“How much the customer is willing to pay for the product has very little to do with cost and has very much to do with how much they value the product or service they’re buying,” says Eric Dolansky, Associate Professor of Marketing at Brock University in St. Catharines, Ont. The premium pricing strategy has the advantages of producing higher revenues and building a premium brand image. To successfully use the economy pricing strategy and generate sufficient profit from low prices, you will need to have large sales volumes. Some companies either provide a few services for free or they keep a low price for their products for a limited period that is for a few months. A good pricing strategy is a key to your firm success. Deciding how much to charge for your product requires more thought than simply calculating your costs and adding a mark-up. Vita Coco UK offers a good example of premium pricing. Psychology pricing is a strategy used by businesses to encourage customers to respond on an emotional level rather than a logical one. Subscribe to receive, via email, tips, articles and tools for entrepreneurs and more information about our solutions and events. The e-commerce giant will often show similar products in a carousel of seven to eight items, with higher valued good placed next to lower value goods. The retailer has become synonymous with its ‘Dine in for two for £10’ deal where it offers customers a starter, main, desert and a bottle of wine or non-alcoholic drink for £10 all-in. Pricing a product is one of the most important aspects of your marketing strategy. There are three main approaches a business takes to setting price:Cost-based pricing: price is determined by adding a profit element on top of the cost of making the product. Penetration pricing strategies can help new start-ups stand out and, as the name suggests, penetrate the market. You cannot be all things to all people. If your product or service is likely to be compared with a rivals then cutting a penny off the price to make it ‘.99’ could make people more likely to buy it. In today’s business world pricing plays a vital role in the success of an organization. It enables businesses to get rid of unsold stock. You still have to make sure the value to the customer is higher than your costs. Premium pricing is when a business sets its prices higher than competitors. The marketing mix should take into account what customers expect in terms of price. Price skimming is a pricing strategy whereby businesses set high prices for their product or service during the introductory phase. Cost-plus pricing—simply calculating your costs and adding a mark-up; Competitive pricing—setting a price based on what the competition charges While the use of penetration pricing generally results in initial loss of profits for a business, in the long-term the exposure gained can drive profits up. Pricing strategy for your small business will set the standard for your product or service in the marketplace, and is an important dimension to both your bottom line and your competitive edge. For example, on the Apple shop the iPhone 7 Plus retails at £719 while the iPhone 7 retails at £599. But, remember you want the customer to buy your product, which is why you must use a strategy that’s appropriate to your target market. This price point maximised on consumer willingness to pay more for cutting-edge technology and helped generate an aura around the iPhone. Intended to help businesses capitalise on sales on new products and services, price skimming allows businesses to maximise profits from early-adopters. Its original package offered tiered price points and enabled customers to rent three DVDs simultaneously for $14.99; amounting to just over $1 per DVD per month for customers that took up the offer each week. Penetration pricing strategies can help new start-ups stand out and, as the name suggests, penetrate the market. Find all of the ways that your product is different from the comparable product. Dolansky provides the following advice for entrepreneurs who want to determine a value-based price. Supermarket retailers are experts in bundle pricing and Marks & Spencer offers a great example of using bundle pricing to attract customers. Apple has since evolved its approach to price skimming, and while prices have dropped slightly for it smartphones it has largely maintained and defended its price by increasing the value of its product in future iterations. That may mean adapting the product to better suit the market. After they’ve successfully penetrated the market, a lot of businesses will raise their prices to reflect their position within the market. Dolansky says a company can gain an advantage over its competitors in the following ways. Consider the way you promote your business online and offline to support a premium price point. As competitor goods appear on the market, the business will then drop the price gradually to attract more price-conscious consumers. The price is a better fit with the customer’s perspective. Anchoring works because consumers have an unconscious tendency to rely on the first piece of information offered to them when making a decision. Dolansky says entrepreneurs often used cost-based pricing because it’s easier. “It’s important when you are considering your price that you realize it is not for yourself, but for your target customers,” says Dolansky. But entrepreneurs who sell a commodity-like service or product, for example warehousing or plain white t-shirts, are more likely to compete on low costs and low prices. This strategy … Value-based pricing allows you to be more profitable, meaning you can acquire more resources and grow your business. Support for businesses impacted by COVID-19. One industry that’s synonymous with price skimming is the smart phone market and Apple is a great example of a business that has successfully capitalised on price skimming. Objectives such as these and how a business generates profit in comparison to the cost of production, need to be taken into account when selecting the right pricing strategy for your mix. However, there’s a lot that goes into the process.. Pricing strategies take into account many of your business factors, like revenue goals, … Otherwise you will lose money with every product you sell.