Price – Pricing Strategies
Setting the right price is a crucial part of your marketing strategy and price is not a decision you can pull out of thin air. You could have the best marketing campaign in the world but if the customer doesn’t feel the price is right, they won’t buy the product. If a product is too expensive for the customers to afford, there will be no demand for it.
This said, people are willing to pay more for goods they consider to be ‘luxury’ or a brand they want to be associated with. On the other hand, people might consider goods that are priced too low to be of low quality or inferior in some way.
There are a number of pricing strategies available – click on them to learn more.
Penetration
Penetration pricing involves setting a low price for your product in an attempt to gain customers. The hope is that customers will buy the product because it is cheap but then continue to buy the product because they like it. An example of this is introductory offers, e.g. 2 months for £9.99 and then £24.99 per month.
Skimming
Companies often use a skimming price strategy for products that are expensive to develop. Console game makers charge a high price for their games when they are launched in order to recoup their development costs whilst interest is at its peak. For example, when Legend of Zelda – Tears of the Kingdom, over 2.3 million copies were sold in the first three days after launch, and 18.1 million in the first month and a half. Skimming enables a company to take advantage in the period when interest is at its peak.
As the game ages, the price will drop as other games emerge on to the market; people’s attention will shift to new things, and sales sites will start doing special offers.
On a competition basis
Competitive pricing means setting a price very close to that of your competition or perhaps just below it. A small local coffee shop might charge slightly lower prices than a large competitor such as Costa or Starbucks to try and attract customers. This can be a successful strategy but there is a risk that your competitors will respond by adjusting their prices too.
Cost plus
A business must ensure that it is in a position to pay its costs so cost plus pricing tries to achieve this. This strategy adds a percentage to the cost of providing the product. For example, if a product or service costs £10, the business will add 50% to give a selling price of £15. This can be a good strategy because it ensures that all costs are paid, but with the disadvantage that the needs of the customer are not taken into account.
Special Offers
Special offers include money off; buy one, get one free (BOGOF) or 3 for the price of 2. Special offers encourage customers to buy the product and they can be used for new products, to sell surplus products, e.g. after Christmas or Easter, or to promote the sale of goods that are already on the market.
You can learn more by watching the video below: