Every business needs to design a pricing strategy to guarantee its profitability. Today we are going to accompany you in this task of assigning a value to your company’s products or services, based on the key points that must be analyzed to do so.
The pricing strategy in marketing is an essential point in several aspects. On the one hand, it is aimed at ensuring the financial health of the business by ensuring that profits exceed costs. On the other hand, it is related to the positioning of the company in relation to, for example, the target audience it is targeting.
In addition, or service based on a clear and robust plan, allows the implementation of strategies more and better focused on objectives.
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In this article, we talk about the factors that need to be analyzed to create this scheme. We also bring you 18 pricing strategies with examples that you can put into practice in your business and a series of tips for your success.
Finally, to make templates to put prices, we share our free and customizable resource. Towards the end of the post you will be able to download it!
What is a pricing strategy?
The pricing strategy is a set of analyzes and methodologies that allow setting the prices of products or services. It is the instrument by which the structure of values is defined with a view to positioning the business, guaranteeing its profitability and promoting its growth.
How to define a pricing strategy: 4 key factors
Many entrepreneurs wonder how to make a data-driven pricing strategy that generates profits and promotes business progress.
Even if your products are of good quality and are correctly promoted, there may be factors that are not allowing you to generate effective sales. If you are unable to sell large quantities, it may be due to a poorly implemented pricing strategy.
With this in mind, here are the 4 essential elements that you have to study to define a robust pricing strategy.
1. Analysis of your business
In the first instance, we recommend you study how the market is made up. In other words, understand the environment in which your company is located and then know how to better penetrate it.
This is about, for example, checking if there are small brands in the same category that survive with low prices. On the contrary, it may happen that the barriers to entry are high because the consumer prefers established and well-known brands.
In short, it is about understanding your competitive position and your market share in order to plan appropriate pricing strategies.
2. Study of the competition
By thoroughly analyzing your competitors you will learn a lot about your field and the one you want to target. Your pricing strategy must consider both the economic possibilities of your target and the values that other brands established for products in the same category.
In theory, your pricing scheme should be similar to that of your closest competition for two reasons:
- If they are inferior, customers may think that your products are of lower quality and the value of your product will drop, which will make you less profitable.
- If they are higher, it is possible that you will not achieve the level you expected, because it is something too expensive, mainly if people still do not know your brand and what makes it different from the rest to face that expense.
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3. The product life cycle
Pricing strategies are crossed by the . Values are changing as the market, the items you sell or the services you offer, go through different phases.
We are going to know these 4 stages so that you can transfer it to your business.
- Introduction: the product launch stage, where you have to make yourself known and find the first consumers. The prices must allow you to sustain the costs of development, production and promotion, but be attractive to attract the first customers.
- Growth: the public began to accept and acquire your product, with which you began to improve its profitability. You can choose to keep the initial price; decrease it a little, if your expenses are covered by sales or increase it, if you are perfecting it.
- Maturity: the growth of stabilizes. The product is already widely known by your target segment and you don’t have to work hard to sell it. Your price here must be competitive to prolong this situation as long as possible.
Do not stop paying attention to the demand and, if necessary, launch promotions to keep it alive. - Decline: This happens with any product, no matter how successful it is. There always comes a time when it stops being used and sales fall. In this case, you can rearrange your prices to squeeze out what’s left of its potential.
If you have merchandise left in stock, launch discounts and to liquidate it. Don’t be scared, just launch new products or variants to recover the initial profitability.
4. Production costs
Both are relevant figures to design your pricing strategy. For a must, among other things, receive more income than expenses.
The important thing is to find a balance between paying for the costs involved in selling and the benefit offered by your product or service, which is what customers will evaluate when deciding to purchase.
18 pricing strategies with examples
Every pricing strategy has a planning that includes factors, such as those we saw in the previous section, and clear objectives that guide the actions to be implemented.
We have prepared 18 pricing strategies that will allow you to reach you and improve the financial scheme of your business. Let’s get started!
1. Cost-based pricing strategy
Also called increased cost strategy, it is based on taking the factor of production costs as a priority. From that figure, the value is increased to obtain a percentage of profit on each sale.
This model is very common and can be used both in small businesses that are just starting out, as well as in businesses that are dedicated to .
2. Strategy according to the prices of the competition
We already talked about the importance of studying and keeping up with what the competition is doing. Part of that analysis is identifying pricing strategies and examples that you are implementing. From what you discover, there are 3 plans that you can put into motion:
- Price premium: the prices of your business are higher. In this scenario, your product or service must offer some extra utility or benefit, which justifies the increased expense to customers.
- Discounted price: your prices are lower. Unlike the previous one, the most accessible values are usually linked to lower quality items.
This does not have to be a bad thing: for example, people may prefer to buy cheaper to try a product for the first time, to learn about a brand, because they need to buy in quantity or for the benefit of spending less. - Average price: prices are similar to those of the competition. Here the consumer’s decision to buy from one or the other will be affected by other factors, such as delivery times, identity and prices, among others.
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3. Market penetration strategy
The hook of these pricing strategies is based on a high-quality, low-priced product. It is usually implemented when you want to penetrate a market dominated by some strong players, hence its name.
The attention of consumers is captured by offering a category product at an affordable price.
In any case, there will come a time when this strategy is unsustainable since you will need to take out more margin to cover all your costs.
In theory, by now your brand has already penetrated the market and does not depend on a low price for its acquisition, therefore, increasing the values a little should not represent a problem or a noticeable drop in sales.
4. Skimming strategy
This variant goes by several names: overcharge, skimming, or skimming strategy (referring to “removing the cream from the surface”). It consists of charging a high price for a new product. Then, when it is no longer a throw, its value drops.
It is widely used in the field of technology, for example, for the launch of smartphones or video game consoles.
In what scenario would this pricing strategy be applied? In industries where there are customers who are really interested and would pay to have the product or service before other people. Subsequently, the price falls to capture a larger segment of the market.
The skimming pricing strategy helps one recover their development and launch costs as well as creating an idea of quality and exclusivity in their products.
Caution is needed with this strategy. Loyal customers may be upset that they paid more for your products and you risk losing them.
That is why it is key to carry out a marketing campaign that gives visibility that it is a temporary price but highlights the benefit of those who obtain it in advance, to promote conversion.
5. Dynamic pricing strategy
This tactic is based on the flexibility of the market. The dynamic pricing strategy causes values to fluctuate based on factors such as the balance between supply and demand, the stage of the product’s life cycle in which it is, or what the competition offers.
6. Differential pricing strategy
The goal of implementing different pricing strategies is to reach different types of consumers. They are perfect for businesses that are dedicated to a heterogeneous market.
It is about establishing different prices for the same product. How is this distinction justified? Geographically, for example. If you import products and it is very likely that each region has its own characteristics and different prices are justified.
7. Geographic pricing strategies
Although we mentioned it in the previous point, geography is such a determining factor that it forms a price strategy in itself. Whether due to the location of the seller, the market to which it is dedicated or the location of the buyer, these variables affect prices.
For example, doing it is important to contemplate the import taxes of merchandise. Furthermore, it is necessary to analyze the purchasing power of your target in each locality: notable variations are recognized between the provinces of our country, to give a case.
8. Perceived value pricing strategies
Here the point is to define prices based on what customers are willing to pay for…
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