Pricing Strategy

Pricing strategy is the amount of money entrepreneur charges for their products and services. Pricing is indicators that you create for your potential customers about how much you value your brand, products, and customers. It is also the first thing that can push a customer towards, or away, from purchasing your product.
 

Why Are Pricing Strategies Important for a Business?

Entrepreneurs have to consider pricing for the following reasons: 

Attract Customers

Price creates the first impression and may influence customers to purchase your brand. Having an ideal price convinces consumers to choose your product over your competitors.

Portray Value

Pricing portrays the value of your product. Some customers may judge low product prices as a poor quality commodity. Alternately, a high price may mean good quality but may drive away customers who deem it too expensive.

Helps in Meeting Customers' Expectations

Companies can rotate strategies or blend tactics to meet consumer expectations and stay ahead of their competitors. Thorough research to meet expectations allows companies to forecast the reaction of competitors and consumers to a new price.

Determines Profitability

Pricing in marketing is key in determining sales revenue and profitability. It drives sales and builds customers' loyalty.

Types of Pricing Strategies


1. Price Skimming

It involves initially setting the price high and then lowering it over time. The idea behind the strategy is to recover maximum profit before competitors jump in. It's ideal for attracting high-income shoppers who perceive themselves as trendsetters. 

2. Penetration Pricing

It's an ideal strategy when a business is introducing a new product in a competitive market. Entities also use the method to gain market share quickly. A company starts by offering lower prices than other competitors and gradually increasing the rates after gaining traction.

3. Cost Plus Pricing

It involves taking the production cost and adding a small percentage to it. The approach is perfect for physical products. A company using cost-plus pricing rarely considers competitors' strategies and consumer demands.
 

4. Premium Pricing

Companies that adopt the strategy have a trusted brand name and have a strong competitive advantage. The method allows you to build perceived value for your brand. A high price is a deciding criterion here and consumers seek high-quality goods and services. A company may drop prices, but customers still want that feeling of exclusivity and luxury.
 

5. Value-based Pricing

Consumers tend to choose the prices that match their perceived value of a product. A company uses the method to set the rate depending on the perceived value of their brand. It's ideal for subscription-based businesses and as long as the customers are willing to buy, entities charge as much as they can. It involves how beneficial or high quality the customer believes the product is.

6. Competitive Pricing

It's also known as strategic pricing and involves setting the price based on what competitors charge. Entrepreneurs adopt the competitor's numbers and add or subtract a certain percentage. It's ideal for start-ups, as it aims to drive consumers to your brand and away from competitors.

7. Economy Pricing

Companies that use the strategy have low overhead costs hence pricing a commodity cheaper than competitors. The target market is consumers who want to save as much as possible. The companies get their money back due to the increased sales volume. It's worth noting the pricing method works in specific market conditions.

8. Loss Leader Pricing

This is more promotional pricing and involves offering one discounted product that encourages consumers to purchase other more expensive products. The strategy aims to attract new customers or to introduce a new product. Companies build hype around the brand and create awareness. 

9. Dynamic Pricing

Dynamic pricing is a strategy that involves selling the same product or service at different prices depending on who buys it or when it sells. It's a reaction to demand, supply, and other market forces.

10. Psychological Pricing

It has numerous tactics that unintentionally impact a consumer's decision. One of them is using charm pricing which involves ending a price with an odd number to make consumers think they are spending less.

11. Freemium Pricing

It's a popular strategy in online and digital service offers. It entails offering some products for free and charging premiums for more services and subscriptions.

Pipefy is an example of an online application that you can use to develop your pricing strategy.

Factors that Influence Pricing Strategies

Your pricing strategy is affected by many factors. You need to understand your market at all times as its trends and demands change. 

Economic Trends

In a depressed economy, business activity declines, requiring price adjustments. This may mean lowering prices to increase sales, especially for non-basic commodities and services. In prosperous conditions, businesses can sell goods and services at a premium price as people are willing to purchase them.

Level of Market Demand

The law of demand and supply plays a critical role in choosing a pricing strategy. When the demand is higher than the supply, companies can adjust their prices upwards as consumers rush for the few available products. Sometimes companies may create artificial scarcity to leverage on this.

Profit Margin Goals

Most companies exist to maximise profits. They require a pricing strategy that addresses their profit goals. If you want to generate revenue in the short run, having discounted prices is ideal. If your goal is to achieve long-term profits, you require strategies that attract customer loyalty to the business.

Level of Competition

The competition a business has determines its profit margin. The more intense the competition, the more flexible a pricing strategy and policy may be. It's vital to have a competitive analysis when choosing your strategy.

Using a pricing strategy that aligns with your business goals and the needs of your target market will help your business grow. Adopt one of the strategies that fits your enterprise the best.

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