10 Different Types of Pricing Strategies

  • Ashesh Anand
  • Aug 18, 2021
  • Financial Analytics
  • Marketing
10 Different Types of Pricing Strategies title banner

Setting prices for your product may appear straightforward: You'll make a profit if you list your goods for more than it costs you to develop or procure them.

 

Your pricing is more than mere numbers. Calculating your costs and adding a mark-up isn't enough to figure out how much to charge for your goods. The way you price your products or services may reveal a lot about your company's mentality, as well as how you see and treat your rivals and how much you respect your consumers. That is why it is critical to have a well-thought-out pricing strategy.

 

If you set your pricing too high, you'll miss out on important sales. If you set them too low, you'll miss out on a lot of money. Pricing, however, does not have to be a sacrifice or a gamble. There are a plethora of pricing models and techniques that may assist you in better understanding how to determine the correct rates for your target audience and revenue goals.

 

( Also Read - 8 Most Effective Marketing Techniques )

 

 

What is a Pricing Strategy?

 

According to Economic Times, Price is the monetary worth assigned to a product or service, and it is the result of a complicated series of calculations, research, and comprehension, as well as the capacity to take risks. Segments, ability to pay, market circumstances, competitor activities, trade margins, and input costs are all factors that go into a pricing strategy. It is aimed towards a certain set of clients as well as rivals.

 

There are numerous methods to price your commodities, and depending on the market you serve, you may discover that some are more effective than others. 

 

 

Different Types of Pricing Strategies

 

Now let us see what are the different strategies which you can use to attract more customers and operate your business better.

 

  1. Price Skimming

 

Setting rates high during the initial phase is known as price skimming. This is intended to assist companies in increasing sales of new products and services. After the items or services are offered, the firm gradually lowers the prices. As new rival products enter the market, this is finally done.

 

This sort of pricing is great for companies looking to expand into new sectors. It allows businesses to profit from early adopters while also undercutting future competitors when they enter an already-developed industry. The effectiveness of your skimming strategy is mainly determined by the market you want to target.

 

For example the earliest prices for mobile phones, VCRs, and other electronic items where a few players ruled attracted lower cost Asian players.
 

( Also Read -  Type of Financial Risks )

 

 

  1. Market Penetration Pricing

 

Price skimming is the absolute antithesis of market penetration pricing. You take over a market by undercutting your competition, rather than starting high and gradually decreasing prices. You elevate pricing once you've built up a loyal client base. 

 

Penetration tactics are designed to entice customers by lowering the cost of goods and services. Many new businesses employ this strategy to divert attention away from their competitors. 

 

However, penetration pricing results in an early loss of revenue for the company. Increased awareness, on the other hand, can lead to increased earnings over time. It may also assist small companies in standing out from the crowd. Companies frequently end up increasing their pricing after sufficiently entering a market. This is done in order to better represent their current market position.

 

Here is an example from Sniffle

 

Consider Company X, a small to medium-sized soap manufacturer that makes $10 lavender soap bars. A multinational firm Y joins the market with a considerably larger manufacturing capacity and begins offering a comparable lavender soap bar for $5. This is an excellent illustration of penetration pricing.

 

Y's objective is to put small-scale rival X out of business, even if they only earn a tiny profit at $5. They are certain that firm X will not be able to match their rates. Customers will begin to buy from Y, and X will eventually go out of business. Predatory pricing is another word for this severe kind of penetrative pricing.
 

Example: Mobile phone rates in India; housing loans, etc.


This image depicts various types of  Pricing strategies from pay what you want, dynamic pricing, promotional pricing, psychological pricing, bundle pricing, penetration pricing, freemium pricing, premium pricing, pricing skimming, to economy pricing

Different Types of Marketing Strategies


  1. Premium pricing 

 

Businesses use Premium Pricing to set costs higher than their competitors. In the early stages of a product's life cycle, premium pricing is generally the most successful. It's also great for tiny enterprises that sell one-of-a-kind items.

 

( Related blog - 4Ps of Marketing )

 

According to Quickbooks, Premium pricing is reserved for businesses that produce high-quality goods and sell them to high-net-worth customers. The key to this price approach is to provide a high-quality product that buyers would regard to be valuable. To appeal to the proper sort of customer, you'll most likely need to establish a "luxury" or "lifestyle" branding approach.

 

Example: Porsche in cars and Gillette in blades.

 

 

  1. Economy Pricing 

 

The goal of economy pricing is to appeal to the most price-conscious customers i.e the middle class and the lower economic class of society. A wide spectrum of firms employ this technique. 

 

Generic food distributors, cheap shops, and other businesses fall under this category. As a result of this technique, firms can and reduce marketing and manufacturing expenses.

 

Walmart and Costco, for example, are great instances of economic pricing schemes. Adopting an economical pricing strategy, similar to premium pricing, is determined by your overhead expenses and the total worth of your goods.

