In putting up a business, one of the most important decisions you'll make is how to price your product because it affects practically every facet of your company. Product pricing will determine everything, including your cash flow, profit margins, and the expenses you can afford.
Yes, it's all too easy to get caught up on your product pricing structure. Nonetheless, you mustn't let this decision prevent you from starting the project. Although you still need to start somewhere to price a product that makes sense, the best pricing information you can obtain comes from launching and testing with actual customers.
What is Product Pricing?
Product pricing strategy directly affects your cash flow, profit margins, client demand, and company success.
Product pricing is the process of figuring out a product's monetary measure based on internal and external elements. It's basically putting a value on the items in your store.
Pricing methods vary depending on the business, the target market, and even the cost of the items. Subscription-based pricing schemes, for instance, are widespread in e-commerce. Competitive pricing is frequently the best course of action in more cutthroat markets.
Product Pricing and How it Affects Consumer's Perception
Believe it or not, how consumers view costs is among the topics that marketers find most fascinating, therefore, you have to price a product smartly. Can your consumers logically weigh the costs, industry standards, rival prices, etc., when they read a price tag before making a purchase? And how can you affect both their final choice and how they perceive the price?
Two sides to the coin concept. In the minds of consumers, price plays two essential roles. The first role is detrimental—the financial cost of receiving a good or service. On the plus side, high quality can be assumed from how you price a product. How to price your product is a little tricky; if you price your product really low, consumers will believe that your product is of inferior quality or is a knockoff. And, if your price is really high, they'll think you're ripping them off.
Keep in mind that customers are more inclined to buy a product if they see the price as having a good weight on their purchase. Therefore, finding the ideal balance between apparent expenditure and perceived value is a crucial brand responsibility.
How to Price a Product
Through exposure to various prices, consumers gradually develop internal reference prices. They make an assessment of a new price tag after comparing it to the market rate.
In other words, our judgment of the price at hand is influenced by our prior exposure to different product pricing. Knowing this, marketers created a strategy known as price anchoring.
Here are different strategies that you can use to effectively price a product, boost sales, and keep your customer's attention.
1. Price slash product pricing strategy
It involves lowering the cost of goods and services. Price slashing can be used as a marketing tactic to launch a new product. It can also be a quick strategy to increase total sales, especially in the last few weeks of the financial reporting quarters.
Retailers occasionally compete on price to lure customers away from their competitors. These pricing battles can sometimes turn into price wars as competitors keep lowering their prices, which reduces profit margins.
Be careful though because price reduction tactics may have certain drawbacks.
- Large corporations are frequently favored by aggressive price-cutting, especially predatory price-cutting, which tips the scales in favor of big, publicly traded firms with access to investor cash or with other corporate arms that may provide them with financial assistance. Rarely do small-scale businesses or stores, have access to such finance. With their daily and monthly financial flow, they must pay the bills. Small firms shutting down and consumers having few options besides a huge behemoth are frequent outcomes of significant pricing wars.
- Not always sustainable: Price reduction frequently results in profit margins that cannot be maintained. Most shops can only reduce prices temporarily; eventually, they must raise prices to cover their own costs.
Image taken from Strikingly
If you want to play the product price slashing game, you can add a sale price to your online store product with Strikingly's Simple Store. When your customers see the slashed price from the original price, chances are they will purchase from your online e-commerce shop.
2. Shifting high-low product pricing
To price a product using the high-low product pricing strategy, you to alternate between high and low prices, as the name would imply. This approach of product pricing, which sets the value of the product in the consumer's mind, is typically utilized by businesses whose goods or services are typically priced more than those of their competitors. Lower costs on essential commodities are provided through promotions, ads, and coupons. The purpose of the lower promotional prices is to entice customers to the business, who will then think they are getting a deal.
