We know how stressful it can be when choosing prices for your products or services. That’s why we’re offering you plenty of pricing strategies you can implement so that pricing is no longer a burden on your business.
1. What are pricing strategies?
Pricing strategies refer to various methods that companies use in order to turn price into a competitive advantage for the products and services they promote.
Thus, a pricing strategy helps you give your product a value that is right for both you and your customers.
2. Benefits of pricing strategy
To set the right price it is important to relate to profit growth, business sustainability and customer behaviour. By taking these aspects into account, you will be able to improve the performance of your business because:
- in this way you will attract more customers who will remain loyal to your brand;
- you will strengthen your market position and become a brand that others will recognise.
So if you get all the elements right, pricing strategy will be the key to your business, no matter what industry you’re in. So you’ll enjoy the following benefits:
Customers will choose to buy from you
The first thing a potential customer is interested in is price. First and foremost, the customer makes a mental selection as to whether they can afford that product, whether it is too much or too little for them. Therefore, price plays the most important role in choosing a product or service.
Pricing strategy can help you do this to attract the customers you need. This way, they ignore the competition and come to you and your offers. It is advisable at the beginning to offer them various discounts or special offers to gain their attention and make them loyal to your company.
You make your brand stand out
Customers associate the quality of the products or services you offer with the price you charge.
Taking this into account, you can see that a price that is too low or too high can make potential customers and competitors nervous.
If you set a fair price you will succeed in creating an honest, realistic and trustworthy image. Having all this in place will get your brand noticed for a long time to come.
Consolidate your market position
If you’ve managed to get noticed, you need to take it to the next level. This is the level of staying in the market and being the first option customers think of when they are looking for a product or service in your field.
Surely the right price will help you consolidate your market position and start getting recommended by as many people as possible for this.
Increasing company profitability
You attract customers, you become recognizable, you remain one of the best, but all of this needs to be seen in numbers. Thus, pricing strategies play a significant role in company profitability and sustaining the business.
Correct pricing is when you take into account all the costs you have to cover, but also the profit you have to generate. Only in this way will you be able to have a long-lasting business that has a steady stream of sales regardless of circumstances.
3. Types of pricing strategies with examples
In order to set the right price for your products or services, it is important to know what types of pricing strategies exist and some examples of pricing strategies to draw inspiration from.
1. Pricing a new business
If you’re just starting out and trying to make your mark among established companies, then it’s important to get noticed by setting low prices. This will make you affordable to potential customers and help you get your first sales.
When you feel that your business is starting to work in the direction you are interested in, you can start to change your prices so that they are closer to those of your competitors.
Even if you don’t make a big profit at first, pricing your entry is a smart way to attract your first customers. If they are satisfied with your products or services, they will surely understand and remain loyal to your company as you grow.
2. Special offers
You often encounter this pricing method through 1+1 deals or promotional packages in which two or more products are combined.
This type of strategy is often used to sell several products at the same time. Moreover, the purpose of the offers is to target several categories of customers at once.
In this way, customers go home satisfied that they bought more products, and you make sure you don’t run out of stock, while gaining their attention for future offers.
Example: offers of “1+1 free pizza”, “with a purchased course you get a free ebook” “you get 50% discount on the second package purchased” etc.
3. Promotional prices
In addition to special offers, there is a similar strategy that usually relates to a single product. This strategy is especially recognized among supermarkets, and is dedicated to customers who want to save more in order to accelerate the sale of goods.
Example: “promotions of the day”, “buy product X and get 30% discount”, “today only you get 50% discount” etc.
4. Premium prices
If you choose to price according to the quality of your product, and it falls into the premium category, then the price will also match. Usually, premium prices are dedicated to luxury products or services.
Thus, the target market for these products is high-income people who can afford to buy at a high price. And to reach these people, you also need to have a complex strategy to promote your business, using attractive elements for this niche.
Example: jewellery, clothing or footwear purchased from well-known brands such as Teilor, Nike, Balenciaga, etc.
5. Dynamic prices
Dynamic pricing is commonly found among airlines, hotels or those selling utilities. Basically, they fluctuate constantly depending on several factors such as availability, period, demand, etc.
Example: booking a hotel room differs according to the period chosen and the number of members, so if you want to go to the seaside in summer the prices are high, and if you go in winter the prices are considerably lower.
6. Price charged by the customer
Often the customer indicates the price of a product without realising it. Regardless of the cost of producing something or the actual value it has, the price of a product may be what the customer is willing to pay you.
This method appeals to research activities among potential or existing consumers. Thus, once the customer profile is identified, you will know exactly how to attract customers who will offer more for your product.
Example: electronic devices – laptop, smartphone, smart TV, etc.
