Product Liability Insurance for Small Manufacturers

Your customers and other consumers have a legal right to expect that your product is safe which means that it will not cause them harm. Consequently, they can sue you, the manufacturer or seller when they suffer injury. This type of legal action falls under tort law, which is interested in awarding compensation aka 'damages' to persons who have suffered as a consequence of wrongdoing by another. To be clear, the complaint may relate to harm suffered by any end user. In that case, the buyer of a car may sue on the basis of harm caused to his or her child as a passenger (even if the child was not a driver or the paying customer).

This type of liability can be established based on the following two conditions.

1. the manufacturer operates a business. (A manufacturer's liability exists only on the basis of proof of harm, while a hobbyist's liability requires other forms of proof, like unsafe production conditions)

2.   the product has not been changed before reaching the consumer.

Additionally, complaints must be based on at least one of the following three 'product defects', as contrasted against the standard of safe competing products.

1. Design Defect. This would apply if, even before making the product, some planned element has an inherent flaw that can cause harm. Every unit made is therefore potentially harmful. Consequently, multiple parties (not just the odd one or two) are likely affected.
2. Manufacturing Defect. Manufacturing defects usually affect only one or a few units of the product, often because of one-off or temporary challenges like errors made by a new employee that has been poorly trained or if a natural disaster causes production line errors. 
3. Warning (aka Marketing) Defect. This defect refers to non-disclosure of and or inadequate instructions for avoiding foreseeable harm. This applies when risks are inherently potential during use or when there are limits to which protection should be expected. Examples: hand sanitizer that is responsibly sold should warn consumers of the hazards of combustion with the use of the globally recognized symbol #3 (for flammable products); matching tyres to different weights and types of motor vehicle. Just to clarify however, rest assured that not all injury gives consumers legal right as in cases in which consumers sustain injury while inappropriately using your product or modify your product in a way that contributed to their injury. Furthermore, injury can be claimed for only physical products. Consequently, electronic products that render undesirable results do not count. 

DO's

• Get product liability insurance coverage. Even if you design the best possible product, consider that the risks are too great if members of the public with rare, unforeseen circumstances can be adversely affected by your product. While many of your colleagues will likely confess to not having insurance coverage as claims are rare to none, insurance provides peace of mind against that one-in-a-thousand-cases complaint that costs you your entire business and life savings. To be clear, you should also consider insurance once persons other than you use your soap. This even includes if you make soap only for the sake of giving them away soap free of cost as Christmas gifts. After all, even someone suffering from an allergy against ingredient X can end up with steep medical bills they find unbearable as their justification to demand your financial assistance. 
• Consider specific ways in which your product type can potentially harm consumers. This will be your guide for taking preventive action. For instance, if you sell cosmetic products you make, like most other such serious (cottage industry) manufacters, you may feel complacent because you likely already ensured that your formulations are safe for your target market, ie your product design is safe. Do not stop there. Tackle the other 2 types of product defect. For instance, consider all the ways you can improve your communication to manage the risk of 'warning defects' on product pages and labels. If there are known allergens, they should be stated. Do you use utensils for other formulations that contains allergens like nuts, gluten and so on? Do not hide ingredients, especially those with the potential to cause allergic reactions in some people. Have you even noticed YouTube videos with very technical information suggesting that the information is only for educational purposes and that the consumer of the information should seek professional advice? Such producers are protecting themselves. Similarly, even product manufactures often provide infomercials in a similar way. 
• For no additional cost to you or other key stakeholders acting on your behalf like authorized retailers, you can offer to name their business as an 'Additional Insured' on your General and Product Liability policy. It relieves the other parties of the burden of product liability claims involving your product. Ideal for B2B customer relationship building!
• If possible / applicable to your work, transfer risk to suppliers. Needless to say, whenever possible, do business with those suppliers that can name your business as an 'additional insured' on their 'ACORD Certificate of Liability Insurance' aka Certificate of Insurance (COI). This offers protection in the event that their product is responsible for a product liability claim. However, this is rare in manufacturing because most manufacturers alter their supplier's product. However, this may work if your process does not alter your supplier's product. If possible, include a 'Hold Harmless' clause in your contract that can absolve you of legal liability for any injuries or damage suffered by your counterparty. Hold harmless clauses are also rare and rightfully approached with much caution.
• Find options for insurance coverage that work with small manufacturers, particularly if they specialize in your type of industry. Here are some examples.
• RLI provides coverage for home-based manufacturers with craft-oriented categories that include bath and body that earn relatively low gross profits. For instance, if your business earns under roughly USD 8,000 yearly, you may be eligbile for coverage up to roughly USD 1 million and need to pay premiums at roughly USD 300 yearly. RLI is therefore ideal for new, small-scale manufacturers. However, your physical manufacturing primary home base must be the mainland US, Canada or Puerto Rico.
• Industry trade groups aka trade associations provide the advantage of offering members highly customized insurance options.
• The Handcrafted Soap & Cosmetic Guild /  HSCG is a highly specialized trade association that can provide from the most basic formulation instruction to the more advanced support that in addition to insurance, includes discounted rates for operational costs (like postage & supplies), business advertising and supports legislative advocacy. In addition to different tiered costs of membership, insurance costs roughly  USD 275 to 380 yearly, with the second option providing property coverage. As per usual for US-based trade associations, membership is restricted to US-based persons. However, there are free resources that include website-based classes, YouTube videos and other useful soap business documentation. 
• Although Indie Business Network aka IBN exists for general life and business planning, it offers insurance as an optional complementary service to members based in North America and selling in North America or internationally. Despite being a complementary service, there are even specialized areas like food & beverage, handcrafted soap & cosmetics (& jewelry), infused products and so on. Outside of the cost of the pre-requisite IBN membership of USD 195/year, the insurance policy typically costs USD 275 to 330 / year. If you are new to this network and need more insight or consideration time, sample some of its free resources like podcasts that often feature interviews of fellow members. Otherwise, the school offers short courses for a relatively small fee.
• Other option(s): The HandMadeInsurance company /  https://www.handmadeinsurance.com/

