Maximization of profits is the ultimate goal of every company in existence (apart from some non-profit organizations) and that’s why pricing strategy is important when talking about maximization of your profits and incomes.
Doing this may be stressful to some of you, so I highly recommend that you don’t stress yourself while thinking about this, informing yourself on the subject, or making a pricing strategy.
Pricing strategies may seem very confusing but it may very well be the difference between a product or service that’s sold in quantities you need it to sell, and a product or a service that’s not sold at all.
That’s why it’s important to develop a good pricing strategy and stick to it if it’s working or change it if it isn’t.
Now, I’m going to show you 5 easy pricing strategies you can follow and some good pricing strategy examples in order to make it easier for you to develop one of your own.
Let’s get onto it!
Pricing Strategy – Meaning & Introduction
First of all, it would be good to know what pricing strategy really is, what it is used for, how to develop one, and how to modify it depending on the results it brings in.
The most important thing is the definition. The definition of pricing strategy is:
“pricing strategies determine the price companies set for their products”.
Now, this may seem simple at first, and it is, but the sole definition is where the simplicity ends.
Pricing strategies are used to determine the price of the product or service, and they don’t have a secondary use, so it’s important to remember that this is a very precise “tool”.
Developing one isn’t as hard as it may seem, but I’m going to show you 5 easy pricing strategies you can follow.
5 Easy Pricing Strategies You Can Follow
First, let’s look at the strategies on a list, and then we’ll discuss them later on. The concept of the list is quite easy to understand. The first strategy on the list is the easiest to do, and the last is the hardest.
“What are examples of pricing strategies we’re going to talk about?” some of you may ask, well here they are:
- Check your competition
- Check the market
- Calculate your expenses
- Promote your product/service
- Run a survey
Now that you’ve taken a first look at the strategies, let’s talk about them individually and see what they’re all about!
1. Check Your Competition
If you’re selling a product or a service, chances are you have competition. Now, that’s true only if you’re selling something that’s already on the market, and that’s the case the majority of the time.
Checking your competition will lead you to learn how they’re pricing their products (or services) that are similar to yours and how they’re doing with those prices.
For example, if you see your biggest competitor is selling their product or service for X amount of money, and they’re selling Y amount of them a year, you can see if the product that’s X – 5% will sell at Y + 10%, for example.
Your competition is already on the market, especially if we’re talking about competition that’s been there for a number of years, and you can set your own prices just by looking at what they’re asking for their products or services, and then compare their products to yours.
Your products or services may be of higher quality, so you’ll maybe be able to raise the price a bit, or if your products rank lower in quality or quantity, you can lower the price to match the competition.
This is an excellent method that’s not used as often as it once was since the competition already has their pricing figured out, and there’s a lot more that needs to come into the equation when setting a price.
But, a good milestone to look up to is always useful, and the guidance it may give you can turn into a decent price tag.
2. Check The Market
The market is what sets, dictates, and changes the price. Or the consumer does through the market, better said.
So, if you check the market and see that the overall prices of the products or services you’re offering have dropped, you need to lower them as well, and if they’ve skyrocketed that probably means that there’s a high demand for them and that you should seek for higher profit within the border of reason.
I’m saying that since people often make a mistake and see that if the products that they offer get a 50% rise in prices, they’ll raise it by 100% or 150% just to make more money.
But the only thing they do is lose money since their competition attracts all their customers with lower prices and similar quality.
Those are all serious topics that have to have a serious question behind them in order to work. The quality, the demand, and the spending habits of potential customers are just some of the things that need to be taken into consideration when talking about the market.
But, there are things you can do that can help you. The market is the best show of how popular a product or a service is, so use it as a guideline and don’t lose track of it!
3. Calculate Your Expenses
There are certain companies that offer products for a price that is much lower than the rest of the competition.
That’s because they calculate their expenses, don’t look for a huge profit, and sell them for a price that’ll cover their expenses, bring a profit of around 5%, and they count on selling more products or services than their competition.
We can see from very real examples that this works, but it only works if you calculate your expenses properly. If you need an X amount of money to make your product, you can sell it for X + 10% or X + 50%.
Someone would tell you that the X + 50% will make you more money, but if you sell 10 times more of the less expensive product, you’ll make much more money than if you sell one more expensive product.
This all goes to show you how important it is to know how much you’re spending on making the product or providing the service in order to price it correctly on the market.
4. Promote Your Product/Service
If you promote what you’re selling, especially on social media, you’ll get good feedback from potential customers about the price.
The number of interactions with the promotion or the product alone will tell you how you’re doing in comparison to your competition.
Your price is malleable and can be changed, so if you run an Instagram promotion of your product for example, and you see people are reacting as it’s too expensive, that’s a good indicator that you need to change that price ASAP if you’re going to attract consumers.
I understand that this requires you to have a pricing strategy that has been put in place in order to set the first (preliminary) price.
That’s not a big deal, you can use the past three methods I’ve given you in order to set that price, promote it, and then regulate it taking into consideration the feedback you’ve been given.
Pricing strategy marketing is quite important when it comes to this, so consult your marketing manager first!
5. Run A Survey
This is an improved version of the previous strategy since it requires a bit more data collecting, data reading, and mathematics.
Running a survey isn’t as easy as it seems. Giving people a paper, a pen, and a question to go ask around isn’t how surveys are run.
You have to have simple questions so that the answers you receive will give you a lot of information. In addition to that, those questions have to stay short in order to make it easier for people to take the survey, and lastly – you have to know what to do with the data that you’ve collected.
Firstly, a survey is best run by a company that specializes in that. If you have the resources, it would be the best option. If you highlight that you’re most concerned about the prices, the survey will emphasize that in the questions.
But, if you don’t have the resources, there are countless guides on how to run a successful survey, how to take in and read the data you’ve collected, and how to use it further.
The most important thing is to target people that would use what you’re selling, then ask them questions about the price tag of what you’re selling, and after, you can look at the results.
Those results may not show what you’d like to see, for example, maybe you come to a conclusion that the price you’ve been wanting to set on your product or service is way too high and is outside of the monetary range of your targeted potential customers.
Pricing Strategy Examples – Summation
Now that we’ve looked at the top 5 easy strategies to use when setting a price for something you want to sell, it’s time to recap!
The most important thing to remember is that all prices are dictated by the buyers since if nobody wants to buy what you’re selling, it’s worthless.
Regardless of what pricing strategy you go with, it’s never excluded or forbidden to use multiple.
If you decide to go with strategy number one, I don’t see why you wouldn’t combine it with strategy number two or three.
All-in-all the most important thing to remember is to listen to your consumers and customers!