A pricing strategy is arguably the most important for all the elements you need to consider when it comes to your business. Go too high, and people will be put off buying your product or service. Go too low, and potential customers will question the quality. But how do you find the right pricing strategy? That’s the purpose of this guide, which looks at the different types of pricing strategies for your business.
- Price skimming
- Market penetration pricing
- Premium pricing
- Economy pricing
- Value-based pricing
- Dynamic pricing
- Bundle pricing
Different pricing strategies
Price skimming is popular with many startups. It involves charging the highest initial price a customer is willing to pay and then lowering the amount over time. Once the demand for the first customer is satisfied and competition enters the market, the company lowers the price to attract more price-sensitive customers. Price skimming can be particularly successful when there isn’t much competition for a product or service.
Market penetration pricing
Market penetration pricing is almost the opposite of price skimming. It sees a company offering a lower price during its initial offering, intending to attract customers to its new product or service. The lower price is designed to help the new product penetrate the market and draw customers away from competitors. Market penetration pricing only usually works in the interim, aiming to raise awareness with a large number of customers.
If a business creates a high-quality product or service aimed at high-income individuals, then it might opt to try premium pricing. This pricing strategy involves developing a product that people deem as high value. Therefore, the target market is anyone operating at the luxury or high-end lifestyle end of the spectrum.
With economy pricing, the aim is to target customers who want to save money when purchasing goods or services. Stores like Asda use economy pricing models to appeal to a range of customers looking to be careful with their money. Unlike premium pricing, the economy tends to be for more functional products and services aimed at a specific target market.
Bundle pricing can work if you’re selling multiple products. You take them and bundle everything together, selling at a lower price than if items were charged individually. Discounts can create a sense of demand, allowing companies to sell products and services they previously struggled to shift. When done right, the result is a greater volume in sales.
Flexibility can be key for many businesses, and dynamic pricing is often used to establish flexible market prices for products and services. It considers variables, such as the balance between supply and demand, as well as seasonality and competitive strategy. As a result, companies can adapt to the market, be more agile, and offer a more competitive service to customers.
Choosing the right pricing strategy
With so many pricing strategy options, businesses have to decide the best way to market their products and services. By taking a good look at your offering and comparing it to other competitors, you can settle on a pricing strategy designed to help your company progress and find the sweet spot for the cost of your products and services.