14 Strategies for Finding the Ideal Price for Your Products

Let's say you just started an online t-shirt business and you want to calculate the selling price for a shirt. The cost for making the t-shirt ... Emailaddress Password Yourstorename Createyourstore OpensinanewwindowOpensanexternalsiteOpensanexternalsiteinanewwindow Doyouwanttocreateyourownonlinestore? Yes No Home ShopifyBlog ThePriceIsRight:14StrategiesforFindingtheIdealPriceforYourProducts StartYourBusinesswithShopify TryShopifyforfree,andexploreallthetoolsandservicesyouneedtostart,run,andgrowyourbusiness. Startfreetrial Wantmoregreatresourcestobuildyourbusiness? We’reheretohelp.Getfreeeducation,tips,andinspirationtohelpyoustartandgrowasuccessfulbusiness. EmailaddressSubscribe Nocharge.Unsubscribeanytime. Settingtherightpricesforyourproductsisabalancingact.Alowpriceisn’talwaysideal,astheproductmightseeahealthystreamofsaleswithoutturninganyprofit(andweallliketoeatandpayourbills,right?).Similarly,whenaproducthasahighprice,aretailermayseefewersalesand“priceout”morebudget-consciouscustomers,losingmarketpositioning. Ultimately,everysmallbusinesswillhavetodoitshomework.Retailershavetoconsiderfactorslikecostofproduction,consumertrends,revenuegoals,andcompetitorpricing.Eventhen,settingapriceforanewproduct,orevenanexistingproductline,isn’tjustpuremath.Infact,thatmaybethemoststraightforwardstepoftheprocess. That’sbecausenumbersbehaveinalogicalway.Humans,ontheotherhand—well,wecanbewaymorecomplex.Yes,youneedtodothemath.Butyoualsoneedtotakeasecondstepthatgoesbeyondharddataandnumbercrunching. Theartofpricingrequiresyoutoalsocalculatehowmuchhumanbehaviorimpactsthewayweperceiveprice. Todoso,you’llneedtoexaminedifferentpricingstrategyexamples,theirpsychologicalimpactonyourcustomers,andhowtopriceyourproduct. Shortcuts✂️ Howtochooseapricingstrategy 6commonpricingstrategiesforsmallbusinesses Othertypesofpricingstrategies Pricingstrategyexamples Movingforwardwiththebestpricingstrategyforyou PricingstrategyFAQ FreeWebinar: Marketing101 Strugglingtogrowsales?Learnhowtogofromfirstdaytofirstsaleinthisfreetrainingcourse. Registernow Howtochooseapricingstrategy Yourpricingstrategyisbasedonyourtargetaudience,whattheyarewillingtopay,andwhatyourcompetitorschargeforsimilarproducts.Retailersoftentestandchangetheirpricingovertime,dependingonvariablessuchasdemandandmarketconditions.  Whetherit’sthefirstorfifthpricingstrategyyou’reimplementing,let’slookathowtocreateapricingstrategythatworksforyourbusiness.  Understandcosts Tofigureoutyourpricingstrategy,you’llneedtoaddupthecostsinvolvedwithbringingyourproducttomarket.Ifyouorderproducts,youhaveastraightforwardanswerofhowmucheachunitcostsyou,whichisyourcostofgoodssold. Ifyoucreateproductsyourself,you’llneedtodeterminethecostsofyourrawmaterials.Howmuchdoesabundleofmaterialscost?Howmanyproductscanyoumakefromit?You’llalsowanttoaccountforthetimespentonyourbusinesstoo.  Somecostsyoumayincurare: Costofgoodssold Productiontime Packaging Promotionalmaterials Shipping Short-termcostslikeloanrepayments Yourpricingwilltakethesecostsintoaccounttomakeyourbusinessprofitable.  