How do you ensure you stand out in a crowded market and maximise your business’s profitability?
The answer is choosing the most effective pricing strategy for your particular business to ensure it remains competitive.
Premium pricing necessitates that customers are encouraged to view products as being worth the higher price by creating a value perception in the mind of the customer. In other words, customers perceive that the products have value and are worth the higher price. To justify the higher price, businesses need to align their marketing, packaging, and corporate image to support the value perception.
There can be a loss of income in the beginning, but this is counterbalanced by the heightened awareness in the market which leads to more sales. Once a market has been penetrated, businesses often raise prices again to a level concomitant with market position.
This is a great way to attract “early adopters” who will be more willing to pay a premium price, after which more price-conscious customers can be gathered through lower prices. Price skimming strategies can help create a sense of higher quality and exclusivity which can aid marketing efforts. It can be helpful for businesses that lack the financial resources to create a high volume of products—and the fast injection of cash can finance further production and marketing costs.
Customers can be enticed to part with their money by using emotional and psychological techniques. A well-known example is when products are priced at, for example, $59 rather than $60, taking advantage of consumers’ tendency to prioritise the first digit of a price (the “left digit effect”), even when the actual differential is insignificant. Demand for the products or services are often boosted when psychology pricing is used, because customers are swayed by an illusory discount.
Consumers will often be willing to buy a group of products if it works out as better value than if they bought each product separately. This can shift excess stock, and increase the value perception customers have about your product, as they believe they are obtaining more for their money. This works well with businesses selling complimentary items, and is most effective when the profits made on the higher-value items in a bundle can cover any losses on the sale of lower-valued products.
Product life cycle pricing
Products have a life cycle whereby they progress through the stages of introduction, growth, maturity and decline. Product life cycle pricing is where the price will fluctuate depending on which stage in the cycle that the product is in: for example, during the introduction phase, sales are often high, so prices are kept high.
A small business may sometimes need to adjust its pricing or risk losing market share to competitors, especially when there is little product differentiation in the market.
Temporary discount pricing
This is where discounts (for example, coupons, BOGOF deals, seasonal sales and volume purchase promotions) are temporarily applied in order to specifically increase sales.
If you have questions regarding pricing please read more about our pricing strategy advisory service.