Pricing is essential for any business, but it is not that easy. There are various pricing strategies when costing a product or service.
1. Premium Pricing
Here, businesses set costs higher than their competitors. Premium pricing is often most effective in the early stages of a product’s life cycle, and ideal for small businesses that sell unique value added products or services.
Customers need to perceive products as being worth the higher price, a business must work hard to create a perception of high value. Along with creating a high-quality product, owners should ensure their marketing efforts, the product’s packaging and the store’s décor all combine to support the premium price. Luxury goods and services are a perfect example.
2. Pricing for Market Penetration
Penetration strategies aim to attract buyers by offering lower prices on goods and services. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business, so the lower cost is essentially as marketing feature, make it work for a defined and budgeted period, do not get into this habit, it is difficult to break out of.
Over time, however, the increase in awareness can drive profits and help small businesses to stand out from the crowd. In the long run, after sufficiently penetrating a market, companies often wind up raising their prices to better reflect the state of their position within the market. The best time to do this is at a significant point in the product life-cycle, like a new range or version.
3. Economy Pricing
Used by a wide range of businesses including generic food suppliers and discount retailers, economy pricing aims to attract the most price-conscious of consumers. With this strategy, businesses minimize the costs associated with marketing and production in order to keep product prices down. As a result, customers can purchase the products they need without frills.
While economy pricing is incredibly effective for large companies like Wal-Mart and Target, the technique can be dangerous for small businesses. Because small businesses lack the sales volume of larger companies, they may struggle to generate a sufficient profit when prices are too low. Still, selectively tailoring discounts to your most loyal customers can be a great way to guarantee their patronage for years to come.
4. Price Skimming
Designed to help businesses maximize sales on new products and services, price skimming involves setting rates high during the introductory phase. The company then lowers prices gradually as competitor goods appear on the market.
One of the benefits of price skimming is that it allows businesses to maximize profits on early adopters before dropping prices to attract more price-sensitive consumers. Not only does price skimming help a small business recoup its development costs, but it also creates an illusion of quality and exclusivity when your item is first introduced to the marketplace.
5. Psychology Pricing
With the our economy in a bad state , price remains a major concern to consumers. Psychology pricing refers to techniques that marketers use to encourage customers to respond on emotional levels rather than logical ones.
For example, setting the price of a watch at R199 is proven to attract more consumers than setting it at R200, even though the true difference here is quite small. One explanation for this trend is that consumers tend to put more attention on the first number on a price tag than the last. The goal of psychology pricing is to increase demand by creating an illusion of enhanced value for the consumer.
6. Bundle Pricing
With bundle pricing, small businesses sell multiple products for a lower rate than consumers would face if they purchased each item individually. Not only is bundling goods an effective way of moving unsold items that are taking up space in your facility, but it can also increase the value perception in the eyes of your customers, since you’re essentially giving them something for free.
Bundle pricing is more effective for companies that sell complimentary products. For example, a restaurant can take advantage of bundle pricing by including dessert with every entrée sold on a particular day of the week. Small businesses should keep in mind that the profits they earn on the higher-value items must make up for the losses they take on the lower-value product.
Pricing strategies are important, but it’s also important to not lose sight of the price itself. Here are five things to consider, alongside your strategy, when pricing your products.