Definecommercialobjective Thinkaboutyourcommercialobjectiveasyourcompany’spricingguide.It’llhelpyounavigatethroughanypricingdecisionsandkeepyouheadingintherightdirection.Askyourself:Whatismyultimategoalforthisproduct?DoIwanttobealuxuryretailerlikeSnowpeakorGucci?OrdoIwanttocreateachic,fashionablebrandlikeAnthropologie?Identifythisobjectiveandkeepitinmindasyoudetermineyourpricing.  Identifyyourcustomers Thisstepisparalleltothepreviousone.Yourobjectiveshouldnotjustbeidentifyingahealthyprofitmargin,butalsowhatthetargetmarketwillpayfortheproduct.Afterall,yourhardworkwillgotowasteifyoudon’thavepotentialcustomers.  Considerthedisposableincomeyourcustomershave.Forexample,somecustomersmaybemorecost-consciousforclothingwhileothersarehappytopayapremiumpriceforspecificproducts. Learnmore:FindingYourIdealCustomer:HowtoDefineandReachYourTargetAudience Findyourvalueproposition Whatmakesyourbusinessgenuinelydifferent?Tostandoutamongstyourcompetitors,you’llwanttofindapricingstrategythatreflectsyourvalues.  Forexample,direct-to-consumermattressbrandTuft&Needleoffersexceptionalhigh-qualitymattressesatanaffordableprice.Itspricingstrategyhashelpeditbecomeaknownbrandbecauseitwasabletofillagapinthemattressmarket.  Needhelpfindingyours?ReadWhat'saValueProposition?It'sWhatYourBusinessDoesBetterThanAnyoneElsetolearnhow.  6commonpricingstrategiesforsmallbusinesses Onceyou’vegottheaboveitemsfiguredout,you’llwanttochooseapricingstrategy.Commonstrategiesinclude: Cost-pluspricing Competitivepricing Value-basedpricing Priceskimming Penetrationpricing Keystonepricing Cost-pluspricing:asimplemarkup  Cost-pluspricing,alsoknownasmark-uppricing,istheeasiestwaytodeterminethepriceofaproduct.Youmaketheproduct,addafixedpercentageontopofthecosts,andsellitforthetotal.  Let’ssayyoujuststartedanonlinet-shirtbusinessandyouwanttocalculatethesellingpriceforashirt.Thecostformakingthet-shirtare: Materialcosts:$5 Laborcosts:$25 Shippingcosts:$5 Marketingandoverheadcosts:$10 Youcouldadda35%markupontopofthe$45totalitcosttomakeyourproductasthe“plus”ofcost-pluspricing.Here’swhattheformulalookslike: Cost($45)xMarkup(1.35)=Sellingprice($60.75) Pros:Theupsideofcost-pluspricingisthatitdoesn’ttakemuchtofigureout.You’realreadytrackingproductioncostsandlaborcosts.Allyouhavetodoisaddapercentageontopofittosetthesellingprice.Itcanprovideconsistentreturnsshouldallyourcostsremainthesame. Cons:Cost-pluspricingdoesn’ttakeintoaccountmarketconditionssuchascompetitorpricingorperceivedcustomervalue.  Competitivepricing:beatingoutthecompetition Asthenameofthispricingstrategysuggests,competitivepricingreferstousingcompetitors’pricingdataasabenchmarkandconsciouslypricingyourproductsbelowtheirs. Thistacticisusuallydrivenbytheproductvalue.Forexample,inindustrieswithhighlysimilarproductswherepriceistheonlydifferentiatorandyourelyonpricetowincustomers. Pro:Thisstrategycanbeeffectiveifyoucannegotiatealowercostperunitfromyoursupplierswhilecuttingcostsandactivelypromotingyourspecialpricing. Cons:Thisstrategycanbedifficulttosustainwhenyou’reasmallerretailer.Lowerpricesmeanlowerprofitmargins,soyou’llhavetosellahighervolumethanyourcompetitors.Anddependingontheproductsyou’reselling,customersmaynotalwaysreachforthelowest-priceditemonashelf. Forotherproductswhereanapples-to-applescomparisonisn’teasilydiscernible,there’sareducedneedtoenterintopricewars.Leaningonbrandappealandfocusingonatargetcustomersegmentalleviatestheneedtorelyoncompetitorpricing. Value-basedpricing:customersperceivedvalueofaproduct