More than 250 years have passed since Sir Robert Walpole opined that we each have our price, so you'd think by now, with more than five generations of practice, we would have mastered the dark art of pricing. After all, it's not as though these are unimportant numbers to the average director. Price is the single most powerful determinant of profit and yet prices are generally set more by guesswork than science.

What is the right price for your product? Do you have any idea? Have you thought it through properly or gone to the trouble of thoroughly checking? Or is pricing an annual finger in the air exercise, after a quick look around at the competition to make sure you can afford to match them, and then an extra two per cent across the board for good measure?

Either way, perhaps it's time to reflect on how important your pricing strategy is. After all, successful, modern companies such as Google, Dell, Nike and Ikea all offer crystal clear propositions founded on, and reinforced by, bold and innovative pricing strategies.

The key point about price is that it is your mechanism for capturing your share of the value in a transaction. In this context, have you ever stopped to ponder that almost everyone who has ever bought from you would probably have paid you more, sometimes a lot more? Setting your prices lower than you can is like holding four of a kind in a hand of poker and only seeing two pairs. It is a sure sign of the amateur. A professional approach to price and volume combinations that chart optimum profits is what sets the good from the great directors.

Of course, only in a Monty Python sketch are customers likely to volunteer to pay extra-"What, £50?  I'd gladly pay £60!"
No, normally, we all succumb to those incessant MFI-style "sale" campaigns, which subliminally condition us into a nationhood of car-boot keepers, forever scavenging for the next "bargain". Why we fall for this blatant savings con trick is beyond me. But fall we do. Big time. All the more surprising then that we will unilaterally pay extra for our meals out, leaving voluntary 10 per cent tips to reward the arduous, complex, logistic challenge of delivering a pizza to the table.

Meanwhile, you'll scream blue murder at Amazon because of the unreasonable £2.95 shipping charge to bring a CD across mountains, oceans and continents, from the other side of the world to your front door. A tip is altogether out of the question here, which just goes to show how complex an area pricing can be.
The more cynical your customers appear, the less likely they are to trust you, and the more you might mistakenly come to believe that they only know the price of everything and the value of nothing. However, in truth, each one of us seeks value, it's just that it is value as defined in our own personal terms. Nobody really wants cheap.

The secret to effective pricing is to find ways of placing yourself in the shoes of the customer; to be bothered enough to invest the necessary time to understand their situation and what it is that they value enough to pay for; and to build your pricing model accordingly. Fairness and credibility are the backbone of any sustainable pricing strategy.

Then what should you do? First, put your prices up if you offer good value. Don't be scared. Think about it. You instinctively know that lower prices would mean lower profits, unless you're redefining your sector, à la eBay. So, why not go in the other direction and make more money?

Second, offer differentiated prices to those who appreciate different things. Think of a business like Ryanair. If you want a cheap flight to Krakow, you need to remember to get in early because booking at the last minute means you paid about 50 times more than the guy now sitting to your left.

Last, keep your prices easy to find, easy to read, easy to understand, and reflective of your market positioning. The cheap Rolex you've had your eye on is a fake. We still get what we pay for, and we know it.

Alex Pratt is the founder of thriving small business Serious Readers (www.seriousreaders.com) and an adviser to the UK government on innovation and skills