Some Important Pricing Strategies That You Must Use
To sell goods and services in a competitive marketplace, companies must use different types of pricing strategies in order to make a profit.
As a business manager, there are numerous factors that you must take into account. The factors are:
- Prices offered by the competitors
- Production cost
- Distribution cost
- Image of the product in the minds of the customers
- Demographics of potential customers
Take a look at some important pricing strategies:
When you are introducing a new product in the market which has different competitive benefits over other similar products, you can use a premium pricing strategy. In premium pricing strategy, a premium-priced product is priced higher as compared to its opponents.
When the life cycle of a product begins, premium pricing is one of the most effective pricing strategies. Premium pricing can be used in a better way by the small businesses who sell products with unique properties. If you want to make premium pricing palatable to consumers, you can create an image in which the products are recognized by the customers as of high-quality and worth the higher prices. You also need to synchronize your efforts related to marketing, packaging of the product as well as the décor of your store in order to support the image that your goods are worth the higher prices.
Penetration pricing can be utilized in order to gain the market share by offering the products and services to the customers at a price which is lower than that of the opponents. As a marketer, you might want to get your goods out in the market so that the awareness of the consumers can be raised and buyers can be stimulated to try your goods and services.
Sometimes this type of lower price strategy can lead to losses for the company but if you are able to attain a higher market penetration, it will increase the prices of the products to a more profitable level.
In this type of pricing strategy, prices of the goods and services are set a bare minimum in order to make a small profit. The promotional and marketing costs are minimized by the marketers. If you want to make your economy pricing strategy profitable, you need to sell a high volume of goods and services at lower prices. There are many large companies like Walmart which are taking the benefits of this lower-pricing strategy. Small businesses are not able to sell more products at lower prices.
Price skimming refers to a pricing strategy in which the prices of the products are set high by introducing new goods in the market at the time when there are few competitors.
Under this type of pricing strategy, a higher price is set for an innovative product and if the number of competitors in the market increases with similar products, prices are reduced.
Not every marketer can use price skimming strategy. Following are some conditions that need to be fulfilled for using this strategy:
- There must be a highly unique product and its demand must be inelastic
You can charge high price only if you have unique products, the substitutes of which are not easily available in the market and the customers are ready to pay high prices for the uniqueness and novelty of the products. For example, Rolls Royce and Rolex watch.
- The uniqueness and the novelty of the products must be maintained for some time
If your product can be easily copied by other companies, then the price skimming strategy will not be able to bring revenue to your company for a longer period of time.
- Availability of class market segment
In order to use the price skimming strategy, it is important that there is the availability of customers in the market who value the uniqueness of your product and are ready to pay a high price for it.
By adopting bundle pricing strategy, the small businesses are able to sell multiple products at a lower price. This way, the customers are able to buy multiple products at a lower price as compare to when they purchase each product individually. By selling the goods in bundles, you can sell the unsold items that are taking up much space in your store. It will also lead to increase in value perception in the eyes of the customers. The reason being, you are giving them something for free.
Companies who are indulged in selling complementary products, they can use bundle pricing more effectively. For example, if you own a restaurant, you can provide a free dessert on a specific day of the week.
Psychological pricing is used in order to stimulate the customers to purchase the products on the basis of emotions instead of a common-sense logic. The best instance of this kind of pricing strategy is when a company is fixing the price of its product at $299 rather than $300. Though the difference is very small, still $299 is observed by the customers as extensively cheaper. This is referred to as ‘Left-digit effect’.
Companies these days are required to understand and develop various pricing strategies that are suitable for their products and services.
There are some pricing strategies that work for introducing new goods in the market. On the other hand, some pricing strategies are utilized for mature products and when there is a large number of competitors in the market.