This week at New Generation Mindset, we will look at behavioral economics and iron out any confusion on how you should properly set out prices for your product/service.
A good pricing strategy determines the price point at which you can maximize profits on sales. Before selecting one of the strategies, listed below you need to consider a range of factors:
Production and distribution costs, competitor offerings, positioning strategies and your business’ target base. As well as your pricing objective, average mark up and industry average.
While customers won’t purchase goods that are priced too high, your business won’t succeed if prices are too low. Along with product, place and promotion, your price can have a reflective effect on the success of your small business.
6 PRICING STRATEGIES FROM WHICH YOU CAN CHOOSE:
Pricing at a Premium: With this strategy, businesses set costs higher than their competitors. This pricing is often most effective in the businesses early days of a product. Because customers need to perceive your product as being worth the higher price. A business must work hard to create a value perception. It is ideal for small businesses that sell unique goods. The product’s packaging and the store’s décor are all combined in support of the premium price.
Pricing for Market Penetration: This strategy attracts customers by offering lower prices on products and services. Many businesses use this strategy to draw attention away from their competitors, penetration does tend to result in an initial loss of income. However, over time, the increase in awareness can drive profits and assist small business to stand out.
Economy Pricing: A wide range of businesses, including generic food suppliers and discount retailers use this strategy. Economy pricing aims to attract the most price conscious of customers. Economy Pricing minimizes the costs associated with marketing and production, to keep product prices down. As a result, customers can buy the products they need without all the extras. This technique is effective for large businesses. For a small business owner, it may be dangerous. Small businesses lack the sales volume of larger businesses, they may struggle to generate profit when prices are too low.
Price Skimming: Is designed to assist businesses maximize sales on new products and services. This strategy involves setting rates high during the introductory phase. The business then lowers the prices slowly as competitor goods appear on the market. Price Skimming allows businesses to maximize profits in the early stage before dropping rates to attract more price-sensitive consumers. Not only does it assist small businesses recoup its development costs, it also creates the illusion of quality and exclusivity when your item is first introduced to the market.
Psychology Pricing: Refers to the techniques that marketers use to encourage customers to respond on an emotional level rather than logical ones. The aim of psychology pricing is to increase demand by creating an illusion of enhanced value for the customer.
Bundle Pricing: Here small businesses sell multiple products for a lower rate than consumers would face if they purchased each item individually. This strategy increases the value perception in the eyes of the customers. Bundle pricing is more effective for businesses selling complimentary products.
Pricing strategy entails more than just reacting to the market conditions, it encompasses thorough planning and consideration of customers, competitors, and businesses goals. Furthermore, pricing strategies vary depending on whether the business is a new entrant into the market or an established business.