• When seeking a policy, consider the following. Some brands provide relevant 'fine print' information in very digestible lists like 'what is covered', 'what is NOT covered', 'schedule of costs' and so on (like IBN regarding insurance coverage for handcrafted soap and cosmetics). 
• Whenever possible, liability insurance should cover legal fees. After all, legals fees are often enough to severely hurt a business.
• The policy should naturally cover the damages / cost of the judgment, thereby protecting your (personal) assets up to the policy limits.

CONTENT RELATED TO PRODUCT LIABILITY

• Figuring out insurance is necessary, even while you prepare to launch your new product.
• See how to create a risk management plan. Risk management can eliminate or at least mitigate the tedium of facing product liability claims at all.
• Avoid 'warning' / 'marketing' product defects. Know about hazards management.
• Ensure your product labels avoid 'warning defect'. Learn about multilingual product labels.
• Another way of protecting your personal assets is by separating the operations and assets of your business and personal assets. One key way of doing this is by registering the business as a limited liability corporation (LLC).
• Do not be surprised if farmers' markets ask to be named as 'additional insureds' on your insurance policy.
• Just to be clear; do not confuse product liability insurance with other forms. For instance, it will not cover employees. If you wish to have coverage for employees, you will need a different policy outside of product liability. Recognize the distinction between you and anyone working on your behalf and the public that comes into contact with your business and or product. Consequently, if a customer walked through your establishment or that of an 'additional insured' retailer and had an accident like tripping over boxes on the floor, your insurance might also cover the case, even though the accident does not directly relate to the final intended use of product.

How to Get Authentic Barcodes for Manufactured CPG for Retail Sale Inexpensively

Barcodes provide product information like brand name, product type, variations (like color, size and so on) and unit retail price in the product mix. Example: Brand A, Product line B, Vegan hand bag, Regular Size, Dark brown and so on. 

Unique Product Code / UPC-A  (aka GTIN-12) and or, their non-North American version, the EAN (aka GTIN-13) barcodes are required on packaging if you manufacture consumer packaged goods (CPGs aka fast moving consumer goods / FMCGs) for retail sale. This is especially the case if your products will be sold at major retail outlets where products are scanned for efficient and accurate identification at the checkout point.

