Multiple businesses choose to join an industry with a specific product or service without concerning themselves with the pricing strategies that they should be utilizing for this new product. Not having a predetermined strategy for the pricing of your product always proves problematic down the line; this can be presented in factors like low sales, distrust from potential customers and the product may even have a bad reputation.
This usually happens if the product is priced at a much lower rate than the expected rate, which shows that the product is of low quality. Furthermore, your product could also be overpriced, which is expected from the price leader of the market, without the actual characteristics that would make your product be a market leader.
In this article we will be discussing the methods and routes which you -as an entrepreneur- should take when making up your pricing strategy, displaying the importance of such pricing strategies to your business in general, and the sales of your product.
What is Pricing?
The general definition of pricing is the amount of money that the seller is demanding in return for their product being taken by a customer. However, the application of prices is not as simple and generic. Major factors that go into the process of pricing are Indicators to your potential customers about how much you value your brand, product, and the customers themselves. Prices are usually the first thing a customer asks about a product, which makes it one of the first factors that can influence a customer’s decision to buy or not buy your product; this is why the calculation of a price is always expected to be accurate and precise.
The Different Pricing Strategies:
The methods and methodologies that firms employ to set prices for their products and services are referred to as pricing strategies. If price refers to the amount you charge for your items, product pricing strategy refers to how you determine that number. There are a variety of pricing techniques to pick from, and following are a few of the most prevalent ones:
Value-Based Pricing: This is a pricing approach that is primarily focused on a customer’s perception of a product’s or service’s value. Consumer-focused pricing, or value pricing, is when a company bases its pricing on how much a customer believes a product is worth. Companies will use methods like deep market research, surveys and interviews with the customers to arrive at an average price that they believe the customers will be willing to pay.
Competitive Pricing: This is the process of deciding on key price points, that you can take advantage of in a market (product or service-based) while still being relative to the prices of the competitors. It is basically the logical comparison between your product and the of the competitors and using this comparison as a foundation for the price you choose. This method is more commonly utilized by firms that sell identical items, because services can differ from one company to another, while product qualities remain consistent.
Price Skimming: This is a product pricing strategy in which the market is divided into levels of price sensitivity. A company starts by charging the highest initial price that customers are willing to pay and then gradually decreases it. As the first customers’ demands are met and competition enters the market, the company reduces the price to appeal to a new, more price-sensitive portion of the population. The skimming method takes its name from “skimming” successive layers of cream, or consumer segments through the spoon that is the price.
Cost-Plus Pricing: Also called mark-up pricing, this is a pricing method that is based on simple accounting. In this pricing method, the cost of producing one unit of the product is calculated and a predetermined percentage of that cost is added on it to land at the final price of the product.
Penetration Pricing: Businesses use penetration pricing as a marketing tactic to attract customers to a new product or service by offering a lower price during its initial release. A reduced price assists a new product or service in breaking into the market and diverting customers’ attention away from competitors. The approach of employing cheap prices to make a large number of buyers aware of a new product is known as market penetration pricing.
Economy Pricing: A method of pricing that is based on getting a large number of people to buy the product. It is dubbed a volume-based pricing technique in which you set a cheap price for your product and earn money based on the number of consumers that buy it. It’s often used for commodity goods that don’t have the marketing and advertising costs of their name-brand counterparts, such as generic-brand foods or prescriptions.
The key for your product to be well placed in its market and in the conscious mind of your customers, is to go through the different pricing strategies that can be implemented. This is then followed by knowing which of these strategies will be compatible with your product and makes sure that it gets a competitive chance within the industry.
Finally, don’t be afraid of being creative, know that you can always take the advantages of more than one strategy and apply them to your own product pricing, there is no rule in using them that says you can only take one. You are the decision maker, and will have a better grasp at knowing what will benefit your product.