Selling without a pricing strategy doesn’t sound so good. It doesn’t sound good because you might end up getting left behind by your marketing competitors. You should be considering building a pricing strategy in 2022, because pricing strategies can make your sales go up tremendously. Pricing strategies are basically a method to point out prices that would suit your products or services the best.
Table of contents
- Cost-plus pricing strategy
- Competitive pricing strategy
- Psychological pricing strategy
- Premium pricing strategy
- Bundle pricing strategy
- Freemium pricing strategy
- Hourly pricing strategy
- Project-based pricing strategy
- Value-based pricing strategy
- Dynamic pricing strategy
- Penetration pricing strategy
- High low pricing strategy
- Skimming pricing strategy
- Loss leader pricing strategy
You can easily understand pricing strategies as: if you are unaware of pricing strategies and you overprice or underprice your products, then you will not be able to make a reasonable profit or you might end up with just a few sales.
Choosing the right pricing strategy for your products is the key to success.
Whether you are a professional in e-commerce or a fresher, in this article, we will explain everything about pricing strategies and how to apply them for yourself.
Cost-plus pricing strategy
This is one of the simplest and to the point pricing strategies, the first step to take is to work out the total expenses of making and selling your products or services.
This process is also known as (COGS), this includes things like packaging, shipping, storage etc. after calculating the COGS, you have to calculate the profit by applying a fixed percentage. Some people refer to this strategy as markup pricing as well.
We recommend this strategy for sellers who are selling a large collection of physical products, because this strategy is surely not designed for service selling.
Competitive pricing strategy
this strategy looks for the going market rate of the product or service, you have to research similar prices from competitors, you can either price your products the same as your competitors or use slight variations.
This strategy has been overlooked as the best strategy for a saturated niche, this is when a customer might just prefer another product that is the same as yours because of a slightly lower price.
Businessmen, especially in these types of situations, try to pull each others’ legs trying to win more business. So try to avoid these situations by making sure you don’t go towards the bottom.
This strategy will work well for you especially if you provide extra features that other sellers don’t.
Take Shopify as an example, it offers almost the same price as its competitors but provides extra features at the same price.
Psychological pricing strategy
This pricing strategy is tactically using the human psychology principles to boost sales and increase your business.
Use charm pricing, charm pricing is when the price of a product ends in .99 or .95, this makes the look cheaper than it actually is, people who read from left to right are most likely to buy the product because reading left to right makes the amount appear cheap.
Anchoring is also a good tactic, anchoring means by putting a high price and then giving discounted price to make it look like a reasonable deal. Like “30$ before 15$ now”
If you have a targeted community that is rather interested in sales and discount than quality, then this strategy is perfect for you.
Premium pricing strategy
The name suggests its meaning, the concept of this is to charge a high price to improve the value of a product, it’s sometimes referred to as prestige pricing.
Most of the time, luxury pricing strategy is used by big brands in fashion. Rolex also uses a prestige pricing structure.
Brands using this strategy will usually set a price that is very higher than COGS.
Bundle pricing strategy
if you offer two or more products for the price of a single product, then you are using the bundle pricing strategy.
An example is food chains giving meal deals.
This strategy is helpful in increasing AVG as well.
Freemium pricing strategy
This is when companies give out a basic version of their core software offering it for free to encourage customers to use and ultimately buy their products.
After giving out the basic version, the strategy should be to upsell the paid version to customers.
Majority of (SaaS) businesses/companies use this strategy as to offering a free version with limited features then trying to make them commit.
Hourly pricing strategy
Hourly pricing strategy is when you set hourly rate for services that your provide, basically you charge for the hours worked. Freelancers and consulting businesses use this strategy the most as their job is service selling.
Some buyers may think that hourly pricing is not that efficient. But if you provide the best in the business, they will surely be attracted and will not object to the hourly price. This can be useful for a project that is time taking. This strategy must be used by people who are efficient enough to be able to make a reputation out of their work.
Project-based pricing strategy
This strategy is also used by people who sell services or by companies that provide services. In this strategy, the business will work out the total cost and set a fee for the project instead of setting hourly prices for their services, this will let the client know the total cost of the project before starting the work, this will help the buyer make a decision whether the price that you have offered is in his budget or it’s not within his budget.
Joining this with another strategy can be a great idea, for example, combine this with the cost-plus strategy, so you can work out the COGS, and mark the total cost.
Value-based pricing strategy
This strategy is quite reasonable, but it is difficult to implement in practice.
This strategy means to work for the price that the buyer is willing to pay, for this, you need to be familiar with your target market and competitor pricing.
This pricing strategy is effective for services that offer significant values in comparison to COGS.
An understandable example is that if it takes one day for a copywriter to write a sales page for a client, and that page lets that client make hundreds or thousands of dollars, the credit should go to the copywriter for keeping the standards and value high. Then it would become reasonable for the copywriter to charge him his own price.
Dynamic pricing strategy
It is also known as surge pricing, this is when the price fluctuates with respect to its market.
You might have thought that why does the price of an air ticket fluctuates, this is because most airlines use dynamic pricing strategy.
This strategy is not that straightforward to be honest, it does require some complex management.
But small businesses have the advantage of using this strategy in a more simpler way, in order to do that, you have to keep changing the prices for in-season products or during special events.
For example, a florist may charge more for specific flowers like rose during the week of valentine’s day
Penetration pricing strategy
This strategy is used by large companies that can afford losses, because this pricing strategy is used to offer a very low price to attract customers, and ultimately make more sales then your competitors.
After a while, when the company has established its value in the market, the company should raise the price and make a good profit.
A good example is of netflix, netflix entered the market with a price of 7.99 $. Now it provides three plans at 9$, 14$ and 16$.
High low pricing strategy
this strategy is basically the opposite of penetration strategy, in this strategy, you list the products for a high price initially rather then listing them with a low price,
you can lower the price of the product according to its market relevancy, just like you increased the price of low price products.
If you see a huge discount section in a store, then you are looking at the high-low pricing strategy.
Mostly, this strategy is used by sellers who sell seasonal products, like fashion or outdoor products.
This strategy should also be used to maintain sales according to customers’ demand, an example is : you can sell winter clothes at full price during winter season and lower the price in summer season.
Skimming pricing strategy
This strategy is when a business/store charges the highest price for a new product, and lower the price when the product becomes outdated or less popular.
This strategy is quite different from high-low price strategy because the aim of this strategy is to lower the price as late as possible to maximize profits.
This strategy is often implemented by video game consoles, computers and smartphone companies.
Loss leader pricing strategy
This is when businesses sell a large amount of products for an extremely low price, sometimes you have to go below COGS, just to attract customers. These businesses will make money by selling other high value products for a good price.
Most supermarkets use this strategy, now this strategy is less effective due to smartphones. But you can make this strategy beneficiary for your business by a good management algorithm.
Conclusion: these strategies can be very beneficial if you choose the right one. Start by working out your COGS. Then you can choose the strategy according to your market. This can help you make a lot of profit
Have we missed anything? Let us know in the comments section.
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