 

Example: Friendly wash detergents; Nirma; local tea producers

 

 

  1. Bundle pricing

 

Bundle pricing refers to offering a set of goods or services at a cheaper price than customers would pay if they bought each item separately. Companies that provide complementary items benefit from this pricing approach the most. 

 

You have the option of selling your combined items or services exclusively as part of a bundle or as both bundle components and separate products. This is a wonderful method to provide more value to consumers who are prepared to pay more upfront for many products. It may also assist you in getting your clients addicted to more than one of your items more quickly.

 

Bundle pricing is an excellent technique to swiftly trade a large amount of product. Profits on low-value goods exceed losses on high-value items included in a bundle in an efficient bundle pricing plan.

 

However, small firms should keep in mind that the profits earned on higher-value goods must offset the costs incurred on lower-value ones. As a result, pricing tactics are critical, but it's also critical not to lose track of the price itself.

 

( Suggested Reading - The success story of Flipkart )

 

 

  1. Psychological Pricing

 

Psychological pricing does exactly what it says on the tin: it uses human psychology to improve and increase sales. When a marketer wants the customer to react emotionally rather than rationally, this strategy is utilized. It analyses the psychology of pricing rather than merely the economics of product pricing. As a result, a marketer may utilize psychological pricing in a variety of ways.

 

Take this example from Marketing Teacher:

 

Price Point Perspective (PPP) is 0.99 cents, not $1. It's funny how people use pricing as a barometer for all kinds of things, especially when they're in new marketplaces. When purchasing items in an unfamiliar location, such as when purchasing ice cream, consumers may use a choice avoidance strategy. 

 

Would you want $0.75, $1.25, or $2.00 worth of ice cream? It's all up to you. Perhaps you're breaking into a completely new market. Assume you're buying a lawnmower for the first time and have no experience with gardening tools. Would you always choose the cheapest option? Would you go for the most costly option? Or would you want to use a lawnmower in the middle? In new areas, the price may therefore be a reflection of qualities or advantages.


 

  1. Competitive pricing

 

Consumers want the best deal, which isn't necessarily the same as the lowest price. Competitively pricing your products and services in the market might place your company in a better position to gain a customer's business. 

 

Competitive pricing is incredibly useful when your company provides something that your competitors don't, such as outstanding customer service, a liberal return policy, or unique loyalty incentives. If you're primarily targeting price-sensitive clients, a competitive pricing approach could be a better option. 

 

To maintain their loyal consumers, retailers such as Best Buy and Target provide price match promises, even when competing stores are having deals. This technique is frequently combined with economy pricing, in which firms strive to keep manufacturing costs as low as possible in order to provide the best available pricing.

 

( Also Read - Types of Market Capitalization )

 

 

  1. Discount and Allowance Pricing

 

In order to reward customers for their acts, brands frequently modify the fundamental pricing of their goods. These behaviors might include bulk purchases, early bill payments, off-season purchases or stays, and so on. 

 

There are many different types of promotional pricing, such as BOGOF (Buy One Get One Free), money off coupons, and discounts. Promotional pricing is frequently a source of contention. Many nations have rules that dictate how long a commodity must be sold at its initial higher price before being reduced. Promotional price extravaganzas are what sales are all about!



 

  1. Geographical Pricing

 

When items or services are priced differently based on their geographical location or market, this is known as geographic pricing.

 

This technique may be utilized if a consumer from another nation makes a purchase or if there are differences in elements such as the economy or salaries (between the place where you're selling an item and the location where the person buying it is located).

 

As a result, geographic pricing reflects the transportation expenses associated with moving items from point of origin to point of sale. So, if the customer's location is closer to the site of origination, a lower fee may be paid. Customers that live in a remote location are charged a higher premium.


 

  1.  Value Pricing

 

When external forces such as recession or increasing competition compel firms to give value products and services in order to retain revenue, such as in fast-food restaurants, this strategy is utilized. The term "value price" refers to a price that provides excellent value for money, i.e. a price that makes you feel as though you are receiving a lot of goods for your money. It's comparable to economy pricing in many respects. 

 

It is important not to make the error of believing that there is more value in the product or service. In most cases, lowering the price does not enhance the value. Our price goals will be determined by how much revenue we expect to make from a commodity, how much we can sell, and how much market share we can get in comparison to rivals.




 

Conclusion

 

Refer to this image from Quickbooks to check out how some of these strategies are being used by different World-class MNC’s. 

 

Assessing your needs ahead of time will help you figure out which tactics are best for your company. If you've already started your company, you may play around with these techniques until you find what works best for you. You may also change your marketing strategy based on the market for each commodity or service. 

 

( Related blog - B2B Marketing Strategies )

 

All pricing schemes have two sides to them. Some clients will be turned off by what attracts others. You can't be everything to everyone. But keep in mind that you want the buyer to buy your goods, so you'll need to employ a plan that's tailored to your target market.

 

To summarise, price is one of the most critical components of your market strategy, along with marketing, placement (or distribution), and people. So your needs and then choose a strategy which suits your business the best.

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