Businesses need to get pricing right in order to succeed.

1. Have an holistic approach to pricing

There is no 'one-way'.  You need to consider what it costs to produce/buy (cost means direct cost of materials plus wages plus overheads), how much competitors charge, and even what customers are willing to pay.

Customers care about value, not the cost, and they may value something completely differently to where you think the value is.

2. Know your customers

You need to know what your customer wants and why they purchase from you.  This builds a loyalty centered around the service you provide rather than price, and so if you need to change your price you can anticipate how they may react.

Around 13% only of customers are extremely price sensitive.  Take coffee; an operator who is friendly and welcoming and makes great coffee and increases the price will lose few customers to a competitor whose coffee is average.

3. Prices aren't set in stone

It's not 'set and forget' because pricing is one of the marketing mix (the 4 p's - price, promotion, place, product).  If your marketing needs to change, pricing may need to be reviewed too.  In the coffee example, the operator has a new supplier and the taste is better so he needs to tell everyone with some signage and leaflets but as the coffee costs him more he needs to tell people that 'the coffee is even better, try one on us and we're so sure you will agree that it's worth paying just a little more for such a delight'.

Prices change for context; guests expect to pay more for coffee in a luxury hotel, you know their costs are higher to provide the location, fittings, standards, service, etc.  Apple and GAP do pricing well - they sensitise customers to the value provided but desensitise on price.  If you're an Apple fan, you want their latest iPhone or whatever and don't care about what it costs because you believe that Apple is always the best (Apple has less than 10% of the market but is one of the most profitable companies in the world).

4. Factor in all of your costs

Be sure to factor in all of your costs; allow for what it costs you, plus the freight, consider stock spoilage or shrinkage, what markup do you need to cover all of your overheads, plus a salary and margin for you.  If a competitor up the road has a lower price for exactly the same thing, his pricing model may just be wrong so don't go broke together.  Price right but offer better value - nicer premises, better service, order and pay by phone/computer and pick-up in the loading zone outside.  You're providing more value to the 90% of customers who want these choices, not just the cheapest.