To clarify, each product variation will have two versions, ie a UPC and EAN version. Manufacturers that distribute products internationally have only to verify the preference of all retailers in any supply chain. However, as suggested above, UPC are the standard barcode used in North America while the EAN codes are the standard elsewhere globally. 

However, I still can not stress enough the need to confirm barcode formats with retailers when planning your labeling. Fortunately, many retailers even have machines that read either format without a problem. However, most will object strongly to your simultaneous printing of both barcodes on a single package as this usually leads to problems with efficiency at the point of sale.

UPCs and EANs are used for all retail products, both off and online and with only a few exceptions (such as books, pharmaceuticals and variably weighted goods like meat and vegetables). These codes are highly functional as they are used so widely as a standard that retailers worldwide, of all operational sizes use them seamlessly. Some better known large retailers include Google Merchant, Amazon (for MOST products) and Overstock.com, Trader Joe's, Whole Foods, Office Depot, etc. Regardless of where you source them, all authentic codes originate from the GS1, a non-profit organization that sets the standards for the use of barcodes in global commerce.

However, you can choose to buy barcodes from either 1) the GS1 directly or 2) resellers. While there are ilegitimate resellers (who sell entirely madeup or recycled numbers), it is possible to buy GS1-originated barcodes from legally authorized resellers, whose barcodes never expire, thereby not requiring you to pay the otherwise yearly renewal fee. However, such barcodes must have predate August 2002, (a significant turning point after which barcodes were rented out from GS1 versus being owned outright, can therefore expire and require the payment of annual renewal fees).

GS1 or Reseller?

As just mentioned, purchasing barcodes directly from GS1 requires fees for membership and annual renewals. For instance, the GS1 may require you to pay a $250 initial fee and $50 annual renewal fee for up to 10 unique barcodes, ie roughly $25 per barcode. Being the global authority on barcodes, this option is safe and legitimate. However, when manufacturers find this continual rental cost prohibitive, they may choose to buy barcodes from resellers for a one-time fee that is sometimes as low as $4.25 per barcode (ie a total payment of $42.50 for 10 barcodes or even less, depending on the reseller). 

In the vast majority of cases, reseller barcodes are acceptable to a retailer's 'Vendor Compliance  Program'. However, in the less likely event that you need codes bought directly from GS1 (as when selling through Walmart, Kroger's, JC Penny and Macy's/Bloomingdales), you will have no choice but to buy directly from GS1. Just to explain however, these retailers demand directly bought GS1 codes that carry the manufacturer-owned prefix numbers and therefore the manufacturer's name (versus that of resellers). When you buy codes from resellers, you will essentially use the prefix owned by a reselling company that has purchased barcodes before August 2002.

This video is a brief history that explains how the current practice of resellling barcodes became legalized in August 2002. Before the class action against the GS1, companies were forced to buy massive lots of numbers, specifically prefix numbers that were unique to their company whose following unfixed numbers allowed those comapnies the possibility of assigning tens of thousands of products to that many outstanding code combinations, even if such companies only needed as few as 10 codes. However, these companies filed a class action when GS1 wanted to convert the earlier outright purchase of barcodes to rentals. In the end, those pre-2002 GS1 customers were free to never have to pay rental / renewal fees and to have the right to resell the many thousands of unused codes under their pre-existing prefix numbers.

Since GS1 operates in over 100 countries, you can likely contact an office in your country, or region. If unsure, landing on the GS1 website, automatically provides this information (as the site can detect your location). You will see that office's street address, telephone number and email address.

Beyond this point, this post explains the necessary steps for getting authentic and inexpensive barcodes for your manufactured CPGs for retail sale.

