6 Different Pricing Strategies: Which Is Right for Your Business?
Good pricing strategy helps you determine the price point at which you can maximize profits on sales of your products or services. When setting prices, a business owner needs to consider a wide range of factors including production and distribution costs, competitor offerings, positioning strategies and the business’ target customer base.
Pricing at a Premium
Businesses set costs higher than their competitors
Price Skimming
Set prices high during introductory phase, then gradually lower prices as competitors appear
Psychology Pricing
This is a technique used to encourage customers to respond on emotional levels rather than logical ones.
- The goal is to increase demand by creating an illusion of enhanced value for the consumer
- Setting the price of a watch at $199 attracts more consumers than setting it at $200, even though the true difference in price is quite small.
Pricing for Market Penetration
Penetration strategies attract buyers by offering lower prices
Bundle Pricing
Sell multiple products for a lower rate than consumers would face if they purchased each item individually
- Increase value perception of your product
- More effective for companies that sell complimentary products
- Keep in mind that profits earned on higher-value items must make up for losses on the lower-value product
Economy Pricing
Attract the most price-conscious consumers
- Minimize costs associated with marketing and production in order to keep product prices down
- Can be effective for large companies like Wal-Mart and Target
- Small businesses may struggle to generate a sufficient profit when prices are too low