Most entrepreneurs spend their creative efforts developing a concept and turning it into a marketable product when starting a business. However, before you start selling any product or service, you need to determine its value, and that’s where a pricing strategy comes into play.
Read on to understand why competitive pricing is important and how to choose the optimal pricing plan for your products.
Let’s take a look at developing a pricing strategy that will work for your business, whether it’s your first or fifth pricing plan.
Know the costs.
To determine the pricing plan for your product, add up the costs of bringing your product to market. When you order items, you know exactly what each unit costs you, which is the cost of the item you sell.
If you are making a profit from your product, you need to calculate the full value of your efforts. How much does a raw package cost? How many different products can you make from it?
Determine who your customers are.
This step is similar to the previous step. Your goal should be to determine a reasonable profit margin and how much your target market will pay for what you sell. After all, if you don’t have potential customers, your hard work will be less worthwhile.
Consider the discretionary income of your consumers. Some customers, for example, may be more price-sensitive when it comes to clothing, but others are willing to pay a premium for certain products.
Identify your value proposition.
What makes your company truly unique? You need to establish an optimal pricing plan to differentiate yourself from the competition to represent the distinct value you offer to the market.
Product pricing strategies
1. Value-based pricing
Value-based pricing depends on how much the consumer values the product or service. It’s an outward-facing strategy that takes into account the interests and needs of your target market. Companies that sell unique or expensive products will benefit more from value-based pricing than those that sell standardized product-based products.
2. Competitive pricing
Competitive pricing is defined as using competitors’ price data as a starting point and aiming to price your product lower than theirs. This strategy is often driven by product cost. In industries with highly comparable products, for example, where price is the only differentiator, you rely on price to attract customers.
3. Economical pricing
With an economic pricing strategy, you set low product prices and make money from sales volume. When a company does not have a strong brand for its marketing, it is often used for basic products such as foods or drugs. Business strategy depends on selling multiple products to new customers consistently.
The economic pricing formula is as follows.
Price = Cost of Production x Profit Margin
4. Dynamic pricing
Retailers and brands can use machine learning to price products and services independently. This is possible with dynamic pricing methods. They can automate processes to reduce time while allowing price adjustments to reflect current market conditions.
These variables are taken into account when rules or self-improving algorithms make pricing choices. It allows you to take advantage of any opportunity to increase profitability, sell your products with less work and place your online business wherever you want.
5. Discount prices
Sales, discounts, credits, seasonal prices and other related notices are popular among shoppers. Penetration pricing is another name for this pricing method. Relying on discount prices has various advantages. The obvious ones include increasing your business traffic, removing residual properties and attracting a more valuable customer base. So many new companies are willing to trade increased profits for more customer recognition to get their foot in the door at a discount price.
6. Keystone pricing
This happens when a merchant sets a retail price with a good profit margin, double the wholesale price he paid for the goods. Using basic pricing tactics can result in a product being priced too high, too low, or just right for your business in different situations.
You may underprice your products at key prices if your products have slow turnover and high shipping. Furthermore, the seller can increase the retail price of these popular products by using a more efficient markup formula.
Here is a simple method to help you determine your retail price.
Retail price =: [cost of item ÷ (100 – markup percentage)] x 100
7. Multiple pricing
It is characteristic of clothing, particularly T-shirts, socks and underwear. Additionally, retailers use multiple pricing techniques or product bundle pricing to sell multiple products at one price.
Retailers use this tactic to provide perceived value at a lower price, which can ultimately encourage higher volume sales. You can sell items individually for extra money, an added bonus. If you offer makeup and makeup remover together for $10, for example, and can sell them separately for $7 to $8 each, your business will benefit.
8. Loss leader pricing
By offering customers a product they like at a discount, businesses can encourage them to buy more at loss-leader pricing.
Instead of selling only one product, a seller can provide special bundle prices to entice customers to buy several related products together.
A merchant can profit from an upsell/cross-sell plan that helps encourage additional sales even though the original product may be sold at a loss. Loss leading usually occurs for items that consumers have already searched for, where mass demand for the product brings in additional customers.
Promoting multiple purchases not only increases the average sale per customer, but can offset any profit loss from the original product price reduction.
9. Psychological pricing
Historically, businesses have used psychological pricing to reduce shocks by stopping their prices at odd numbers, such as 5, 7, or 9. For example, a store might charge $8.99 for an item instead of $9. From the customer’s point of view, the store has significantly reduced the price. Their mind reads $8.99 and interprets $8 as $9, making the price seem cheaper.
10. Premium pricing
Your business and products can benefit from a premium pricing plan because customers will think they are more expensive and of higher quality than the competition.
First, be assertive, focus on the unique value you provide to customers, and make sure you continue to deliver value. For example, excellent customer service, pleasing branding, etc. will give customers the value they need to accept higher costs.
11. Anchor pricing
Another method of product pricing that marketers have tried to create favorable comparisons is anchor pricing. To determine what savings a customer gets from shopping, the store offers both original and discounted prices.
If you mention that your original price was much higher than the sale price, it may convince them to buy because of the obvious bargain.
To form a judgment about the reduced advertised price, consumers are “anchored” by the original price, which they set as a reference point.
Find the best product pricing strategy for you.
There is no one and only method for developing an effective product pricing strategy. Some pricing approaches are only suitable for specific types of online businesses.
Finally, you can make more informed decisions and create a personalized shopping experience by offering consumers the best prices.
e-commerce pricing strategies product pricing