Steps

1. Establish the type of barcode your wholesale buyers require by requesting details of their vendor compliance requirements. This is part of ensuring good B2B customer relationship building as it relates to trustworthiness (of authentic codes) and giving retailers a good customer experience with efficiently working codes. 
2. Use only those barcode resellers that are authorized and who sell only unused unique barcodes. Examples include: BarcodesTalk.com at toll free (877) 263-1343 or contactus@barcodestalk.com (my favorite because of their very well-informed and capable customer service personnel that is also available for after-sales care) or NationwideBarcode.com at toll free (888) 356-7770 or info@nationwidebarcode.com.
3. Unfortunately, it is not possible to access any single database to investigate your barcode number(s) beforehand. 
4. After buying the codes, you can search through different barcode databases to see whether anyone has illegally used your codes. Unfortunately, there is no single global database for doing this. However, see the following useful resource(s). 
1. Barcode lookup app
5. Expect (or request) that any legitimate reseller will provide the following among other things.
• both UPC and EAN barcode numbers automatically (to represent any single product variation). In only some cases (like that of BarcodeTalk.com), you can specially request the GTIN-14 barcode which some retailers require for master cartons / warehouse packaging. However, the GTIN-14 codes and artwork will require you to pay an additional fee of roughly $7.50 for each code, with the cost tapering if ordered in larger volumes. 
• graphics, 
• certificate of authenticity
• ownership documents 
• an Excel list of your numbers
• support (as by email and or email)
• free registration to a database like upcbarcodes.com of your barcode. This registration may be useful because it makes your product information available on Google, Bing and some smartphone barcode scanners. This is beneficial as a deterrent against anyone wanting to steal the code and or make claims of ownership.
6. If retailers do not provide one, prepare an Excel or CSV spreadsheet with the following details for submission to retailers for entry into their inventory management database (that connects to their point of sales / POS systems). 
• brand
• product name
• product description
• Variations like weight, measurements, colors, size, etc
• Pricing information
• SKU number
• UPC or EAN number

CONTENT RELATED TO GETTING INEXPENSIVE AUTHENTIC BARCODES FOR MANUFACTURED CPGs FOR RETAIL SALE

• Follow the size requirements. for instance, graphics are provided at 1.5" X 0.8". However, you can reduce the size by as much as 20%, ie to roughly 1.2" X 0.64"
• Establish the type of barcode your wholesale buyers require by requesting details of their vendor compliance requirements. This is part of ensuring good B2B customer relationship building. 

CPG Product Multilingual Labeling

Should you use multilingual packaging for CPG products?

This post will discuss when multilingual labeling for consumer packaged goods (CPGs) is absolutely necessary and when, although not necessary, could be a great strategic marketing choice.

Legislation - the case for multilingual labeling when it is necessary.

When deciding on your CPG labeling, consult with the requisite standards bureau for rules that may apply for each of the markets to which you will distribute your products.

For instance, Canadian labeling laws for CPGs sold in Quebec require that the French language copy be given equal prominence as English. Conversely, although the U.S., has specific category and product requirements, mandatory bodies do not require equal prominence. The matter of multilingual labelling therefore becomes more a matter of marketing strategy in some cases. 

See the case of Capn Crunch below. That brand complies so strictly with the Canadian requirements. It even does so with font size, color and letter format (whether upper or lower case). Notice how, in the case of Capn Crunch, each language is represented in a separate way that is consistent in different parts of the packaging to help consumers to easily find their language.  

 

The case of Nature Valley below takes a slightly different approach. Each side of the box has a different language on otherwise identical labeling. However, the side panels (not shown here) have all the other details.

Below is an example of how more technical details are represented with equal prominence between or among languages. 

The Canada cases show the highest level of compliance with multilingual labeling that you can consider, even if your jurisdiction does not have requirements. When you are left with the choice, consider the following strategic reasons that you might consider multilingual labeling anyway.

Strategic Marketing Objectives - The case for multilingual labeling for CPGs when it is a choice

There are different reasons for wanting to use multilingual labeling that include the following. 

• To enter or penetrate a market segment with specific demographics. Who comes into contact with your product? Can you convert more of these leads if you could communicate with them through labeling? A good case study is the US in which the Hispanic population grew to 38.8 million, a 10% increase since 2000. For nearly 50% of persons within that segment, Spanish was their primary or only language. This case shows the need to study the demographics of the market in contact with your distribution channels. Specifically, if the foreign language segment matches your product, multilingual labeling might improve your ability to attract it into your sales funnel and convert more leads. Your instore / Point of Purchase (POP) advertising ought to be multilingual, at the very least. 

