Strategizing Your Pricing - An Overview

Anagha S Anagha S
Aug 5, 2021 6 min read
Strategizing Your Pricing - An Overview

The price of a product is in fact the exchange value that we assign for a particular product or a service. It is in fact the only element of marketing that has a direct impact on the income of the company. This is the main reason why our pricing strategies should be accurate and apt because otherwise, the consequences will be disastrous.

The price of a product plays a very important role in the market of commodities and branded products. When we look at the marketing trends over the years we can observe that pricing strategies have taken up a central stage over product, promotion and packaging.

Today all of them are significantly influenced by pricing strategies. This article discusses different types of pricing strategies that companies can adopt depending on the nature and vision of the firm.

Economy Pricing
Price Skimming
Psychological Pricing
Pricing Variations
Product Line Pricing
Penetration Pricing
Demand Pricing
Cost - Plus Pricing
Premium Pricing
FAQ

Economy Pricing

This pricing strategy revolves around the idea of keeping your price deliberately low. Here you will be bringing down the price of a product so that it will be chosen more by the customers.

However, one thing that you need to be careful about when you go for economic pricing is to make sure that the position the product will have in the marketplace is already predetermined. It should not create a perception among the consumers that something is being compromised.

Also, be aware that economic pricing can also lead to a situation where your competitors will also do the same and the consumers end up choosing the most convenient one which will leave you in a very disadvantaged situation in case there are better-established products than yours.


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Price Skimming

Price Skimming is a very common strategy used by the pioneers in the market. This is because they have a great competitive advantage. Here, they raise the price of a product to avail maximum revenue in a short span of time.

Since the customers perceive the value of the product due to the utility it offers and the lack of other options, these products will be sold even at high prices. And as other people and companies enter the market with better products and added features the price of the products as a whole is reduced.

Here there is an immense advantage for the early bird companies because by the time the product’s prices start to reduce, the early one would have already made a significant profit.

Psychological Pricing

It is one of the most common pricing strategies that businesses use to pitch their prices. In this case, the emotional element of customers is tapped to get an ideal response from their side.

They are more prevalent in the consumer market than the industrial market. It is governed by the practical understanding that a consumer is more likely to buy a product if it is priced at Rs. 99 than at Rs. 100.

Another way in which psychological pricing is done by making inconspicuous changes in the product without changing the price. We had a popular chocolate company that kept reducing the thickness of the chocolate bar without increasing the price.

Pricing Variations

This is a strategy used by companies to price their products in a variety of ways - like early booking, group discounts, stand by prices etc. It is done based on the demand for a product during different times or situations. For example, we have the ticket prices of long route private buses arranged in this manner. This method is also known as off-peak pricing.

Product Line Pricing

In this method, goods and services are separated to fit into various cost categories. The goal is to reap maximum profit by appropriating the product to fit into all price ranges and to expand the consumer base.

The products at each level are slightly different in their features and prices. Obviously, the product with the most features will be at the top of the pricing range.

Such a strategy will also enable the customer to choose the product range that fits their needs. This is a very common strategy that we witness when it comes to data plans, antivirus plans, OTT subscriptions etc.

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Penetration Pricing

It is a very strategic pricing technique where you keep the price of the product really low. It also ensures that competition is checked. Because, if you are entering the market with a very low price, it means that any company that is entering the market later will have to lower their prices further to sustain, which is definitely not a practical option for them.

In a way, this strategy is a deterrent to competition. After a safe consumer base is established, the prices are slowly moved on to a higher end.

Demand Pricing

As the name says, demand pricing is based on the demand for the product. Here the consumer demand pertaining to a product, service or consumer is the major factor that determines its price. It is also known as dynamic pricing.

The perceived value of a product or a service serves as a foundation for such a form of pricing. It is also subjected to change depending on various factors like weather, the season of festivals etc which has a direct effect on the demand.

Cost - Plus Pricing

Cost-plus pricing is one of the most logical ways of setting pricing as far as the cost involved is concerned. Here the price is determined based on the cost of raw materials as well as the cost of production. It is further added with overhead costs and profit margin. It is a definite way to gain profit because as long as your cost and sales are accurately calculated profit is assured.


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Premium Pricing

It is one of the most valued pricing strategies by both customers and producers. Here the quality of the product takes the front seat. They use a higher price but ensure that the product delivered is of premium quality in itself. And building up value is a very important prerequisite of such a form of pricing.

The product is marketed in such a way that it will equip the customer with a plethora of technical characteristics of the purchase to make them feel that the product is worth the money.

In fact, pitching the product is equal to making a buying decision for the buyer so that it is easier for them to say yes. This is because customers tend to equate quality with higher pricing.

The pricing strategies of companies like Apple and Jaguar are clearly based on this notion of premium.

Conclusion

Pricing strategies as mentioned in the beginning is very subjective. It depends on various factors like the nature of your company, your vision, the nature of competitors, the future of the industry in which the product belongs and so on. In some cases, you might have to blend into market requirements to not incur losses.

However, the pricing strategies that consider the cost involved as the most important element of determining prices definitely gives you a sense of assurance. While different strategies have their own pros and cons each business should be able to narrow down to one or a mix of multiple pricing strategies for their own benefits.

FAQ

What factors go into pricing a product?

Pricing your product usually involves considering certain factors, like pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price.

What is the best pricing strategy?

Competition-based pricing, Cost-plus pricing, Dynamic pricing, Penetration pricing, and Price skimming are some of the best pricing strategies used by businesses.

How much profit should you make on a product?

As a general rule of thumb, a 10% net profit margin is considered average.

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