7. Declining price
This type of strategy is used from the beginning of a product launch until the target market loses interest in purchasing that product.
Specifically, if you announce the launch of a product and use a well-thought-out marketing strategy in this direction, then potential customers will look forward to the big day. When interest is at its peak, the profit will be commensurate. Once the popularity of the product wears off, prices drop and remain at their true value.
Example: launch of new smartphones, launch of fashion collections, launch of make-up products, etc.
8. Prices influenced by location or number of hours worked
If you sell products in different locations where there are large economic differences, then prices change with them. There may be costs for transporting or insuring items en route to the customer.
In terms of hourly pricing, an hourly rate is set and multiplied by the number of hours worked to complete an order, with the customer paying in full for the hours worked.
Example: freelance rates, rush rates, etc.
9. Prices influenced by competitors
This strategy involves analysing the competition and the prices they offer for the products and services being promoted. Depending on their choices, you can move towards a low, medium or high price or offer something extra that is not offered by your competitors.
Example: offer fast delivery, offer telephone support in finding the right product, offer gifts or discounts for new customers, etc.
10. Differentiated pricing
Such prices are mainly applied to subscriptions. The basic package is often free, but there are 2 or more other packages that offer extra services for which a fee is charged.
Customers choose a free version of the subscription in order to test the product and get familiar with it. Most of the time, once the customer gets used to the product, either the free period expires and the customer is encouraged to buy, or the customer wants more than he gets and will buy the premium package.
Example: medical/fitness subscriptions, professional photo packages, Revolut, etc.
11. Psychological pricing
It is important to understand yourself beforehand what the psychological pricing strategy is in this case. There are some cases where these techniques have a positive effect on the number of customers who will come to you.
One of these methods is to include shipping charges in the final price of the product. Instead of promoting that a product costs 50 lei plus 15 lei shipping, use the technique of promoting from the beginning the product cost of 65 lei including shipping/free shipping etc.
4. How do you set the pricing strategy for products or services in your company?
In order to set a firm’s pricing strategy, you need to know your firm from several perspectives so that you can identify the best option to promote it through pricing.
Most of the time, firms refer to the price calculated according to the cost of production or the cost of acquisition. In this case, all you have to do is calculate your cost of production and add an amount for profit.
What does cost of production mean? It involves labor, materials, wages, accounting, taxes, rent, and other costs you have that you couldn’t make the final product without.
That’s why it’s important to first calculate all your production costs and then add the amount for profit.
5. How does pricing strategy work in marketing?
Although there are several types of pricing strategies in marketing, it is advisable to test each one in turn so that you can discover which one is the best to associate with your business.
Your goal is to figure out what customers think of your product, what is convenient for them, and how you can win them over to your side. More importantly, it’s important to understand your place in the market and how you position yourself against the competition.
Once you’ve managed to identify your ideal customer’s profile and have researched what they need, it’s a good idea to update your price based on the information you receive so that it always reflects reality.
6. 8 Strategies for fair pricing
If you want to find out the steps to discover the right pricing strategy, you need to consider the following:
- Establish your business’s main goals – business goals will help you choose the best price for your business.
- Build your ideal customer profile – this will help you understand what your customers’ needs are and how you can help them meet that need.
- Fix production or purchase costs.
- Analyzes competitive prices.
- Set payment method – set payment frequency, price per unit, per hour, etc.
- Research consumer opinion – analyse whether current consumers validate your chosen price or if you need to change something in your strategy.
- Choose the right strategy – choose only one pricing strategy from those listed above to start with and focus your attention only in that direction.
- Follow the legal rules – research what unfair competition means or what industry practices can get you into trouble.
7. Common mistakes in pricing strategy
It’s normal when testing different theories to hit some that just don’t work for you. A business is built on several failed attempts to achieve great things, because that’s the only way you’ll learn and gain valuable knowledge.
Among the mistakes you can make as an entrepreneur in choosing the perfect price are the following:
- Not segmenting your customers – not all people have the same needs, but your product can be the answer to multiple needs. That’s why it’s best to target your audience according to each need you can meet.
- Not knowing exactly what your company costs – In order to be able to set a fair price for your product, it is important to consider all the costs that are involved in the completion process.
- Sell products at a much lower price – detailed research into your target market helps you do this. That way you avoid wasting time and money, even though people would pay more for your product.
- Never change the price – The market is constantly changing and the price of products fluctuates with it.
- Ignore loyal customers – It’s important to value your loyal customers by maintaining a special relationship with them through discounts, offers or a special program.
We know that the process of choosing your pricing strategy is quite complex, but it will certainly benefit you in terms of customers and the notoriety you will have in the market.
In this way, you will be moving more and more towards success, which is most certainly the goal of your business.