Pricing Strategies: Effectively Price Your Products or Services

One cycle that business owners keep alternating is not having the right pricing strategies for their products or services.

They are often caught up in a cycle: “if I price my products or services too high, I may not make sales and lose customers. On the other hand, if I underprice, I may lose finances especially after considering my cost of production.”

So, business owners often ask, How can I come out of such a cycle? The answer, however, will depend on whether they’re willing to harness the available pricing strategies.

In this article, you’ll learn business owners’ different pricing strategies to price their products and services effectively. In addition, you learn about their significance to business growth and how to choose the most suitable for your business.

What is a Pricing Strategy?

Pricing strategy is a method business owners employ to help them establish the best price they could place on a product or service.

A good strategy will also increase ROI, while a bad one will yield “you already know what.” Furthermore, an effective pricing strategy considers you and your customers simultaneously. Moreover, it helps you maximize your profitability and value to your customers.

Significance of Pricing Strategies for Business Growth

Business owners must understand the significance of using one or more pricing strategies and what they stand to lose by not using them effectively.

See it this way: your pricing strategy sets the mark and helps you account for how much you will make at the end of the day and the value you bring to your customers.

Additionally, effective pricing strategies consider two crucial aspects of your business: your profitability and your customers. What you’re to consider about your customers is how to bring them value and earn their loyalty.

Furthermore, you must understand the pricing dynamics and how to use the best-fit pricing strategy for your business.

Top Pricing Strategies for Your business Success

You can use different pricing strategies individually or combined to maximize profit and ensure you bring value to your customers. On this premise, we’ll consider the top 7 pricing strategies you can use for your business success. These types include:

1. Cost-plus Pricing

This pricing strategy considers the cost of the product and an additional percentage margin on it. In addition, the cost-plus strategy considers the extra money placed on the products you intend to sell.

For instance, if you spend about $100 on making a certain product, you can add another $100 as the profit, which means you’ll sell at $200 when you want to sell.

Furthermore, this price depends on you and how much you deem fit to add, which makes up your profit. Hence, one advantage you get here is controlling the fixed profit amount.

2. Competition-based Pricing

In competition-based pricing, you consider what your competitors are doing and how much they sell their products.

You are already aware that the products or services you want to introduce to the market are not novel; hence, it will be best to know what amount your competitors sell their products.

With this information, you can now decide on how much you want to sell yours. Some of the ways you can carry competition-based pricing include:

First, you can sell at a percentage less than your competitors, which could be a good way to increase your customer base and their loyalty. Although selling at a lower price can lead to a quicker return on Investment, it may have negative effects after a while.

Moreover, they may get acquainted with the low price, and if you increase it, it may lead to them seeking other alternatives.

Secondly, you could sell at the price your competitors are selling. This may benefit you, allowing your business to thrive like your counterparts.

Thirdly, you can sell at your chosen price, irrespective of what your competitors obtain. Businesses that sell premium products may sell at their price, considering the value they bring customers.

3. Value-based Pricing

In value-based pricing, what is considered here is how your products bring value to your customers by meeting their needs. When it does, the price of your products or services may be considered considerate.

In addition, once your pricing is in sync with your customer’s perceived value of your products, you’ll keep making sales and getting more profit.

Furthermore, this strategy often works best when the price you place on the product is less than the product’s actual value. Moreover, customers often desire valuable products, not necessarily how low in cost they come.

4. Skimming Pricing

If you want to introduce a new product in the market, the tendency is to price it high to take advantage of the fact that no other person has that product. This concept is what we refer to as skimming pricing.

For instance, introducing a technological device such as a new mobile phone brand into the market will get maximum patronage irrespective of how much it costs.

You can make the most of it while it lasts; however, as time goes on, the ecstasy that the product made at the beginning begins to diminish. As a result, the price would have to be reduced since it’s no longer new.

Nevertheless, many companies use this strategy to obtain maximum ROI early in introducing their products.

5. Penetration Pricing

In the penetration pricing strategy, you reduce the price of your products just because you want to penetrate the market and gain customers. The main aim here is not to make much profit but to gain customers and their loyalty towards your business.

However, you will often have to price your products lower than your competition so you can easily penetrate the market.

In addition, this strategy works best when introducing an existing product, but you want more patronage. In all, you’ll need to know when to balance things up so that you don’t have customers who always expect your price to be low and then run into imminent debt..

6. Dynamic Pricing

Dynamic pricing strategy is not fixed pricing, which means that the price of your products and services depends not on you but on other factors like customer demands and the market.

As the market changes, so also does the price of your products. Companies such as hotels, airports, etc., adjust their pricing to suit demand and what’s obtainable from their competitors.

Moreover, you must also consider what your customers will pay for the value you bring them.

7. Premium Pricing

Having premium products at the same price as regular ones will be difficult. In this pricing strategy, you factor in the cost of production, what extra value you’re bringing to your customers and some other packaging costs to determine how much you sell that product.

Also, ensure that the price you place on your products or services suits the value your customers will get from it. Even if your price is high, as long as your customers know it’s very valuable, they’ll pay for it.

Bonus Strategy

Hourly and Project-based Pricing

In hourly pricing, professionals such as consultants, freelancers, workers, etc., price their services hourly. As the case may be, their clients or employers pay for their services based on the number of hours they can work.

However, the risk of this strategy is that results may not be attained within the expected stipulated hour, which means the client will pay more.

On the flip side, project-based pricing offers the client a broad spectrum where a certain price is placed on a full project rather than hourly. In this strategy, the client can make certain inputs or adjustments by paying once for the whole project.

Thus, hourly or project-based pricing is an excellent strategy, depending on your goals.

How to Choose a Pricing Strategy for Your Business

One thing you should be aware of is that not all pricing strategies may be effective for you. Because of this, you’ll need to consider some factors that may help you decide the pricing strategy or strategies to use.

Below are some factors that will help you choose the right pricing strategy for your business.

1. Analyze your Pricing Potential

In analyzing your pricing potential, you’re considering the maximum price you can place on your product or service that will ensure your business stays afloat. However, this is after you have factored in cost, demand, and others.

Moreover, competitive advantage, geographical market conditions, and demographic interest can affect your pricing potential.

2. Determine your Buyer Personas

Once you’ve successfully analyzed your pricing potential, you want to know who your customers are, their interests, and how they respond to your products.

This is very important as it can determine whether your business will even have a smooth ride in the marketplace.

3. Look at the Pricing of your Competitors

One of your main challenges in the marketplace is your competitors. They are completely unavoidable as the market is not a perfect market system.

Hence, you need to know how much your competitors are pricing their products or services similar to yours. In addition, you can either decide to beat down your price or scale it up concerning that of your competitors.

Knowing these, you can tailor your pricing appropriately, which will help you choose which pricing strategies you like to fulfil your goals.

4. Balance your Values and Business Goals

Sometimes, the probability of wanting to overprice or underprice your products or services may rise. While this is a common probable practice, it is not the most effective.

You must be able to strike a balance between what your goals are and what values you’re to bring to your customers. Balancing them will bring you to a juncture that influences your choice of pricing strategy for your business.

Conclusion

Pricing strategies are no longer mysteries but tools that you can use to maximize profit and increase your customer base and their loyalty to your business.

The top 7 strategies plus the bonus will not have any effect unless you pick the one that works best for you. In this journey, we also considered how to choose the most suitable pricing strategy for your business.

When you choose a strategy or even combine them, you will have made one of the most important decisions regarding your business.