Value-basedpricingreferstosettingapricebasedonhowmuchthecustomerbelievesaproductorserviceisworth.It’sanoutwardapproachthattakesyourtargetmarket’swantsandneedsintoplay.It’sdifferentfromcost-pluspricing,whichtakesthecostofproductsintoitspricingcalculation.Companiesthatselluniqueorhighlyvaluableproductsarebetterpositionedtobenefitfromvalue-basedpricingcomparedtoonesthatsellstandardized,commodityitems. Customerscaremoreabouttheperceivedvalueofproducts(e.g.,howtheyenhanceself-image)andarewillingtopaymoreforthem.  Somegeneralrequirementsforusingvalue-basedpricinginclude: Asolidbrand  High-quality,in-demandproducts Creativemarketingstrategies  Goodrapportwithcustomers  Stellartrackrecord Value-basedpricingiscommoninmarketswhereaproductenhancesacustomer’sself-imageoroffersauniquelifeexperience.Forexample,peoplenormallyassignhighworthtoluxurybrandslikeGucciorRolls-Royce.Thisgivesthemtheopportunitytoapplyvalue-basedpricingtoanitem’sprice.Companiesmusthaveaproductorservicethat’sdifferentfromcompetitors. Pros:Value-basedpricingletsyoucommandhigherpricepointsforyouritems.Art,fashion,collectibles,andotherluxuryitemsoftenperformwellwiththispricingscheme.Italsopushesyoutocreateinnovativeproductsthatresonatewithyourtargetmarketandincreasebrandvalue.  Cons:It’schallengingtojustifytheaddedvalueforcommodityproducts.Youneedtohaveaspecialproducttoapplyvalue-basedpricing.Perceivedvalueissubjectiveandisinfluencedbymanycultural,social,andeconomicfactorsthatareoutofyourcontrol.There’snoexactscienceforseeingavalue-basedprice,sothepriceisoftenhardertoset.  Priceskimming:higher,short-termprofits Apriceskimmingstrategyreferstowhenanecommercebusinesschargesthehighestinitialpricethatcustomerswillpay,thenlowersitovertime.Asdemandfromthefirstcustomersissatisfiedandmorecompetitorsenterthemarket,thebusinesslowersthepricetoattractanew,moreprice-consciouscustomerbase.  Thegoalistodrivemorerevenuewhiledemandishighandcompetitionislow.Appleusesthispricingmodeltocoverthecostsofdevelopinganewproduct,liketheiPhone. Skimmingisusefulunderthefollowingcontext:  Thereareenoughprospectivebuyersthatwillbuythenewproductatahighprice. Thehighpricedoesn’tattractcompetitors. Loweringthepriceonlyhasasmallimpactonprofitabilityandreducingunitcosts. Thehighpriceisseenasexclusiveandhighquality. Pros:Priceskimmingcanleadtohighshort-termprofitswhenlaunchinganew,innovativeproduct.Ifyouhaveaprestigiousbrandimage,skimmingalsohelpsmaintainitandattractloyalcustomersthatwanttobethefirsttogetaccess/haveanexclusiveexperience Italsoworkswhenthereisproductscarcity.Forexamplehigh-in-demandlow-supplyproductscanbepricedhigher,andassupplycatchesup,pricesdrop.  Cons:Priceskimmingisn’tthebeststrategyincrowdedmarketsunlessyouhavesometrulyincrediblefeaturesnootherbrandcanmimic.Italsoattractscompetitionandcanbotherearlyadoptersifyouslashthepricetoosoonortoomuchafterlaunch. Penetrationpricinganddiscountpricing