• To ensure consumer satisfaction and brand loyalty. If the proper method of using your product or some other technical is new to the foreign language segment, using their language is a must for ensuring consumers have a satisfactory experience and remain loyal. This is why cosmetic and health care packaging commonly offer instructions in as many as 4 languages in regions like Europe. The last thing you need is for consumers to misuse or otherwise misunderstand your product and develop a negative impression of your brand. 

DO's

• Consult your legal team regarding the requirements for each region of distribution. What details must be included in labels and where? What font size requirements exist? (After all, some languages, like Spanish, typically require more label real estate than English). What level of prominence is required if multilingual packaging is normal?  
• Glocalize labels. Convey the message across languages (ie rather than providing literal translations). Since literal translations often vary in meaning across cultures, be clear on the culture-specific message you want to convey and use the appropriate wording. Remember; function before form! Do not stress if the new language lacks some of the flare or a joke. To glocalize more effectively, you might even prefer to transliterate your brand when the other language does not use letters. For instance, before the Beijing Olympics, Coca Cola transliterated its branding into Mandarin, Ethiopian, Thai and Russian languages. 

• When faced with the challenge of managing space on the label, legibility of extra words and the label's overall attractiveness, start your selection regarding what must appear on the label with the most powerful purchase motivation factors that must be most readily communicated. Depending on the product, they are usually solutions to your target market's painpoints or a means of catering to desires. Those should be most readily communicated through each language. Other details may appear on secondary panels.
• When it is not possible to include all of the details onto the label's surface, use extended content labels. This label can be unpeeled, stuck on, or scanned via QR codes to reveal the other languages. Product tags may also be used. 

• Use universally understood symbols to minimize your word count.

CONTENT RELATED TO CPG PRODUCT MULTILINGUAL LABELING

• Instore / Point of Purchase (POP) advertising 
• Ensure that your product labels avoid 'warning defects' - one of the risks against which product liability insurance can protect your business.

How to Price Products in the Cottage Industry

To price successfully as a small cottage industry manufacturer, you must do margin calculations that consider ALL players within the distribution chain and market. These players must not only be your current contacts but also potential ones (like distributors, wholesalers, final consumers and so on), even if you do not yet have foreseeable plans for them.

On one hand, each player in the distribution chain must make enough money. On the other, your retailer's price must be at a level that customers are happy and willing to pay. The price should not be too high and not too low, ie depending on your product, your unique value proposition and desired market position. After all, avoiding an excessively low price is equally important since some products and their corresponding target market associate lower prices with inferior quality). Furthermore, the price should reflect the appreciable / perceived value of the product to ensure repeat sales which is another key factor in retention marketing. After considering the potential prices you may charge, you may need to change the quality of materials, to take extra time finding and negotiating with suppliers for better raw material prices. In short, whether your current plans involve selling only at the wholesale or retail, you should markup twice, for both. You never know what future opportunities will arise.

In short, this process is unlikely to be neat and linear for the best of us. The following discussion shows 3 pricing methods that are best used together to hopefully streamline the pricing process. These methods are 1) the cost based, 2) customer based and 3) competition based pricing methods. They consider the perspectives and consequent influence of very noteworthy stakeholders. Specifically, the cost based method considers your perspective as the manufacture. It illustrates the lowest price that you can afford to offer the market to ensure that you make profit. However, this very common approach can fall short and rob a business of further profit by considering other pricing methods. The customer based pricing method considers how the customer perceives value as it relates to pricing and product value. Finally, the competition based pricing method considers the ways in which each competitor's brand positions itself in a specific way on the bases of price on one hand and value on the next. You can then decide how to use pricing to gain some type of competitive advantage based on how 1) pricing (whether high or low) signals the brand's relative position and 2) perceived customer value (whether high or low). Essentially, the different methods help you establish a range of prices within the low and high point.

