Creating a good pricing strategy can mean success for a company, but doing it incorrectly can create unsolvable financial problems. Today we tell you how to do it correctly.
how to implement a good pricing strategy?
To implement a functional pricing strategy you should always keep in mind the 5Cs: Company objectives; Customers; Costs; Competition; and Channel members .
- Companyobjectives: The pricing strategy must fit the marketing mix set for the business and reflect the business objectives so that they can become a reality.
- Customers: After setting the objectives, it is time to move on to demand. This variable is not only related to the characteristics and desires of your buyer persona, but also to their willingness to pay.
- Costs: In general, prices should not only be calculated on costs, as people also evaluate perceived benefits. Still, it is important to define a break-even point in order to establish pricing strategies and to understand which conditions, with different prices, make a product profitable.
- Competition. The level of competition in a market can have a profound impact on pricing strategies. In monopolies, for example, competition for price is very low and it is for this reason that government usually has to interfere in price control, as in the case of the companies that supply energy to our homes. In turn, when the market is dominated by a number of strong firms, competition tends to influence how firms and consumers react to price changes, and can mean loss or gain of market share.
- Value chain or channel members. Several companies may be part of the production and distribution channel for a product. And different companies also mean different business objectives. Managing this value chain is a challenge that, if done well, can maximise the potential to generate profits.
what are the main pricing strategies that exist?
- Dynamic pricing strategy: Dynamic pricing is pricing according to demand. A dynamic pricing model requires us to keep up with current demands and the popularity of our product in order to increase or decrease prices. This task is made easier by using data analytics software, a common tactic in digital marketing.
- Perceived value: People determine the value of a specific product or service by comparing the potential benefits with the effort to acquire it, but of course perceptions are individual. As perceived values are often quite different, to set a price using this criterion we must conduct market research to understand which factors are most important to your customers and to what extent they influence purchase.
- Market entry pricing: The market entry pricing strategy is to set a low price for the introduction of a new product in order to drive sales, gain market share and make large profits more quickly. This great strategy diverts attention away from other companies and helps to increase brand visibility and customer loyalty.
- Skimming strategy: In many segments, such as technology and/or innovation, users are willing to invest a higher amount to get the product or service before others. Later, the company will lower prices as the market becomes saturated and competing products appear. One of the benefits of skimming is that it allows companies to maximise profits from early adopters before lowering prices to attract more price-sensitive consumers. In addition, skimming not only helps a small company recover its development costs, but also creates an idea of quality and exclusivity when presenting its product to the entire market.
- Quantity discounts - You may have noticed that in supermarkets, the larger the product package, the lower the price per gram, litre or unit. This situation describes quantity discounting, a tactic to encourage customers to buy larger quantities. As a result, consumers are less likely to switch brands and, depending on the type of product, may also increase the frequency of consumption, which becomes a difficult habit to break.
- Seasonal pricing: These are price changes to stimulate demand during specific periods of the year. Such a practice is quite common during the low tourist season. By launching short-term promotions, entrepreneurs can generate buzz and excitement about a product or service, leading people to buy before it is too late.
- Combos: In combo pricing, small businesses sell a combination of products at a lower rate than consumers would face if they bought each item separately. Many small businesses choose to implement this strategy at the end of a product's life cycle, especially if the product sells slowly.
- Competitive pricing: In this case, firms rely on competition to define the final price. Therefore, entrepreneurs adapt their price to the market average, assuming that their product differs very little from that of their competitors. In this sense, they would also increase their prices if their competitors did the same, as this could indicate that that type of product is being sought after or valued more.