It’snosecretthatshopperslovesales,coupons,rebates,seasonalpricing,andotherrelatedmarkdowns.That’swhydiscountingisatoppricingmethodforretailersacrossallsectors,usedby97%ofsurveyrespondentsinastudyfromSoftwareAdvice. Thereareseveralbenefitstoleaningondiscountpricing.Themoreapparentonesincludeincreasingfoottraffictoyourstore,offloadingunsoldinventory,andattractingamoreprice-consciousgroupofcustomers. Pros:Thediscountpricingstrategyiseffectiveforattractingalargeramountoffoottraffictoyourstoreandgettingridofout-of-seasonoroldinventory. Cons:Ifusedtoooften,itcouldgiveyouareputationofbeingabargainretailerandcouldhinderconsumersfrompurchasingyourproductsatregularprice.Italsocreatesanegativepsychologicalimpacttowardtheconsumer’sperceptionofquality.Forexample,TheDollarStoreandWalmarthavelowprices,buthaveperceivedlowerqualityassociatedwiththeirproducts,regardlessofhowvalidthatopinionis. Apenetrationpricingstrategyisalsousefulfornewbrands.Essentially,alowerpriceistemporarilyusedtointroduceanewproductinordertogainmarketshare.Thetradeoffofadditionalprofitforcustomerawarenessisonemanynewbrandsarewillingtomakeinordertogettheirfootinthedoor Formoreinformationonhowtobuildadiscountpricingstrategy,readtheserelatedposts: HowtoOfferRetailDiscountsWithoutSlashingYourProfits TheScienceofSales:HowtoMoveMoreMerchandisewithDiscounts Keystonepricing:asimplemarkupformula Keystonepricingisapricingstrategyretailersuseasaneasyruleofthumb.Essentially,it’swhenaretailerdeterminesaretailpricebysimplydoublingthewholesalecosttheypaidforaproducttosetahealthyprofitmargin.Thereareanumberofscenariosinwhichusingkeystonepricingcanresultinaproductbeingpricedeithertoolow,toohigh,orjustrightforyourbusiness. Here’saneasyformulatohelpyoucalculateyourretailprice: Retailprice=[costofitem÷(100-markuppercentage)]x100 Forexample,ifyouwanttopriceaproductthatcostsyou$15ata45%markupinsteadoftheusual50%,here’'showyouwouldcalculateyourretailprice: Retailprice=[15÷(100-45)]x100=$27 Ifyouhaveproductsthathaveaslowturnover,havesubstantialshippingandhandlingcosts,orareuniqueorscarceinsomesense,thenyoumightbesellingyourselfshortwithkeystonepricing.Inanyofthesecases,asellercouldlikelyuseahighermarkupformulatoincreasetheretailpriceforthesein-demandproducts. Ontheotherhand,ifyourproductsarehighlycommoditizedandeasilyfoundelsewhere,usingkeystonepricingcanbehardertopulloff. Pro:Thekeystonepricingstrategyworksasaquick-and-easyruleofthumbthatensuresanampleprofitmargin. Con:Dependingontheavailabilityandthedemandforaparticularproduct,itmightbeunreasonableforaretailertomarkupaproductthathigh. Othertypesofpricingstrategies Manufacturersuggestedretailprice Asitsnamesuggests(nopunintended),themanufacturersuggestedretailprice(MSRP)isthepriceamanufacturerrecommendsretailersusewhensellingaproduct.ManufacturersfirststartedusingMSRPstohelpstandardizedifferentpricesofproductsacrossmultiplelocationsandretailers. RetailersoftenusetheMSRPwithhighlystandardizedproducts(i.e.,consumerelectronicsandappliances). Pro:Asaretailer,youcansaveyourselfsometimesimplybyusingtheMSRPwhenpricingyourproducts. Con:RetailersthatusetheMSRParen’tabletocompeteonprice.WithMSRPs,mostretailersinagivenindustrywillsellthatproductforthesameprice.Youneedtotakeintoconsiderationyourprofitmarginsandcost.Forexample,yourbusinessmayhaveadditionalcoststhatthemanufacturerdoesn’taccountfor,likeinternationalshipping. KeepinmindthatMSRPisveryniche.Considerthatalthoughyoucansetwhateverpriceyouwant,alargedeviationfromanMSRPcouldresultinmanufacturersdiscontinuingtheirrelationshipwithyou,dependingonyoursupplyagreementsandthegoalmanufacturershavewiththeirMSRP. Dynamicpricing:adjustingpriceinresponsetovariables EvertrytogetanUberonaFridaynightandnoticethepriceishigherthannormal?That’sdynamicpricinginaction.Dynamicpricingiswhenacompanycontinuouslyadjustsitspricesbasedondifferentfactors,suchascompetitorpricing,supply,andconsumerdemand.Thegoalistoincreaseprofitmarginsforthebusiness.  