Pricing Strategy

In the world of business plans, one important thing has a huge impact: The objective of this work is to understand one of the most important processes that occurs in any company, namely, how a company selects its prices, which is known as the pricing strategy. This decision-making can either enhance business success or be the reason for future challenges. It impacts the revenues that are generated within the company, the competitive standing that the company has and even the perception that the customers have towards the company.

Most of the times it is challenging to determine what prices to set since the main goal of pricing is to make as much profit as possible without dissatisfying the customers. It is as if one is cooking up something lovely and in the mean time, handling plenty of statistics and figures. Therefore, in this blog, we will provide an insight into another important aspect of marketing strategy namely price strategy.

What Are Pricing Strategies?

There is no concrete definition of a pricing strategy since it is mainly an approach that is used by businesses to determine the right and most appropriate price at which firms are selling their products. It is about identifying the prices that will generate the most profit after accounting for customer preferences and their willingness to pay.

The decision of the price to set can be very tiring especially when one is weighing between many factors. Profits that are available, customers, appearance people have towards the product and the overall characteristics of the product are some of the factors firms need to evaluate. Other considerations include: what other firms do to charge for similar items and what is fashionable influences the firm’s price decisions.

Sometimes, when people decide to start their business, they otherwise don’t think much of prices. They may only find out how much it will cost them to produce their item, glance at the prices of similar items, and then choose any price above or below that. That said, it is wise to deliberate on your decisions relative to the prices you set.

What Are the Common Pricing Strategies?

DYNAMIC PRICING

The second type of pricing strategy is dynamic pricing, whereby the various firms in that market change their prices depending with the consumers’ willingness to pay. This is achieved in the aspect of watching the kinds of conditions that customers are able to afford and then set their prices in that range. Dynamic pricing works in two ways: Inflation and deflation: These are the two main ways through which the general price levels are affected in an economy such that the prices of most goods may go up while others may go down depending on various factors within the economy.

Pros:

• It lets companies change prices when demand goes up or down.
• It helps companies make more money by increasing prices
• It helps sell more things when sales are slow by lowering prices.

Cons:

• Customers might get upset or confused when prices keep changing.
• Firms might lose customers to other companies offering lower prices.
• Companies might make less money when they lower prices during slow times.

PREEMIUM PRICING

The product or service offers two versions: I am here to point out that one is available freely while the other one will cost some amount of money. the pricing which is being used in this business model is called freemium pricing. The first one is that the free version has only some of the features that are accessible to all the users of the program, while the paid one opens all the functions that are available.

Its idea is rather simple : the people, who have been registering the new versions, will like the free one. As for the free part it is good so it leads users to recommend it to others so many people will meet with the product. This leads to more and more people sharing their information hence sign up for the services.

The free version is limited with number of tool, but you can find here some of them. But the paid version is even better and comes with more additional features which makes the editing process easier. Let us think about a person, who works in a design company, for instance. He tries the site using trial plan and apparently is so satisfied that he pays the full plan fee. Then they spread word to their colleagues, who do the same, meaning a chain of recommendation has been made.

Pros:

• It shows how good the product is by letting people try part of it for free.
• Firms get free promotions because people recommend them to others.
• It helps people get used to the product and stick with it.

Cons:

• Firms might lose money from people who are happy with the free version and do not want to pay.
• People might think the paid version is not worth it because there is a free version available.
• It might take longer to convince someone using the free version to buy the paid one.

HIGH-LOW PRICING

High-low pricing is a pricing strategy in which the first listed price of an item is considerably higher than the second price, which is the discount price before the price is hiked again. The starting higher price creates the perception that the product is expensive and then it aggressively advertises that it is on discount.

This plan prompts people into taking action of purchasing a certain product whenever one is being sold in the market with the belief that its price is likely to be hiked in future. This inevitably leads to the fact that more people begin attending the store and they also spend money on other products at normal prices as well.

It is appropriate to use this pricing strategy when customer is not sure whether they should expect a certain price, or when sales are associated with lower prices.

Pros:

• It shows how valuable the product is with the higher price.
• It attracts more people to the store with sales.
• It sells more because of the sale to different kinds of customers.

Cons:

• Some people might think the products are not good quality.
• Makes less money during sales
• Some customers might wait for sales instead of buying at the higher reference price.

PRICE SKIMING

Price skimming is a method of pricing, aimed at the introduction of a new product as a unique and expensive brand, capable of attracting highly-paid consumers. Subsequently, the company reduces the price continuingly, commonly to the users, who are majorly sensitive to the price change or for the marketing to a large audience.

Managers like using this strategy when they want to introduce new products into the markets. It also helps to reduce barriers that prevent consumers from buying the product by bringing down the price to match other brands that are introduced to the market at a similar time.

To make this tactic work, then it is required that the company markets the product as shown below. Potential customers should consider it to be a wonderful product and one they would feel inclined to paying a premium for is fantastic and worth the high price.

Pros:

• Maximize earnings when the product is fresh and thrilling.
• Highlight products are of superior quality and justify the high price.
• Make the product noticeable by setting a higher price than others.

Cons:

• In the beginning, not everyone might buy it due to the high price.
• Firms could lose customers to other companies if the price isn’t decreased at the right time or by a sufficient amount.
• Earn less money as fewer people are interested in buying it when the price decreases.

Trailor Pricing

Tailored pricing can also be referred to as Skim price, this is another pricing strategy in which businesses do not fix standard price on their products and services. Not so: they decide the price with each client, according to what the client wants, or may need. And it is preferred when options are offered are contractual, when things like time, price, and how large the service is can be altered.