Strikingly's Simple Store has an option for store owners to create coupons, so you can offer your customers various types of discounts. Promos can be a fantastic strategy for increasing sales! You could make:
- Percentage-based discounts
- Flat discounts
- Free shipping discounts
Image taken from Strikingly
3. Premium Pricing
This is a technique to price a product by artificially inflating a product or service's pricing in order to promote positive buyer views simply based on price. It takes advantage of consumers' propensity to believe that pricey, luxuriant goods are more desirable and signify superior quality, which consumers are willing to pay a premium price. Strategically pricing your product more than your direct rivals creates the impression that your product's market is a little bit higher quality than the rest. But for a product to succeed, the cost must be justified; hence, it functions best in conjunction with a planned advertising strategy intended to increase your product pricing.
4. Subscription-based product pricing strategy
With a subscription-based pricing strategy, your clients will pay you repeatedly over a predetermined period of time. One aspect of subscription-based pricing that you would notice is that choosing to remain a member for many years will enable you to receive a lower price. The cost of using a company's products decreases the longer you use them.
Image taken from Strikingly
The paid membership subscription feature of Strikingly makes it simple to put up this kind of pricing structure. You can make money regularly by developing one for your website. Be sure to emphasize the benefits of joining, such as exclusive access to information available exclusively to paying customers and extra benefits.
5. Price a product on a bundle
Sellers will bundle a number of things together using this technique. Old stock is also moved as a result. When a product is nearing the end of its life cycle, package sales are frequently used. When one appealing item is offered in a lot with a box of less intriguing items at auctions, this strategy usually works. It's an effective strategy for disposing slow moving products and functions similarly to promotional pricing.
6. Decoy product pricing
Customers sometimes have to choose between products with varying costs and features while making purchases. This pricing strategy aims to maximize sales of one specific product by influencing the consumer's purchase choice. At least three products will be available from the seller, and two of them will be priced similarly or equally. The most expensive items should be the two with the closest price differences, and one of the two should be less appealing than the other. To price a product this way will force consumers to weigh options with comparable prices, which will enhance sales of the most desirable and priciest option.
Image taken from Strikingly
The Simple Store lets you showcase your product with descriptions and prices shown. You can choose your product's pricing and available stock under Pricing & Product Options. Plus, you can add product options like size and color.
7. Loss Leader
To price a product offered at a loss (sometimes without a profit) in order to encourage other profitable sales or draw in new clients is known as a loss leader. The hope is that it will aid the company in increasing their overall market share. When first entering a market, it's standard procedure to introduce new clients to a service or product with the hopes of establishing a clientele and generating recurring revenue in the future. Since not all companies are created equal, this is the most suitable technique for all the companies. Here are some points that you need to weigh in when using the loss leader method to price a product.
- In order to draw customers or sell other, more expensive products, a loss leader strategy sets a product's price below its cost of manufacturing. Start up companies cannot afford to plunge in a method like this.
- Loss leading is a debatable tactic that's viewed as exploitative. Because not all companies can participate in this price war, they are often thrown out of business.
- When attempting to enter new markets and increase market share, some businesses employ a loss leading strategy.
- Because they can sell other products profitably to make up for the loss, large corporations can afford to price a product without a margin.
- Small businesses and suppliers can suffer as a result of loss leading tactics, with the latter being compelled to maintain low prices of their own in order for the former to continue.
You'd be dead wrong to assume that having a physical store where your customers can buy is all that's necessary to succeed online. For the product pricing strategies discussed above to succeed, an online store is a must. Many web designers believe that the website interface is the only factor that influences users' decisions. The truth is that they also consider product pricing while making their purchases.
A customer who visits an eCommerce website, either aims to purchase a product or get product-related information. As a result, you must prioritize and apply the appropriate pricing methods for your goods. If you are in search of a robust web hosting platform, Strikingly is the best partner for your E-commerce website. If you're worried about how to start, we've got you covered. You can send emails or chat with our Happiness Officers and they'd be more than happy to provide help.
Now that you've learned different techniques in pricing your product, which one do you think suits you best?