The hardest part of any startup is making choices. By deciding on one, you decide not to do the other and one of the hardest choices entrepreneurs have to make is price points. Pricing is a process and the ultimate goal is to define a strategy that maximizes the revenue of a business.
Pricing is not just a matter of picking out numbers of following your gut. That is simply not a strategy. What most entrepreneurs don’t understand is that price is not an absolute value. It is usually perceived. The price only gets meaning and value once it is compared to something else.
What most people do is consider all the costs that went into production, competitor prices, and revenue goals, then do the math and come up with a price. However, there is a lot more to pricing than just numbers. Numbers are logical. Humans, not so much.
You need to understand how they perceive price because this is the most important part. In this post, we will address all the pricing strategies every seller needs to understand in order to reap maximum benefits from their business.
1. Premium Pricing
It's also known as prestige or image pricing. Premium pricing is when your pricing strategy is to mark the price higher than the industry standard. The goal here is to encourage the perception among consumers and show them that the product has a high value than the competitor products, hence the premium price.
The biggest advantage of the premium pricing strategy and building a premium image for your brand is that you’’ generate higher revenues. However, for this to be successful, the quality of the product needs to be as advertised. High premium quality. You must create a value perception.
A lot of consumers always feel that if it's more expensive, it must be better, and must always choose better quality.
2. Penetration Pricing
This is a pricing strategy where you initially keep your prices lower than your competitors. You do this go main a majority of the market share and in the process, trigger word of mouth marketing from the consumers. This may lead to initial losses for the business, but consumers shift to the brand, which makes a very strong market penetration.
The business can then increase the prices to start making profits in a way that they won’t lose many customers.
3. Economy Pricing
This is a pricing strategy mostly used by companies to attract price-conscious consumers. What you do here is keep the prices at a minimal by reducing the marketing and promotion expenditure. The only way to be successful is if you sell large volumes of products at low prices.
The economic strategy is only suitable for large businesses, like Walmart.
4. Price Skimming
Price skimming is a pricing strategy where you launch a high price when the products are still new to the market and have very few competitors. The idea here is to maximize the prices before other competitors enter the market and try to steal the share from you by making the product price sensitive.
The initial high price will help you recover all the development and marketing costs, but you’ll have lower it at some point once you get competition. The high price also gives the p[erception of being a premium or high-quality product.
One of the best pricing strategy examples you can understand is how both Android and Apple sell their smartphones upon release. After some time, those prices go down.
5. Psychological Pricing
This is one of the best pricing strategies you may use. It may actually be the easiest, but that depends on the way you look at it. Psychological pricing refers to the strategy you use to make your consumers purchase your products, which is triggered by emotions instead of logic.
The first strategy is the charm pricing where you reduce the price of your product by just a minimal amount and make them think its less. For instance, if you are selling a product at $5, lower it down to $4.99. The thing is, customers seem to think that this price is closer to $4 than $5, but the truth is, the only difference is 1 cent.
Prestige pricing involves setting a high price or rounding off for exclusive and premium products because rounded figures are easy to process. Buy One Get One Free offers also sell very well because they trigger the greed in the consumers.
Consumers love to think that they are making good decisions, and this would seem like a very good one. This is a pricing strategy that will either clear up your stock or increase sales. It’s most likely going to achieve both.
6. Bundle Pricing
Bundle pricing is when you sell products as a set or bundle at a lower price than they would cost separately. This is a great pricing strategy if you have unsold products and others that are doing very well. This will not only clear up the stock, but it’ll make profits too. This works even better in product line pricing when you bundle up complementary products.
Finding the right price is very essential especially for online sellers like Amazon sellers who face high competition. If you want to know more reasons for it, read more now.
Freemium is an internet based for businesses selling online. This is a good strategy where you offer basic services for free, but charge for additional premium features. This is very different from premium with free samples because you won’t have to pay anything to use those free services.
For instance, a game like Candy Crush, which is pretty popular is a freemium pricing example. Getting the game is free, but getting more live of other features is not.
Pricing Strategies Made Easy
These are some of the best pricing strategies you can use for your business. The strategy you use needs to be effective for your specific business and products. Not all pricing strategies will work for you, so consider all bases before making a decision.
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