These are the following reasons why this pricing strategy works when it is a lot of effort needed to sell a product. Customers, in turn, have the opportunity to communicate with the salespeople, explain their needs, listen to the presentation of other offers, and consider additional related products which may be useful. Thus, the buyer may turn to the company for help in making purchase decisions, which will allow the concerned organization to provide the customers with the most appropriate package on offer.

Pros:

• Understand better what each customer wants and match the product or service accordingly.
• Make more money from each sale by deciding the price carefully.
• Keep customers by staying in touch and helping them choose the right thing.

Cons:

• Some customers might prefer knowing the price right away.
• It is hard to keep track of how much money is being made because prices change.
• It takes longer to make sales because it involves a lot of discussions and deciding on prices.

FIXED PRICING

According to the concept of fixed pricing, business people set a standard price for their products or services, and such prices do not fluctuation due to some factors such as time or other circumstances that may cause a change in cost. This pricing strategy is commonly used by firms that sell products or services for which differences between buyers can be easily distinguished.

By applying fixed pricing structures, firms have to be very flexible when determining a price that would include the cost factor and capital resources required to provide the service. They should also possess adequate knowledge to gauge the likely time and costs of things to set before adopting the fixed price.

Pros:

• Customers like it because they know what the price will be upfront.
• The business can predict how much money they’ll make because the price stays the same.
• It makes it easy and quick for customers to buy things because the price is clear.

Cons:

• It might make mistakes in calculating costs and end up losing money.
• Some customers might want something special, but the fixed prices won’t change for them.
• Unexpected extra costs can’t be added to the fixed price so that the business might lose money.

What Are The Emerging Pricing Strategies?

Like it has been observed that a price strategy process is ongoing. Staying relevant means constant changes and development so it is wise to redefine your strategy. Here are some specific current pricing techniques commonly used by firms today.

Flat Rating Price

In Price Management, a fixed price means customers pay a set amount for something they can enjoy or use many times within a specific time or event. For instance, when you buy a meal at McDonald’s, you get a cup that lets you refill it with drinks several times while you are at the restaurant. Below are examples of flat rates:

Below are examples of flat rates:

• Monthly passes for buses or trains.
• Cable TV and Internet plans.
• Restaurants with ‘all-you-can-eat’ offers.
• Interactive Pricing

INTERACTIVE PRICING:

Interactive pricing strategy involves customers and sellers deciding on the price together.
In Price Management, there are different interactive pricing models

Pay-what-you-want:

Customers can select the payment amount, and the seller cannot decline their offer.

Name-your-own-price:

Customers propose a price, leaving the decision to accept or reject it in the hands of the seller.

Rebate Systems:

Sellers give back some money to customers after a purchase, like cash-back, if customers buy a certain amount or spend a specific sum.

Why Is Choosing The Right Pricing Strategy Important?

Pricing is one of the major pillars in the marketing framework, and it is a cornerstone of well-thought-out marketing plans. Consequently, firms have to choose wisely their preferred pricing strategies. When the proper prices are set, profits grow as stated before. However, are the profits only contributed by the right pricing structure? The only true answer is no

"Indeed, an effective pricing strategy when used accurately can bring away from pure financial gain a lot of other benefits. This article outlines a number of reasons why your business is likely to grow if you adopt such a strategy"

• It facilitates your product in identifying its position within the market.
• It helps build and keep loyal customers.
• It makes your brand look better.
• It helps divide customers into different groups.
• It brings in more money.

Let us take a closer look at these benefits.

It helps in market positioning

“It is important to find where your product can fit in the market. Selecting the perfect price is very important for companies in the type of business we are. It is not merely earning money, but rather positioning ourselves vis-à-vis others and remaining relevant over time. Additionally, a well-thought-out pricing strategy could contribute significantly towards speeding up market entry for startups or new products, making them remain competitive within rapidly changing markets while easily increasing supply whenever necessary as well as demand.”

It helps establish and maintain costumer loyalty

Pricing strategy means making customers happy with what they get for the price they pay. We want satisfied and thrilled customers. The cornerstone is assembling a devoted clientele to spread the word about us. Furthermore, pricing helps firms to progress quickly and penetrate new markets. The desired balance between profits and customer satisfaction is sought after by all businesses. If the prices you charge align with what consumers anticipate, credibility increases which is a driver for repurchase. Garnering more from each transaction is fine, however established customer loyalty is invaluable for brand expansion

Its Improve Brand Image

Determining the most appropriate pricing strategy can contribute to making a brand appear robust. This can indicate that a brand stands for cost-effective, high-end products or innovative ones

It helps in customer segmentation

Pricing plans allow companies to target sales of products to certain market segments. In such a way they can offer what each group prefers and thus sell more. As a result, it makes it easier for businesses to identify varying customer segments

• It drives profit
• The best pricing plan should make money for your business while according to Price Management, several studies have found that when a company picks the wrong price its value is harmed in the market. On the other hand, pricing strategically can add value to a firm. The same book adds that how much product is sold( immediate revenue generated by the business) and what investors think about it are influenced directly by price of goods being sold. The importance of pricing in deciding the fate of Choosing the correct pricing strategy is essential for the business to be profitable

Conclusion

A smart pricing plan in the complex business world could be transformative. This is a combination of creativity and logic, therefore always requiring revisions and adjustments. In order to do it well, the firm must be conversant with its market niches while pricing their products fairly enough to attract clients but appealing to their needs at the same time (Brown 72). It is at this point that Digital Elliptical helps provide guidance on how best to price competitively?
Deciding on prices does not make a good pricing plan alone. It’s like the services bought are worth the amount paid for them, which should enhance good relationships with the buyers hence keeping them for long as well as making the business successful. Comprehension of how dynamic pricing works ensures that there is a continuous stream of income while maintaining clients’ satisfaction.