COST BASED PRICING METHOD

To know your minimum price using the cost-based pricing method, you will need

• production cost per unit. Remember to include factors like the following as they all have a cost, even if an opportunity cost.
• labor per unit, even if you are making the product. If unsure of the rate to use, consider the wage  or salary you can reasonably expect to pay someone else.
• packaging per unit. 
• If applicable, fees that retailers charge like:
• slotting charges aka shelving fee. Slotting fees [or 'tarifas de asignación' in Spanish] are one-off fees payable to retailers for placing each new product on retail shelves and or in the warehouse, ie until the performance of the product can be established within a period of usually 6 months.
• Instore advertising fees. In some cases, this can even involve shelf talkers and other types of point of purchase (POP) messaging.
• per unit cost for anything else involved in your costing like the following. Be mindful of the part of these costs that may be considered expenses for tax purposes.
• overheads per unit (utilities, warehouse costs, promotional costs, taxes, etc)
• your margin goals (ie the amount you decide your business should make per unit. Ideally, your margins should not be below roughly 50%. Margins below 35% are questionable regarding whether the business is worthwhile, especially if your business has longer term goals of not needing to sell retail again.
• your retailer's margin goal requirements. This varies according to the industry and the type of retailer, whether your retailers are mass or boutique retailers and whether there are other middle men involved. You must therefore ask your retailer this direct question, "What is your margin requirement?" They will generally respond immediately. If you can not get this information, assume a goal, like a 'keystone markup' or a variation of the classic keystone markup. (A keystone markup occurs when the retailer doubles your wholesale price. In other words, if your wholesale price per unit was $1, the retailer's price to the consumers will be $2). Consider factors that may affect the retailer's goals. Such goals may include his location. For instance, touristy or high end locations tend to be pricier. High end products in high end locations may reach the triple key point. Consequently, the retailer's markup goal may exceed the classic keystone level. Some variations may not even be rounded numbers as shown in the image below. For instance, some people use 2.2. Seek out the industry and other standards.
  

Here is an example of how you can establish the wholesale price based on the consumer's reservation price and your wholesale customer's margin goal. Example(s) 

Your wholesale customer's Markup = 25%

The consumer's reservation price aka your customer's 'SP' = $125  (ie 125% of your customer's 'CP' or 1.25)

What should be the CP?

SP = 125% (or 1.25)

So CP = $125 / 1.25 = $100

Check back to verify your calculation is correction:  $100 X 1.25 = $125

 

Example(s): 

Markup = 30%

SP = $200 ... (ie 130% or 1.3 of CP)

CP = 200 / 1.3 = $154

• your discounts policy (example a 5% discount for wholesalers who pay immediately)

Here is how to do the calculation: 

***Step 0: Lowest tolerable sale price for the highest CP that you must pay at some time.

If you want a fixed sale price but your cost price varies according to different suppliers, different volume-related prices, price changes by suppliers, market forces and so on, calculate your highest probable cost price (so you can know your lowest tolerable wholesale sale price / SP). For more complex cases like if your product comprises multiple components from numerous sources and even more price variations, make an estimate using the percentage of change of the most costly component(s).

CP scenario 1 = 0.75

CP scenario 2 = 0.85

CP scenario 3 = 1.00

Highest CP: 

1.00

Lowest tolerable sale price should have a margin (of the cost price) of 51%:

X 1.51

Lowest tolerable sale price

1.51

Highest tolerable cost price / CP 
Consider the highest CP you should pay to be justify making the product and to remain profitable. Your internal cost relates to the highest sale price that your target market throughout the distribution channel will pay. After all, if your CP is high or rises but the market finds the sale price (SP) unbearable, it may no longer be worthwhile to carry the item.


If you have more data to start from the CP perspective (ie versus the SP perspective), this part of the pricing process is non-linear.  

Specifically, when you calculate the final price to be offered to retail customers, you will then need to return to this step. If market research suggests the highest SP your target will pay 

• is $5.00, ie it exceeds the final standard retail price, your CP is acceptable
• is $3.00, ie it falls below the final standard retail price, your CP is NOT acceptable

Markup / Margin (Cost price) # 1 (to set a price for distributors. This gives the distributor the potential to earn apx 20% in a fictitious scenario.)

