Your Small Business Pricing Strategy

Your Small Business Pricing Strategy

When was the last time you reviewed your pricing strategy? You put a lot of effort into making your business successful but get your pricing wrong and you can be missing profit on every sale!

Here are 16 ways that you could be pricing your product or service.

Pricing Strategy Matrix

The pricing strategy matrix shows four pricing strategies based on the relationship between price and perceived quality.

Pricing Strategy Matrix

1. Economy pricing

Costs are kept to a minimum and price is set as low as possible because there is no difference in the products in the market.

2. Penetration pricing

A low price is used to capture market share. The price is often raised once market share is gained.

3. Price skimming

When a product is introduced to the market a high price is set that limits the volume of sales but still produces a high return. Often used to recover investment costs by targeting ‘early adopters’ who are less price sensitive. The price is then reduced as competitors enter the market.

4. Premium pricing

A high price is used to encourage the perception of quality. Usually where there is a dominant brand and competitive advantage.

Other Pricing Strategies

5. Cost-plus pricing

Price is based on the cost of production ‘plus’ a profit element either as an absolute amount or a percentage of cost.

6. Loss leader

The product is sold at the cost of production or even below in the hope that customers will buy more profitable products at the same time.

7. Psychological pricing

Pricing is based on the customers perception of value for money. Certain price points will increase sales disproportionately to the price reduction. Example: $99 instead of $100.

8. Price discrimination

The product is priced differently for various market segments. Example: geographical segments or time-based segments etc

9. ‘Freemium’ pricing

The basic no-frills product is ‘free’ with the purchase of advanced features set at ‘premium’ pricing.

10. Decoy pricing

Pricing is set so that the customer’s perception of value comes from the comparison of the relative options. For example by introducing a more expensive but similar product the original product might appear better value although sold at the same price.

11. Value-based pricing

The price is determined by the value of the product to the customer which may have no relationship to the cost of production.

12. Dynamic pricing

A flexible method of pricing often used online, based on available data about both the market and the customer. Example: airline tickets.

13. High-low pricing

Prices are higher than competitors prices on most products but with coupons and promotions used to attract customers to low prices on some key items.

14. Captive product pricing

The price is kept artificially high by the customers being held ‘captive’ to purchasing that product. Example: toner cartridges and razor blades.

15. ‘Pay what you want’ pricing

The price is left up to the customer to decide on although a guide price or minimum price is sometimes used.

16. Target pricing

Price set by the return on investment necessary for a predetermined volume of sales.

Summary

There are many ways to price a product or service so do not let your pricing strategy set like concrete. Review your pricing strategy regularly and test your market for different prices if possible. Making the highest number of sales at the optimum price point is a big part of setting your business free.

© Business Set Free Ltd 2013

 

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