Pricing

Pricing Strategy Consulting

Pricing is the top profit lever, yet not many companies invest the required amount of time and research to set the right price for their product. If you set product prices too high, you might lose out on valuable sales whereas setting them too low would mean losing out on revenue. Thus, setting the right price should not be a haphazard decision or focused entirely on profit as the price is the true reflection of one’s business identity and determine how you value your customers.
Determining the right pricing strategy should start with the assessment of your own business’s needs and goals. Commercial soul searching can help to identify how your business can contribute to the economy and world. Once you have defined goals and needs, perform market research to analyze competitors by conducting online research or scouting local businesses. In an economy where thousands of businesses provide the same kind of products and services, an effective pricing strategy can help you stand out.

Here are the top pricing strategies that can help you accomplish business goals and maximize profits.

• Value-Based Pricing Strategy
Setting the price based on customers’ perceived value of the goods or services being sold is known as value-based pricing or customer-focused pricing. This pricing strategy works on the customers’ willingness to pay for a product based upon its quality and brand value. Value-based pricing requires in-depth research into target audiences, broader market as a whole, and competitor product offerings. Businesses can maximize their revenue by asking the highest possible price and building brand value across various assortments and justify higher prices. In a way, a value-based pricing strategy includes every part of the pricing and marketing mix. Some of the top brands in the world such as Apple, Nike, Louis Vuitton, Rolex, etc. employ value-based pricing throughout their product line-up.
• Competitive Pricing Strategy
Implementing a competitive pricing strategy requires enriched knowledge about the industry and relevant competitors to make better business-related decisions. Competitive pricing analysis allows better positioning of the businesses by making the prices the same or even cheaper, which encourages consumers to incline towards a brand. Sometimes pricing products just in the middle of the range, in comparison to competitors works perfectly for consumers that are more price sensitive. However, to be successful in competitive pricing strategy, businesses need to gather fresh data from the competition and act with effective responses.
• Premium Pricing Strategy
In the premium pricing strategy, marketing managers set the higher price of the product than its competitors to create a perception in the minds of customers that the good is of higher quality. For example, an established brand like Nike expresses value rather than the basic existence of the product. Luxury car manufacturers are notorious for raising prices on high-end cars and consumers who enjoy driving around in expensive cars do not mind spending money for a lavish experience rather than using an entry-level sedan for transportation.
• Skimming Pricing Strategy
Price skimming is a pricing strategy often related to innovative and high-demand products where brands set a high-price ceiling for the top layer of loyal customers. As the demand starts deteriorating, the retailer pivots to accommodate new layers of consumers by gradually reducing the price of the product until it levels off at a base price. Samsung uses a price skimming strategy during a new product launch to attract the most revenue and after the hype wanes, the brand adjusts price points to suit more customers in the market.
• Penetration Pricing Strategy
Generally used by new entrants in the market, the aim of the penetration pricing strategy is to entice customers to purchase their products. Penetration pricing can help companies quickly gain a substantial amount of market share. Following penetration pricing, the customers can create brand loyalty, switch customers from competitors, and generate significant demand. Android phone manufacturers market their phones at a relatively low price than Apple to entice customers and build brand loyalty.
• Freemium Pricing Strategy
The pricing strategy works best for companies who have just started out a software of service. Using the freemium pricing strategy, businesses offer at least two tiers of services, paid and complimentary. While free options provide only basic versions of the services, paid options can be upgraded and include more features.