The day you decide to set up your brick-and-mortar or online shop is the day you start to conceptualize your brand and layout the foundation of your business. One of the first things you need to do is to think of pricing strategies for your goods. The way you price your products and services can affect whether customers think it is worth their time and investment, so you have to set it just right. If they are priced too high, customers will be reluctant to spend. If they are priced too low, however, then customers may be wary of the quality of your goods. In this article, we will look into what pricing strategies are, types of and how to conduct retail pricing strategies, and pricing strategy examples.
What Is a Pricing Strategy?
A pricing strategy is a method used to determine the best price for a product or service. On the seller’s side, you would want to make as much profit as possible. On the other hand, you should also consider the consumer’s mindset and market demand. Pricing is what defines the value of your product’s worth in the eyes of the consumer. If you want to generate the maximum profit possible, then there would be nothing that would come second than to carefully plan out your product pricing strategy.
Product pricing strategy accounts for multiple business factors such as marketing objectives, your target audience, the position of your brand, product attributes, and of course your revenue goals. Some of the factors that affect pricing include how much your product is in demand, pricing benchmarks of other companies who sell the same product, and the wave of economic trends.
How to Conduct a Pricing Analysis
Since pricing analysis is all about evaluating your current pricing strategy against market demand, doing thorough research before launching your product is a must. Not only that, but you always have to conduct this analysis every now and then as well. Good research beforehand can launch your product faster and create hype in the market. Keep in mind that once it’s a hit and other competitors use your pricing as their benchmark, then you would need to keep on updating it always be at the forefront in the market.
To conduct a pricing analysis, first, you need to determine the total cost of your product or service. For example, you’re a bakery owner and you’d want to sell bread and pastries. The total cost for one loaf of bread is not the ingredients of the bread alone, nor the packaging. Operational expenses such as electricity, water, kitchen equipment, your employees’ salaries, and your business website should also be brought into consideration for how much you want to price your bread. Then, you need to discern how many you need to sell at a given timeframe to cover the costs.
Once you have done this, you would then need to analyze the prices set by your competitors and finally review any legal or ethical constraints to the price and cost. An effective analysis will save you future headaches and decrease the chances of poor product performance and less-than-stellar sales. This can be conducted at the beginning of your product development or when you want to upgrade the current one.
Competition-Based Pricing: This type of pricing strategy takes into account the market price for your product. The cost of goods is not taken into consideration. Instead, it looks into how many other businesses with the same products as you sell their goods for. Businesses, where it is highly saturated, can choose to use this pricing strategy since having a lower price than others might be the deciding factor for clients. Also, keep checking on your competition’s price regularly to continue being the lowest in the market.
Geographic Pricing: When considering where to buy, most consumers choose to go to the shop near to them for convenience. Geographic pricing strategies depend on the location of your shop. One pricing strategy example is real estate. Those houses near the central business districts are more likely to be priced higher than those in the outskirts of the city. With this strategy, the price depends on where the land is located.
Subscription-Based Pricing: In this model, your customers will pay you on a regular basis over a certain time frame. One thing you would notice for Subscription-Based pricing is that choosing to be a subscriber for years will allow you to get a discounted price. The longer you avail of a company’s products, the cheaper it would be.
Strikingly’s paid membership subscription feature allows you to set-up this type of pricing strategy easily. By creating one for your website, you can generate income on a recurring basis. Make sure to show visitors how much value they will get from being a member such as special access to paid-only content and additional perks.
Not only that but users will have options as to what extent their access is to more features using Membership Tiers. Just like other companies who use these pricing strategies, when you pay more, you get more. This is one way to generate more revenue on your website.
This form is an example of the pricing table feature to let visitors have a hassle-free experience to become paid subscribers. As seen in the photo, customers only need to enter their name and email address to start their membership
Cost-Plus Pricing: Pricing strategies that consider the cost of your goods (COGS) as the deciding factor is what cost-plus pricing is. Also known as markup pricing, you note how much it took to produce your product and add a fixed markup percentage for every sale.
Dynamic Pricing: Also known as surge pricing, demand pricing, or time-based pricing, this method relies on the product’s demand. One pricing strategy example is for Uber users. When it is the peak of the day for booking transportation, you will notice that the prices are higher compared to when it is not rush hour. Aside from transportation, events booking and hotels also use this strategy.
Freemium Pricing: Taken from “free” and “premium”, freemium pricing is seen when companies offer customers their basic product for free with the idea that they would be able to convert them to access premium features.
One pricing strategy example is Strikingly’s website builder service. Strikingly offers a free basic plan alongside other premium services. We know that this is a good deal because once customers try our web builder service, they are more than satisfied and would want to continue using it with added features such as the Audience Plan for live chats, Domains to give your site a custom address, and Custom Email so that your business emails look more professional.
Another example of freemium pricing is Spotify, one of the most popular audio streaming providers. With the basic Spotify, you will be able to listen to music (with ads playing regularly). By upgrading to Spotify Premium, not only would the ads disappear, but you will be able to curate and save your own playlists and play or shuffle music according to your tastes.
Skimming Pricing: Pricing strategies that use skimming means that companies charge more when the product is newly launched and then they gradually decrease the price. One popular example of this is the Apple iPhone. The moment Apple launches is when the iPhone’s price is the highest. When this happens, older models immediately drop their prices. By using this pricing strategy, the company can recover some sunk costs.
Bundle Pricing: This method is when you offer two complementary products to your customer at a single price. By using this marketing strategy, you can add more revenue to your business by capturing clients who wouldn’t want to pay extra up front.
Psychological Pricing: Usually seen in restaurant menus or even in retail stores, psychological pricing strategies target the minds of customers by letting them think that they get a good deal at a price that is not so different from the original. One example is making use of “9” in the price. Ninety-nine cents stores attract customers because they think that the items are cheaper than a dollar and are too good to be passed up.
High-Low Pricing: Pricing strategies that use this method are retail stores that offer discounts, clearance sales, and year-end markdowns. This is by far one of the most popular pricing strategies out there as everybody loves a good discount. It makes customers think that they are spending less on a similar product. High-low pricing is also called a discount pricing strategy and is commonly used by retail shops that sell trendy items like clothing and furniture.
After gaining knowledge about it, which among these pricing strategies in marketing speaks to you the most? Shoot us a message if you’re ready to apply one to your business’s website today.