There are many challenges you face as a business owner, but one of the biggest ones is choosing the price for the products and services you offer. There are many kinds of pricing strategies to select from, but which ones will work best for your company? Deciding on the best strategy can have a huge effect on your company. Get it right, and you can garner new clients and positively impact your net income. Get it wrong, and you can lose out on sales and profit. This article will take a closer look at some common pricing strategies for your business. That way, you can pick the right one for your brand.
Pricing Strategies
Pricing strategies are chosen based on things like customer demand, market conditions, and the price of goods that are sold. There are many pricing strategies available and different reasons to use them including boosting profits, garnering market share, or you need to get rid of your old inventory. The right strategy will depend on your kind of company, what you sell, and the long-term values and goals of your brand.
There are five common pricing strategies worth looking at. They include cost-plus, competitive, price skimming, penetration, and value-based pricing.
Cost-Plus
Simply put, the cost-plus pricing strategy is where you figure out your costs and add a mark-up. It’s also referred to as mark-up pricing. Many companies find that this is an easy and time-saving path to setting a price. With this option, you must decide how large you want your margin to be. The only negative to this pricing strategy is that the client isn’t being thought of.
Competitive
This is where you set a cost based on competitor pricing. There are three ways to approach this strategy – cooperative pricing, aggressive pricing, and dismissive pricing.
The cooperative way is when you match what your competition is doing. If they raise or lower the price of something, you follow suit.
The aggressive option is where you want to outdo the competition. It’s where your competitor raises the price of something while you keep it the same. If they lower the cost, you (aggressively) lower the price even more. It’s a risky approach and you need to make sure you are heads above the competition and have big margins to accomplish this approach. You need to be careful because you can get into financial problems if your volume decreases.
The dismissive way works when you are number one in your market while selling prime services or products. In this case, you price how you want despite your competition. This can sometimes lead to marketplace surprises that you might not be prepared for.
Price Skimming
This strategy is where you set a high price and as the market grows, you lower it. Many companies use this method when they want to introduce new products and services when there is no competition for them. The price is high at the beginning and then gets lowered over a period. You will need to watch out for copycats being offered at a smaller cost by competitors.
Penetration
This is where you set a low cost because of an extremely competitive market and raise the price later. This works when you want to build up a tremendous client base quickly and easily. Having a lower price tag will make your services and products stand out from the crowd and you can woo customers to switch to your brand. The downside to this approach is that your clients might come to rely on continuously low costs. Customers that are concerned with pricing might jump ship if they aren’t happy with your cost and a pricing war might happen with your competitors. You need to discern if you can maintain this pricing for the long run without harming your company.
Value-Based
You set your price based on what the client thinks your p-*roduct or service is worth. You can surpass your competition with this strategy in two ways. The cost matches the client’s outlook, and the cost brings in more money so you can get more resources and evolve your company. When pricing isn’t successful, you don’t just lower the price but figure out how it can align with customer value. Because of this, you might need to adapt the product to fit better in the marketplace. This strategy is especially successful if you sell high-end or technologically advanced products as well as artisanal and special services or products.
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In Conclusion
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In an ever-changing market, you need to stay on top of things for your business to be lucrative. As discussed, there are many pricing strategies available (even more than what is discussed in this article), but we went over the most common pricing strategies businesses employ nowadays. With a variety to choose from, it’s crucial to pick the right one for your company. You do this by figuring out what your company’s goals are. Your objectives might include increasing profits, gaining market share, getting rid of inventory, or a few of these. The pricing strategy that matches those goals will be the correct one. Once you have your pricing strategy implemented, you can focus on evolving and growing your company.