Unit production & other costs:                 

1.00

Based on your margin goal of +80% (ie 100% less a premium for distribution services):                            

  X 1.75

Full price we charge to the distributor:      

1.75

Optional: less discounts like for extra large orders, convenience distributors can provide to customers, full prepayment, EXW, etc (5%):                

-0.0875

Discounted price we charge to the distributor:                

1.6625
NB. Exceeds my lowest tolerable SP***

Markup # 2 (to set the wholesale price you charge to retailers)

Unit production & other costs:

                                          1.00

Based on your margin goal of +100%:   

                            X 2

Full wholesale price we charge to the retailer:  

2.00

less discounts like for advance payment (5%):                

-0.10

Discounted wholesale price we charge to the retailer:                

1.90

NB. Exceeds my lowest tolerable SP***

Markup # 3 (to set a retail price you charge to consumers)

Considering your retailer's margin (keystone) goal of  +200%:  

X4

Full retail price:                                     

4.00 

A retailer that may have bought at the discounted wholesale price may calculate based on a margin (keystone) goal of  +100%:  

X2

retail price:                                     

3.80 

Are the prices higher than you worry people will pay? 

If the minimum cost is higher than you think your market will bear, consider the following.

• Do NOT rush to reduce the prices, especially if you are trying to build a business for the long term. There are dangers of not accounting from early for dealing directly with other players. For instance, if you begin by selling only retail to consumers for $2 (which should have been your wholesale price), when you want to eventually sell wholesale, those wholesale customers will expect a discounted price, usually at 50% of what they know to be your current retail price. Furthermore, you will not want to suddenly increase the price for your retail customers.
• Maximize your operational efficiency. Example:
• Make larger batch sizes that can also become your minimum wholesale order size.
• Streamline your processes.
• Lower your material costs however possible. Do not scoff at 'small' savings that wholesalers can give because remember that that cost gets multiplied 4 times and will be felt by retail price customers. Example:
• Buy raw materials in huge bulk 
• Negotiate discounted rates even if you already receive the wholesale price.
• Find creative ways to add or generate perceived value. As much as possible, work on creating a premium brand. Example:
• Sell at high end stores whose stock already have a high perceived value. Essentially, generate more perceived value by using the power of association.
• Wherever possible, highlight the product benefits, especially those that give you competitive advantage. Do this on a product descriptions, your label, advertisements and so on.
• Provide superior customer experience and service.
• Create credibility. You can do this with the help of persons that the market values highly. For instance, for health care products, you may use persons from the medical profession that can endorse the product's value. For instance, if you make and sell skin care products, consider respected professionals as spokesmen like school nurses, pharmacists, makeup artists, influential community member, a celebrity with the characteristics that your market desires (through the product) and so on. 
• Use high quality images on websites, labels and so on.

CUSTOMER BASED PRICING METHOD

Do your product and price reflect the image and unique value proposition of your brand? Find out the highest your target will pay for your product. If your target market is most concerned with

• AN IMAGE OF PRESTIGE that burnishes the customer's reputation, prestige-oriented customers will believe a higher price signifies higher quality and will be happy to pay for the product. They are more likely to consider the product part of a premium brand. If the quality is truly as they expect, you can generate loyal customers. Higher priced items may limit your market volume but, if your product meets the customer expectation, the customer base will be loyal enough keep you in business. Also, running the business can become easier since you can better reach the ideal of spending less time actually making your product and more time strategically marketing it for high sales.
• conversely: ECONOMIZING, bargain seekers are likely to buy only if the price is low.
• PRODUCT QUALITY, your customers are likely to be willing to pay a premium for the special qualities that you offer.
• Does your product have 'lower cost of ownership?' For instance, when compared with cheaper alternatives that need to be fixed and replaced with greater frequency, a more costly product that is well-built costs the customer less in time and money from not needing to service the product, convenience of hassle-free good performance, etc. 
• The 'extended perception of a product includes customer experience and services. Customers often pay a premium for better quality of the extended product. Do not underestimate these things.

