Pick the correct Pricing Strategy for your Business and Boom!!!

The price point of a product matters a lot and the management team considers everything before fixing the price of a product. This includes a segment of the product, ability of a consumer to pay for the products, market condition, competitors and their marketing strategy, the production cost, taxes, and several other important factors.

Here are few Pricing strategies that need to be considered in any business before fixing the prices of the products:

1. Penetration Pricing (Pricing to gain market share)

To penetrate into the market and gain market share, some companies fix low prices for their products during the launch period. This period mostly lasts for a few weeks or even months, depending on the company. Sometimes few companies also provide certain services for free to attract customers.

Once the companies gain their market share, the prices increase.

In some cases, whenever a company introduces a new premier product or a service, they keep the prices artificially low during the introductory offer and later raise it.

2. Economy pricing (No Frill Low Price)

Economy pricing is also known as No Frills Low Price. In this type of pricing strategy, the marketing costs and promotion costs are fixed to a minimum.  A classic example to understand this strategy is the concept of budget airlines that are known for keeping their overheads very low and hence offering a very nominal price to fill an aircraft. They work on the principle of varied pricing by slapping low prices to sell the first few seats, selling the number of middle seats at economic prices and putting high prices for the last few seats on their flights.

So, the fundamental principle of this pricing model is assigning low prices only to selected products. And it is mostly used in supermarkets and retail food stores where production costs are set to minimum.

3. Price Skimming

In this pricing model, marketers set a high initial price of a product and then bring it down over time.  The concept to launch the products at a higher price comes from the fact that as the demand for the initial set of customers is satisfied, the prices are lowered to attract others.

This pricing model is used when a product is just launched in the market when the business charges high prices as few people want to be the first buyers of the product.

4. Psychological Pricing

Psychological pricing is a smart tactic to keep the price points below the immediate next rounding number. This pricing strategy effectively works for consumers who respond to prices on an emotional basis rather than looking at them from a rational perspective.

For example, assigning the price of a shirt to $199 instead of $200. Well, yes sometimes it is weird how some people use price as the deciding factor to buy stuff especially when they are dealing with an unfamiliar set of products. Suppose you are dealing with an unfamiliar market and have to buy a product, would you straightaway buy the cheapest? Or would you go for the most expensive one? Or, the last option to go for the one at the middle price? In unfamiliar markets, the price should be an indicator of quality or benefits of a product.

 5. Product Line Pricing

When there is a range of products or services available, Product Line Pricing comes into play. It reflects the benefits of the range of products and their production costs. In this model, the prices are delivered making the price point fair over the complete range of products.

For example, if a packet of chips is bought X is the price (for 1 packet), and if 5 packs of the same chips are bought, then instead of paying 5X, it is expected for a user to pay price less than 5X. Profit is made on the complete range of products rather than a single item.

 

Apart from these, there are a few other pricing models like Optional Product Pricing, Captive Product Pricing, Product Bundle Pricing, etc. about which we will learn in the subsequent posts.

Happy Reading!