure of university students, or just the natural aging of people in your community, and you need to keep track of these changes. This step is critical because it’s the basis of every advertising decision you make.

   If you’re not absolutely sure who your customers are, you can waste money advertising in the wrong places. Once you’ve identified your customers, you have to know where they hang out. Your reps can provide specific demographics regarding their audiences.

2. Location. Use only radio stations, TV programs or publications that can deliver your message to the right demographic groups. Ask your media reps to define the primary audiences they reach, and spend money only with those that match the demographic groups you’ve identified as your customers. Never buy advertising according to your own personal taste or because you like a particular rep!
3. Message. You have precious few seconds to tell your story, so squeeze the language. You wouldn’t say “Send assistance as soon as possible” when you could yell “Help!” You also need a hook–a reason for someone to come to your location instead of a competitor’s. Ask your media reps for copywriting help. Many stations and publications employ copywriters, but a creative media rep can do a great job. Your newspaper, magazine, and direct-mail reps will also be happy to lay out your entire ad.
4. Frequency. Without enough frequency your customers won’t see or hear your message. Radio, television and print are three distinct critters and require detailed explanations regarding schedule placement. It’s better to place a substantial schedule on one station or in one publication than to spread a small budget out and not achieve effective frequency anywhere.

Whatever you decide to do, don’t just try advertising. Use it to get results.

Do you draw a blank when you try to write a sales letter? Do your ideas sound good in your head but don’t come together on paper? You’re not alone.

These seven tips can help you write more effective sales letters:

1. Be the customer as you write. This is the most important aspect of a good sales letter, but it’s often overlooked. Imagine yourself as the reader of your letter, and write what the customer wants to know–not what you want to say. You have one page to attract a customer; you’ll lose the opportunity if your sole emphasis is on your business. Remember, your customer’s main concern is fulfilling his or her needs and desires, not increasing the balance in your bank account.

2. Organize your letter. Sales letters, just like high school term papers, need an introduction, a body and a conclusion. In the introduction, tell why you’re sending the letter. The body is your “sales pitch,” where you’ll explain why your offer is irresistible. The conclusion wraps it up by briefly bringing your points together and asking the customer to take advantage of the offer.
3. Make it easy to read. Many sales letters are thrown away without being read simply because they appear too complicated. Don’t let this happen to you. Use the following guidelines:
   • Write in a conversational style. Write exactly as you normally speak; formal tones are usually unnecessary in sales letters.
   • Use short sentences. Once you start writing more informally, you’ll notice your sentences will get shorter.
   • Compose short paragraphs. People like to have breaks in their reading. If it doesn’t flow smoothly and sound natural, rewrite it.
   • Edit and then re-edit your letter. Besides being difficult to read, misspelled words and grammar errors destroy the credibility and effectiveness of your letter.
4. Capture your reader’s attention. Headlines are not limited to ads. They can also be used in letters to tell readers something they want to know in a bold way that grabs their attention. You can also use longer headlines–up to three or four sentences–to present important information. In either case, always make the headline compelling so customers want to read the rest of the story.
5. Get your readers interested. Involve the reader in the letter by bringing it to life with a steady flow of interesting information. Write in an active voice.

   Build on your sentences and paragraphs so the reader is encouraged to continue reading. Every sentence needs to be interesting; a reader can become bored quickly.

   June Van Klaveren, owner of Compelling Communications, a copywriting firm in St. Louis, recommends including a handwritten note or an arrow in a different color ink to highlight an important fact and retain your reader’s interest. “I also include a `P.S.’ at the bottom of the letter,” says Van Klaveren.

   “You can count on this and your headline being read because you’ve piqued the reader’s curiosity.”

6. Make your readers want your product or service. This is best done by answering the reader’s question, What’s in it for me? People are bombarded daily with billboards, commercials and direct mail–all trying to sell something. Your letter can stand out by not selling, but offering benefits.
7. Ask your readers to take action. Potential customers won’t know what you want unless you tell them what to do next. If you want them to call you, say that in your letter and provide your phone number. If you want them to visit your facility, invite them to stop by and give them clear directions and specific office hours.

It’s also important to urge your readers to take action right away. The longer it takes them to respond, the less likely it is you’ll hear from them. If you’re running a promotion, offer the special for a limited time. If you only have a few units available, be sure to state that quantities are limited. This generates urgency to follow up on your letter.