If pricing is very important to your product's perceived value, consider establishing policies for the following.

• a manufacturer suggested retail price (MSRP). 
• minimum & / maximum allowable retail prices like a minimum advertised price (MAP). Note however that a MAP is not necessarily the lowest price of the final sale but of advertising. This minimum protects the perceived value of the brand and ensure that customers will still pay the MSRP which is higher. Consequently the MAP is often used as a discount or sale price. Sometimes, the MAP is set as a fixed percentage below the MSRP. However, if you are likely to make changes to the MSRP for some and not all retailers but must maintain the same minimum price among all retailers, it is better to separate the 2 rules, ie as opposed to making the MAP a percentage of the MSRP.
• restrictions against liquidation pricing, using the product as a loss leader and so on.
• Bundling. If bundling is allowed, consider whether you are trying to build a premium brand and whether the retailer must get your pre-approval of the other brands with which your brand should be bundled.
• Promotions. 
• Customer experience bonuses the retailer will value like assistance with brand awareness promotions that also help your business.

COMPETITOR BASED PRICING METHOD

This pricing method is based on determining where your competition exists on a matrix of the 4 following possible positions. 

High Price, Low Quality

High Price, High Quality

Low Price, Low Quality

Low Price, High Quality

Consider your unique value proposition and what your target market values. There are no good or bad positions, only appropriate ones. Each position on the matrix can be used as a positioning strategy as follows. 

Consider the previous pricing method, customer based pricing method. Ask yourself what a price signals to your target market about your brand. ie relative to the competition.

Skimming. This method involves setting a price that is high, relative to the norm. This strategy attempts to 

• signal a higher quality price to customers who are willing to pay a premium for some perceived high value
• reap as high profits as possible from a novelty before the competition can copy it, after which the high price is usually reduced. 

Undercutting. This method involves trying to take away some price conscious customers from a competitor. A safe way of managing this is by undercutting only in a small area that just gets new customers in the door without lowering all of your prices.

Penetrate. This strategy is used by newcomers to the market wanting to gain market share. For instance, you may offer a lower price for a high value product. However, be very careful with it as it can depress market prices and create a poor impression of your product. Consider the matching strategy as an entry alternative if you have concerns.

Match. This strategies involves setting your prices on the same level as that of your competition. A safe approach to this is to have another product that is priced only slightly higher. 

• This may be a way of showing your customer that you have a comparable price but a higher quality product, ie low price, high quality.
• {Perhaps this can be a way of safely entering into a market.]

CONTENT RELATED TO PRICING IN THE COTTAGE INDUSTRY

• Beware, do not leave money on the table if possible. To know if the cost-based pricing method illustrated on this page does this, find out the highest your target will pay (ie the reservation price or walk-away price) for your product. 
• After you know the highest your target will pay, calculate the highest tolerable cost price you should pay to ensure you remain profitable. 
• Consider the retail price you will charge consumers directly as well as the realistic price that retailers are likely to charge consumers. Then consider establishing a Minimum Advertised Price (MAP) to protect your brand and other retailers.
• Distribution channels 101, distributors and knowing when to use them.
• Retailers really want to see your website and social media presence. Social proof is very useful to retailers.
• A new trend is to have a road rep, ie someone who literally travels throughout your country with samples with the hope of finding buyers. This is a new means of connecting with buyers since the influx of markets makes it difficult to meet many customers. The earnings of a road rep may come entirely from commissions.
• Consider your internal pricing policy. For instance, under what circumstances will you change prices in a market used to fixed prices? If the highest cost price scenario raises and I must use that option consecutively for a certain period beyond its otherwise random probable chance of being applied, I might want to raise prices.
• Wholesale payment terms
• Tier pricing establishes price tiers and is often used in wholesale pricing, an area in which sale volumes are considerably larger (than retail). Notice the volume ranges in the example immediately below. Tier pricing should not be confused with volume pricing, which is more commonly used in retail (for which sale volumes are considerably smaller).
• When approach sellers, get an advantage by introducing you and your company effectively.