The pricing of a product is one of the most important questions you can ask yourself in terms of your marketing strategy, which also includes product, promotion, placement (or distribution) and people.
All competitive pricing strategies are, in fact, double-edges swords.
What will attract one consumer will turn off others and vice versa. You cannot appeal equally to all people, and you need to accept that. You must pick your primary customer segment and price based on the segments needs and buying behaviours.
If you are wondering how to price your products, but are finding it hard which pricing strategy is the best for your business, read on.
Premium pricing is a strategy used by businesses to introduce a new product or service that has a distinct competitive advantage over other products that might be available in the market. It is, therefore, priced higher than its competition.
This type of pricing strategy is most effective at the start of a products life-cycle as it allows companies to create an image in which customers see the product as having more value and being worth more money.
Price skimming will allow your business to increase the sale of its products by setting prices high during the introductory phase of the products, and then gradually decreasing its price as competitor goods appear in the market.
The biggest benefit of this pricing strategy is that it will allow your business to maximise its profits from an early stage before dropping the price to look more attractive. It will help small business recoup development costs but also creates the illusion of exclusivity when the product first appears available in the market.
Economy pricing is a valuation technique which assigns a low price to selected products.
Economy pricing is widely used in the retail food business for groceries such as canned and frozen goods sold under generic food brands where marketing and production costs have been kept to a minimum.
Large companies are able to take advantage of this low-price strategy, but small business will always have difficulty selling enough products at low prices to stay in business.
Penetration pricing is when the price charged for products and services is set low on purpose so that the business is able to gain a section of the market share.
Once they have achieved this goal, they will then increase the price again. It works particularly well for companies that deal in services, as if they are able to get you to sign up to their service at a discounted rate for a certain amount of time, you are more likely to stay with that company once the discount ends and they can then start gradually increasing the price.