Finding the right pricing strategy for your business can be a tricky thing indeed, as can knowing which options to choose as you progress through - what is most likely - a new venture.
Luckily, there is plenty of information online to help you make the right decisions - something that is highly beneficial for new business owners looking to avoid the pitfalls of an uncertain market.
But what exactly is a pricing strategy, and what is the smartest route to take?
What Is A Pricing Strategy?
In business terms, a pricing strategy is an approach taken by business owners regarding the prices they charge for their products, goods, and services.
When choosing the right pricing strategy for their particular business model, owners must take into account margin, price, and selling level before making their final decisions. A smart pricing strategy is essential for any business looking to maximise profits and stay competitive in today's market.
What Do Pricing Strategies Consider?
When calculating the best pricing strategy for your business, there are several things you need to take into account.
Market Conditions
Firstly, you need to examine the conditions of the market, and base your prices alongside those of your competitors - and the state of the industry in general.
This is also about looking for trends and gaps in the market you belong to - looking at what might become the next big thing, and knowing when to jump in.
As part of this, applying the proper pricing plan for your items - in line with what would be expected by consumers - is paramount to attaining success when riding any market wave of popularity.
Willingness To Pay
You also need to examine just how desirable your products or services are, and whether or not the prices you are currently looking to charge are within a reasonable range - at least in terms of what customers are willing to pay at that point in time.
This takes a lot of self reflection for business owners, as well as a proper examination of whether they want to risk long term success for the potential of short term, high price sales.
Competition
Business owners also need to examine their competition, and take an honest look at what they are doing better, what the owner themselves are not doing as well, and what they can do - either in terms of price, quality, quantity, or deals etc - to put themselves level with, if not ahead of, their competition.
Trade Margins
This is the nitty gritty in terms of monetary success, and looks at the unit sales price against the unit cost incurred during production by the business owner. This is where you can find out just how much money you are making or losing, and what changes need to be made (if any).
It might be the case that you need to up your prices to make the process profitable for you, or, alternatively, it might mean that you need to look elsewhere to get a better production price.
Costs Incurred
Developing the right pricing strategy for your business also involves properly examining the costs you have incurred through the entire production process - right from concept to release, and to the marketing throughout.
This might mean you need to increase the price of the item you are selling, or shop around for cheaper options when it comes to materials used, manufacturers, marketing teams, or any other aspect of the production process that might be losing money instead of making it.
What Types Of Pricing Strategies Are There?
When it comes to choosing the right pricing strategy, there are many prominent examples that many companies employ in their own working practices such as;
1. Price Skimming
One such practice is price skimming, wherein the business owner initially sets their prices higher than they intended, and then incrementally lowers the price as more competitors enter the market.
2. Penetration Pricing
This is pretty much the exact opposite of price skimming, and involves the company ‘penetrating’ the market with lower prices, and then gradually increasing them as more customers become involved with the business.
3. Premium Pricing
This is where companies develop high quality, high cost items, and then market them exclusively to high profile individuals and institutions with deep pockets and a taste for quality.
4. Economy Pricing
This is the opposite, developing affordable, low cost products for the general consumer who might be on the hunt for a bargain.
5. Bundle Pricing
This is where businesses sell a bundle of goods together. This is generally done in businesses that handle bulk stock at discount prices.
6. Value-Based Pricing
This is where a business sets the prices based on a customer’s evaluation of the particular product’s worth - similar to premium pricing.
7. Dynamic Pricing
This is where a business changes their prices based on the current state of the market.
8. Cost Plus Pricing
This is where the business owner calculates the cost of their products, and the amount they would need to make a profit, and then mark the price up accordingly.
It might sound relatively simple, however, this is the best way to make a tidy profit within the marketplace, and you can intersperse this with dynamic pricing if the situation requires it.
Which Pricing Strategy Is The Smartest?
While there are numerous different methods when it comes to planning your business’s pricing strategy, the smartest pricing strategy depends on the unique factors of your business. There is no point trying to implement dynamic pricing if you don't have the supply and demand fluctuations that these cater to, nor the IT systems to implement such a system.
Final Thoughts
At the core a pricing strategy is a method for setting prices that takes into account factors such as market conditions, competition, and the uniqueness of your offering. Which every pricing strategy you choose remember the smartest pricing strategy is the one that allows you to charge the most you can for your product or service whilst still being considered "value" for your customers.