Get your pricing strategy wrong and it doesn’t matter how good your product or service is you may not be able to sell it. What are the options and how do you get your pricing right?
It is not as simple as calculating the cost of production, sales and marketing, in fact, all the costs to run your business and adding a margin, wouldn’t it be good if that was all that was needed. A number of questions need to be asked—
- How is your product or service perceived, is it bargain basement or high-end luxury?
- What is the market like, is it broad covering a wide demographic or is it a niche market?
- What are competitors doing?
- Is it an entry-level product, how unique is it or has it been on the market a while?
- What is your current customer base like, is it only a start-up or do you already have a committed customer base you can upsell to?
LearnMarketing.net has a detailed page on the “Marketing Mix. Pricing Strategies” at http://www.learnmarketing.net/price.htm The authors S. Tailor and P. Tailor describe a number of pricing strategies and how they are used, such as—
- Penetration pricing
- Skimming pricing
- Competition pricing
- Product line pricing
- Bundle pricing
- Premium pricing
- Optional pricing
- Cost-plus pricing
- Cost based pricing
- Value based pricing; and
- Psychological pricing.
Psychological pricing is an interesting one and can cover a multitude of situations. The example provided is setting a price at 0.99 rather than a pound or a dollar with the buyer happy they have purchased under the $1.00 barrier. Frankly, that can also be annoying. Psychological pricing also comes in to play when the purchases are emotion driven rather than logically, why else would someone buy a dozen roses for $110.00 on Valentine’s Day when normally they are $72.00? This strategy works on the theory of the buyer being irrational and seeing a $1.99 as $1.00 rather than $2.00. Really?!
Pricing strategies also include things like memberships, loyalty cards, frequent buyer points and any other mechanism to try and get customers to keep coming back.
Non-pricing strategies which will influence sales are opening hours, the level of service – whatever happened to attendants at petrol bowsers, rather than self-service – extended warranties, advertising and of course the use of social media.
Whatever your pricing strategy or strategies, branding will have a big impact. Consider Bunnings they always advertise lower prices but we don’t really associate them with lower quality. Then there are Red Dot stores and the Reject Shop, you know that many products will be lower quality but you are only buying consumables, so who really cares if the $2.00 err $1.99 crate only lasts a year. Having said that many of their products are reasonable quality and still low cost.
Semantics will also have an influence – note, the use of “low cost” rather than “cheap.”
Any or all of these strategies can be implemented depending on the product life cycle, time of year, level of stock and what the market is doing. Review regularly, be flexible, open to ideas and ready to adapt and you won’t be left behind.