Determining the right price for products and services is one of the most difficult tasks a business can undertake. We consider factors like competition, key market demographics and profit margins to determine the perfect pricing to maximise profits.
Many factors affect the success of a business, but pricing strategy is one of the most crucial to get right. Determining the price point to set for your products and services involves considering a range of variables, such as production and distribution costs, your competition, your customer base and its demographics, and your positioning in the mind of theconsumer.
There are numerous strategies businesses can use to determine the best price point for their products and services. Here are the four most common pricing strategies that businesses use.
With premium pricing, prices are deliberately set to be higher than those of the competition. This strategy is best employed in the early days of a product’s life cycle and for high quality product that boast a distinct competitive edge over competitors’ products.
To get noticed in a crowded marketplace and gain market share, businesses will employ penetration strategies which offer a lower price tag for the goods or services than that of the competition. The aim is attract many customers thanks to the lower price and then employ marketing strategies to retain them.
Appealing to price-conscious customers, economy pricing requires businesses to actively lower their costs to a bare minimum in order to be able to offer a lower price without making a loss. Smaller businesses can often add this to their pricing strategy mix, applying it only to a select group of customers who the business deems worthy of retaining.
The opposite of penetration pricing, this is where a business will set prices higher than normal for an introductory period in order to maximise sales and recover expenditures before competitors enter the market. The aim is to achieve a profit quickly. After the introductory period, and as competition grows, prices are slowly lowered.
The various pricing strategies described above are each best suited to particular kinds of products and services. Some of the strategies work best for introducing new products when there is little competition, while others work better for mature products with plenty of competition in the market.
Businesses need to decide on the best strategy for their particular goods or services and taking into account influencing variables such as production and labour costs, advertising expenses and profit margins.
There are many other variables and considerations to contemplate when determining your pricing strategy, including;
We can assist your business analyse different pricing strategies, model the various impacts of same and provide expert advice on the best pricing strategy mix for you
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