Breaking through on the market with the right pricing strategy

In theory, it doesn’t matter what product you want to launch as long as you set the right price. Here, we take a look at the seven most important pricing strategies to help you hit the ground running.

7 popular pricing strategies
Image: © Roman Sigaev / Adobe Stock

The right pricing strategy for your product

The truth of the matter is that there isn’t one blanket strategy. For example, there are companies that generate huge sales although their products are exorbitantly priced, and then there are some whose prices are so cheap that they undercut the whole market but still manage to stay in the black. Ultimately, it all comes down to the customer, but there a few tried-and-tested techniques to help you find the right pricing strategy for what you’re offering.

The concept of a “pricing strategy” brings together all the targeted methods for determining the best price for a product, the simplest form being markup pricing – or also full cost pricing.

In this context, though, “simple” merely means “less complex.” The MSRP (manufacturer’s suggested retail price) is intrinsically linked here. Take restaurant prices for a bottle of wine, for example. We all know that you pay more than the wholesale price. However, every restaurant owner has the power to add whatever surcharge they like.

The text below lets you in on some more pricing strategies.

#1 Price skimming

One effective tactic when launching a product or service is to start at a high price point and then lower the price by stages afterward. This pricing strategy mainly appeals to high-income customers who not only can afford the high prices, but also want to pay them as a kind of status symbol. This clientele also often see themselves as early adopters and trendsetters. Skimming is a popular method for the initial sale of electronic products, such as smartphones and laptops, as well as for software, while also being used in the fashion industry. Once the early hype has died down, the price is gradually reduced, thereby making the product accessible to the wider market.

#2 Penetration pricing

Market penetration pricing is essentially the opposite of skimming. To quickly gain a strong foothold, the product is offered at a low price to begin with and then gradually made more expensive. With this method, there is a risk of making no profits despite high sales figures. On the other hand, though, it opens up the opportunity to instantly impress on quality and thus win over customers in the long term who are then also willing to pay more in the future.

#3 Competitive pricing

As with penetration marketing, the main objective of competitive pricing is to undercut the competition. Price matching is a specific form of this. Big companies like Walmart and Target follow this practice by giving their customers a price promise: if like-for-like products are found elsewhere for cheaper, they will match their price in a bid to win buyers over. The main difference between this and market penetration pricing is that the prices stay at a low level in a competitive pricing strategy. However, for companies to pursue this strategy, they need to have very low production and maintenance costs.

#4 Premium pricing

A significant proportion of customers don’t respond well to low prices; quite the opposite, in fact. This affluent group wants to pay exclusive prices – they can afford them, after all. More often than not, though, the products being offered aren’t necessarily luxury items. There are certain car brands that are simply more expensive than others and consequently also convey a certain brand image. The same goes for cosmetics, fashion articles, and even tech products. Of course, reliability and quality are then expected as inherent product attributes.

If premium pricing isn’t combined with half-decent quality, this pricing strategy can end up being catastrophic for a company’s image.

#5 Loss leader pricing

Luring in customers with bargain buys is a popular strategy for both online stores and brick-and-mortar retail. Current, limited-time special offers are intended to encourage buyers to purchase additional products on top of the loss leader. After all, the special promotion has already saved them money. One special version of this strategy is bundle pricing, which can also be used over a longer period of time. Here, entire sets are offered, for example a camera with the lenses to go with it, a matching case, memory cards, and so on. This lets big stores like Amazon offer several related products together and thus give customers almost unbeatable deals.

#6 Psychological pricing

The subconscious power of numbers: here, instead of the product, the price becomes the key, yet subtle determiner in the purchasing decision. Probably the best-known example would be just-below prices, which are always set at one or two cents below a round, whole-dollar number. 999.99 dollars ultimately seems cheaper than 1,000 dollars although just a single cent separates them. Enlarged currency symbols and downsized numbers are also used to visually shrink the price – and its psychological impact as a result. Crossing out “old” prices next to supposedly new, cheaper ones is also another eye-catching method for giving customers the impression that they have bagged a real bargain. However, this tactic has sometimes been used to dupe customers in the past and so should be used with caution to avoid potential legal challenges.

#7 Value pricing

Value pricing is a lesser-known and rarely implemented pricing strategy, but its importance and potential should not be underestimated. Here, customers effectively decide for themselves how high the quality is or how important the product is to them – and from this internal perspective, they are also willing to pay a price that is in line with their own judgment and assessment. For example, a wedding dress is usually much more expensive than a “normal” dress because it is for an extra-special occasion.

The right pricing strategy requires market research

Before determining your pricing strategy, you should try to find out as much as you can about your potential customers, i.e., your specific target group. That’s crucial not only for choosing the right pricing strategy, but also for creating the best possible user experience in e-commerce. Only then will you ultimately find the pricing strategy that fits your product best.

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