There are a lot of people that have thought of awesome business ideas apart from the jobs they have normally. After thinking up a business idea and actualizing it, another important part of your business plan is putting a price on your product or services. A lot of business owners have issues with pricing strategy, you wanting to know if you are charging too much or too little. pricing is usually very tasking, but the area in which you are pricing a product really matters, also how valuable your product or service is also of importance because it serves as a great starting point in your pricing strategy. A product or service having the right price is a balancing act, giving your product a low price is not ideal, as the product might see a healthy stream of sales without turning any profit (and we all want to pay our bills right?). Likewise, a high price for a product might bring lower sales, “price out” more budget customers, and by that, the product loses market positioning.
Basically, as a business owner, you will have to carry out your research and do the math before putting out the price for your product. Factors like production and business costs, consumer trends, revenue goals, and competitor pricing are to be considered, because selling and setting a price for a new product or even an existing product isn’t just pure math, plus the aforementioned factors might even be the most straightforward step of the process because numbers can be logical and quite easy to navigate. On the other hand, humans can be complicated and complex, true, you can do the math, but you need to also take a second step that goes beyond hard data and number crunching, knowing fully well that the art of pricing requires you to also calculate how much human behaviour impacts the way we go about our pricing strategy.
A very important step to a successful business plan, and ultimately a successful business, is determining selling pricing for your products and services. While there are a lot of pricing strategies to choose from, there is a certain strategy that works for certain products or services. In this article, we will examine five pricing strategies, concerning the aforementioned factors, which are;
To have your ideal pricing strategy it is important to establish your pricing objectives. Your choice of strategy can either make or break your business since the price of your product or service has a direct effect on the revenue of your company. Therefore, it is a must to critically consider the best strategy to grow your business. Also, you are to put into consideration when determining your pricing objectives whether you want to maximize short or long term profits, achieve market stabilization, increase market share, and so on. After figuring your pricing objectives, you can then pick the pricing strategy that will work well for your product or service.
Madhavan Ramanujam, pricing expert and author of Monetizing Innovation, said maximization is one of the best strategies for startups who are looking to prioritize revenue growth. One way to make pricing decisions that generate the greatest revenue for the company is to maximize the price of a product or service when you raise the price of a product to its greatest value. Getting the fixed and variable costs a business will encounter, and then calculate how to reduce these costs to a minimum level, increases the profit-maximizing output of the product.
Making use of the market penetration method helps to attract a high volume of buyers. Market penetration is when a product is marketed at a lower price than a competitors price. Although this strategy can be of great use when increasing your buyers, it is crucial to keep in mind that many new businesses who elect this strategy will incur an initial income drop that can be difficult to bounce back from. The thought is that once a product penetrates the market without failing, the product will grow and the brand expands to attain higher profitability to cover up for the early setback.
The strategy that tends to work best during the introductory phase of products and services is price skimming. It involves raising product price to its premium price at the market, then methodically reduce the price over time to get an enormous customer base. This strategy gives the company room to generate considerable profits in the introductory phase of a product, and it works best for products that consumers are willing to pay top price for the latest and greatest. One of the companies that execute the price skimming strategy every year is Apple, by making the new iPhone price to be at its premium during the introductory phase, then lower the price as time goes by.
Economy pricing markets toward price-conscious buyers. This method intends to minimize business costs for the sake of selling products and services at a price lower than the market average. This approach is effective in some cases, even though it can be risky for smaller businesses because their profitability relies entirely on their volume of sales and thus can jeopardize profitability.
You must have wondered when you enter a store and an item is priced at $9.99 instead of the near equivalent of $10? Well, the answer is psychological. As humans, there is a tendency to yield to emotions than logic. This is why utilizing “9”s in your pricing creates the mirage of a less expensive product with profitability not significantly affected. Another way to seize this method on this facet of human behaviour is by offering something “free” with your product, an example being when a beauty product company offers a complimentary travel-size version of a product for customers who choose their brand.
In conclusion, figuring which of these pricing strategies will help you reach your pricing objectives requires serious attention. One important aspect to examine is aligning price with value, selling a valuable product for a very low price will not make you profit, also for an overpriced product. Calculating how valuable your product is to the consumers helps you find the “sweet spot” between price and value to enhance success. Your business profitability goals are also to be considered when going for a pricing strategy because you need to make a profit. Calculating the revenue left after subtracting the production price of a product is a major determinant when putting a price on your product. We must acknowledge that there is no perfect pricing strategy for any company since market changes and competition require flexibility and adaptability. A pricing strategy might seem perfect for your product at the early stage and may become ineffective later down the line. A product or service that wants to thrive must be prepared to adjust its strategy over time to be able to maintain profitability and competitive advantage. However, for the growth of your business, you should have a well thought out pricing strategy.