It may seem easy to set your business’s price: Just list your product at a higher price than you paid for it when you bought it or manufactured it. You’ll still make money.
Your prices are not just numbers. Your pricing strategy can reflect your company’s personality, the way you treat and view your competitors, and your value for your customers. It’s crucial to develop a pricing strategy that is well thought out.
What Considerations to Make when setting up your pricing strategy
It’s not a good idea to base your pricing decisions solely on profits. It should be an informed, calculated decision that takes into account your brand, business identity, and financial stability.
Pricing strategy is no different. It starts by analyzing your business goals and needs. It’s time to do some soul-searching. What is your company trying to achieve in the world and economy? This may mean adopting a traditional retail approach, developing a service-based mindset, or focusing on personal relationships with your customers.
Do some research about the market before you enter it. By conducting online research, or by scouting local businesses, you can identify three to five major competitors in your industry. What your competitors do will influence your business and future decisions, no matter what pricing strategy you use. Understanding the strategies of your competitors can help you to differentiate your business. An effective pricing strategy will help you to stand out in an economy with thousands of small businesses offering the same products and/or services.
Speak to potential customers as a final step in your research. This will give you a good idea of how they view your brand, your product, or your service. You can gain valuable insights into pricing by talking to potential customers. You can do this through informal conversations with family and friends or formal surveys of buyers.
You may have done some of the legwork already when creating your business plan but it is good to have all the information and insight you can before you decide on a pricing strategy.
Also read: MVP for Startups: What Is MVP And How Can Startups Benefit from It?
7 Price strategies to attract new customers for your business
You can price your product in a variety of ways, but some may work better for you than others depending on where you are. Consider the seven price strategies many businesses use to attract new customers.
1. Price skimming
In skimming, the initial price of a new product is set high and the price gradually decreases as more competitors enter the marketplace. This pricing model is perfect for companies that want to enter emerging markets. This allows companies to take advantage of early adopters, and then undercut their competitors when they enter an established market. Skimming strategies are largely dependent on the market that you want to enter.
2. Market penetration pricing
Price skimming is the exact opposite of pricing for market penetration. You can take over a marketplace by undercutting competitors, instead of starting high and gradually lowering your prices. Once you develop a reliable customer base, you raise prices. This strategy is based on many factors, including your company’s willingness to take risks upfront in order to gain a solid footing in the market. In order to build a loyal clientele, you may need other marketing or branding strategies.
3. Premium pricing
Businesses that produce high-quality goods and sell them to individuals with high incomes will be able to charge premium prices. This pricing strategy relies on developing products that are high-quality and customers will find valuable. To appeal to the right consumer, you’ll need to create a branding strategy that is “luxury”, “lifestyle”, or both.
4. Economy pricing
A strategy that uses economy pricing is to target customers who are looking to save money on the goods or services they purchase. Walmart and Costco are two prime examples of models that use economy pricing. Adopting an economic pricing strategy depends on overhead costs and overall product value, just like premium pricing.
5. Bundle pricing
Bundle pricing is when companies combine several products and sell them at a lower price than they would individually. Bundle pricing can be a great way to quickly move large amounts of inventory. Profits on low-value products must outweigh losses on high-value ones in order to have a successful bundle pricing strategy.
6. Value-based Pricing
The value-based pricing model is similar to the premium price. This model bases a company’s pricing on what the customer thinks the product is worth. This pricing model works best for merchants that offer unique products rather than commodities.
How can you tell what customers think a product is worth? You can’t get an exact cost, but certain marketing techniques will help you understand what the customer thinks. You can ask for feedback from customers during the product-development phase or organize a focus group. You can add perceived value to your product by investing in your brand.
Also read: 4 Ways to Create a Successful Product Portfolio
7. Dynamic pricing
Dynamic pricing lets you change the price at any time based on market demand. Uber’s surge price is an excellent example of dynamic pricing. Ubers are a good option during low-demand periods. Uber’s price will increase if a storm hits during rush hour in the morning. Demand is likely to be high. This is also possible for smaller merchants, depending on the seasonal demand for your product or service.
What pricing strategy is best for you?
Each of these strategies has its own benefits and disadvantages. You must at least ensure that your pricing strategy includes a profit margin and covers all of your costs. By determining your needs, you can determine which strategies will work best for your company.
You can try out different strategies if you have already started your business. You can also change strategies depending on which products you are selling.
Instead of focusing on a single number, focus on the range. Profitwell wrote: “Don’t spend time arguing about $500 vs. $505 because it doesn’t really matter until you’ve built a solid foundation.”
Pricing your inventory correctly is crucial for business success, regardless of the tactic you use. If you don’t know how to price your product effectively, even if you have the best team, the most beautiful storefront, and the best products, your business will struggle.
