Pricing strategies define the methods you use to set prices for your products. There are many established pricing strategies used by marketers. You can select the best strategy that suits your business model or use a combination of methods.
The Many Different Pricing Strategies
Every business needs to set a value on its products or services. At the basic level, the process takes into account the cost of making the product, adds a margin for profit, and sets the price. But it is actually not so simple. Many different factors come into play when deciding the right prices for your products. These include your brand positioning, customer’s value perception of your brand, the target market you are catering to, your competitor’s products and their prices, market trends etc.
Premium Pricing: Brands that customers perceive as having a high value generally price their products at a premium. New brands that want to set themselves apart may also set premium prices. However, they have to build a high-value perception for the products in the customer’s mind before they can do this.
Economy Pricing: This pricing strategy works for mass-selling products like food items and household supplies. Products are sold at low prices. Supermarkets and large retail chains use this strategy, They keep costs low and sell in large volumes. Volume of sales makes up for the small profit margin.
Price Skimming: This works for high-cost products like gadgets. Early adopters are often willing to pay high prices for new products, like the latest versions of their favourite model smartphones. So each new version is released at a high price. Once the creamy layer or the early adopter segment is skimmed, the prices are reduced to attract more customers.
Penetration Pricing: This pricing strategy is the opposite of price skimming. Here, the intent is to create a market. So, the new product is initially priced lower than the competition. Once a demand for the product is created the price is gradually increased.
Psychological Pricing: Psychological pricing uses emotional triggers to make customers buy products. One psychological strategy is charm pricing. Prices are set to one cent or a few cents below the intended whole amount – for instance, a product priced at $9.99 instead of $10. Humans tend to round off to the lower amount so they associate 9.99 with 9 instead of 10. Another strategy is Buy One Get One Free (BOGOF). Even though they may not be getting the second item for free, the intrinsic desire to get something for free compels the customer to go for the offer.
Bundle Pricing: This strategy involves offering several items put together in a single package. The whole package costs less than if the items were bought individually. It induces customers to buy more items than they normally would. It is also a good way to clear your shelf by bundling slow moving items with high-demand products.
There are many different pricing strategies to choose from. You can design your pricing according to the products, their demand, competitive pricing, your overheads, target customers, and other criteria. You can combine pricing strategies, and adopt different strategies according to the situation.