Pricing strategies are used to determine the cost of goods and services. The factors that are used to determine the price of a product or a service are demand for the product, cost of goods sold, consumer behavior and market conditions. Business owners can determine the right pricing strategy based on goals of the business, for example whether their goal is to maximize profits, gain market share or reduce the inventory.
Types of Pricing Strategies
- Penetration Pricing
Penetration Pricing is a pricing strategy to gain market share. In this strategy, a business tries to gain market share by entering the market by keeping the prices for their products or services lower than that of competitors. This helps the business to build customer base. In this pricing strategy, a business will incur losses initially but if they are able to build a loyal customer base, they can rise their prices to cover up the costs.
- Skimming Pricing
Skimming Pricing is a pricing strategy in which a business keeps highest price for their products or services and reduces the prices overtime. When the demand for first customers are satisfied and competition enters the market, the business lowers it price to attract new segment of customers. Businesses that sell high-tech or novelty products typically use price skimming.
- High-low Pricing
High-low Pricing is a common retail pricing strategy where a product or sometimes a service is introduced at higher prices in the market when the demand is high and when the product becomes less desirable, it is sold at discount or through clearance sales. Retail businesses that sell seasonal products use a high-low strategy.
- Premium Pricing
Premium Pricing Strategy is used by businesses when prices are set higher than the competitors because of the perceived value, quality or luxury of the product. Usually, premium prices are set by businesses who have a positive brand perception in the market, because of this customers are willing to pay high prices for their product. For example- Rolex watches
- Psychological Pricing
Psychological Pricing is a pricing strategy in which businesses keep prices slightly lower than the whole number. For example, keeping price of a product 499 rupees instead of 500. This pricing is done on the belief that customers don’t round up these prices, so they treat them as lower prices than they really are. Mostly, retail and restaurant businesses employ this method.
- Bundle Pricing
Bundle Pricing is a pricing strategy in which companies package separate products together and offer them at reduced price. Competitive bundling is an excellent way for you to push more product, stand out from the crowd, and connect with your audience in an intriguing way. With the help of Bundle Pricing, customers are able to discover more products which they didn’t plan to initially.
- Competitive Pricing
Competitive Pricing is a pricing strategy in which prices are set based on the market rate. The price for a product or service is determined based on the prevailing prices in the industry which helps the business stay competitive. A business can price the product up or below the market rate as long as it is still in the range of competitors in the industry.
- Cost- Plus Pricing
Cost- Plus Pricing is a pricing strategy in which a business charges a fixed percentage above the cost to determine the final price. A business can decide on the markup percentage by determining how much profit a business wants from each product sold. A pizza shop adds up the cost of its ingredients and labor, then sets the pizza price to receive a 20% profit margin.
- Dynamic Pricing
Dynamic pricing, often known as real-time pricing, is a method of determining a product’s or service’s cost that is highly adaptable. Dynamic pricing enables a corporation selling goods or services via the Internet to alter prices on the fly in response to market needs.