Have you considered different prices to market your goods and services? What is pricing strategy doing for your business?

The decision on how to price a product or service is an extremely important marketing decision. It makes up one quarter of a typical product’s marketing mix, with the remaining being production, distribution, and promotion. Pricing also affects the overall business plan: how much can you afford to price the product? Given the labor, production, and advertising costs per unit, only a percentage of revenue will contribute to profits. So, what is pricing strategy? Simply put, it’s a strategic implementation of one or several pricing methods, each with a specific purpose and aim.

What is pricing strategy? The seven main strategies explained.

1. Penetration pricing

This first strategy is utilized when a product first launches. The price is marked lower than the competition, making it more desirable and, therefore, gaining larger market share. Once the goal amount of sign ups, purchases, or subscriptions is met, the company will raise the price to a higher number.

2. Optional pricing

The product will be offered at a low price, but include several “optional” additions and accessories. The optional add-ons are usually priced substantially higher than the product itself and needed for the product to function at full capacity. Good examples of this would be smart phones, where the initial price is low, but the added data plans and accessories are expensive.

3. Premium pricing

Certain products and services are priced to reflect exclusivity. The higher price is a criterion for brands that seek the reputation of “best in class.” The aim is to be perceived as exceptionally higher quality, solely based on the fact that the product is priced higher than all of its competitors.

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4. Competition pricing

One basic pricing strategy is to directly compete with other products and services in the market. There are three choices: price lower, higher, or identical to competitors. When competing brands have very similar products (plastic cups, paper towels, etc.) consumers will usually base their purchase decisions on price. Therefore, companies will adjust their pricing to compete and gain better market share.

5. Value pricing

Instead of pricing against labor and distribution costs, this strategy bases price on its perceived value. In other words, how much are people willing to pay for it? Advertising strategies reinforce the value of what the products does, rather than how much it costs.

6. Bundle pricing

Bundling products is an effective way to influence perceived value. Rather than sell products separately, offer them in one unit at a discounted price. The bundled price is lower than the sum of its individual parts. In certain industries, like digital magazines, the cost of bundling subscription products is little cost for the publication, but offers greater value to customers.

7. Skimming pricing

In this pricing strategy, the product is initially priced at a high number, but decreases slowly over time. The main objectives are two-fold: First, quickly recover production, advertising, and distribution costs. Next, gradually lower to the price to attract a wider market. This strategy “skims” profits from different layers of the market as its price decreases.

What is pricing strategy doing for your business?

If you’re considering pricing strategies for your product or service, you can utilize combinations or individual methods. Do not choose price lightly – if the price is perceived to be too high, too low, or noncompetitive, you will run into trouble. Always calculate the total costs of production, promotion, and distribution so you have a solid foundation to base strategy on.

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client-managerWant to convert more leads who are attracted to your pricing?  Sign up with Blitz today for a 30-day free trial of our sales automation software and turn leads into customers with less work!

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What do you think is the most effective pricing strategy? Is there one you think should be included on this list? The only thing missing is your comments!