ForbrandslikeUber,riderfaredependsonvariablesincludingtimeanddistanceofyourroute,traffic,andthecurrentrider-to-driverdemand.Pricesaredeterminedbyrulesorself-improvingalgorithmsthattakethesevariablesintoaccountwhenmakingpricingdecisions.  Pros:Dynamicpricingallowsretailersandbrandstopriceproductsandservicesatscale,automatically,usingmachinelearning.Theycancustomizepricestomeetcurrentmarketconditions,savetimewithautomation,andmaximizeprofits.  Cons:Itcanbedifficulttomanageasasmallbusinessandisacostlyprocess.DynamicpricingmakesmoresenseforlargeretailerswiththousandsofSKUsacrossitsecommerceandretailstores.Consumerscanalsorespondnegativelytofrequentpricechanges,whichcanlowerrevenue.  Multiplepricing:theprosandconsofbundlepricing We’veallseenthispricingstrategyingrocerystores,butit’scommonforapparelaswell,especiallyforsocks,underwear,andt-shirts.Withthemultiplepricingstrategy,retailerssellmorethanoneproductforasingleprice,atacticalternativelyknownasproductbundlepricing. Forexample,astudylookingattheeffectofbundlingproductsintheearlydaysofNintendo'sGameBoyhandheldconsolefoundmoreunitsweresoldwhenthedeviceswerebundledwithagameratherthansoldontheirown. Pros:Retailersusethisstrategytocreateahigherperceivedvalueforalowercost,whichultimatelycanleadtodrivinglargervolumepurchases.Anotherbenefitisthatyoucansellitemsseparatelyformoreprofit.Forexample,ifyousellshampooandconditionertogetherfor$10,youcansellthemseparatelyfor$7to$8each,andthat’sawinforyourbusiness.  Con:Bundlingreducesprofits.Ifthebundleitselfdoesn’tincreasesalesvolume,thenyoumaycomeupshortonprofits.  Loss-leadingpricing:increasingtheaveragetransactionvalue We’veallwalkedintoastoreluredbythepromiseofadiscountonahot-ticketproduct,butinsteadofwalkingawaywithonlythatproductinhand,weenduppurchasingseveralothersaswell. Ifthishashappenedtoyou,you’vegottenatasteoftheloss-leaderpricingstrategy.Withthisstrategy,retailersattractcustomerswithadesirablediscountedproductandthenencouragethemtobuyadditionalitems. Aprimeexampleofthisstrategyisagrocerthatdiscountsthepriceofpeanutbutterandpromotescomplementaryproducts,likeloavesofbread,jellyandjam,orhoney.Thegrocermightofferaspecialbundlepricetoencouragecustomerstobuythesecomplementaryproductstogetherratherthansimplysellingasinglejarofpeanutbutter. Whiletheoriginalitemmightbesoldataloss,theretailercanbenefitfromhavinganupsell/cross-sellstrategyinplacetohelpnudgemoresales.Loss-leadingusuallyhappensforproductsthatbuyersarealreadylookingfor,wheredemandfortheproductishigh,drivingmorecustomersinthedoor.  Pros:Thistacticcanworkwondersforretailers.Encouragingshopperstobuymultipleitemsinasingletransactionnotonlyboostsoverallsalespercustomerbutcancoveranyprofitlossfromcuttingthepriceontheoriginalproduct. Cons:Similartotheeffectofusingdiscountpricingtoooften,whenyouoveruseloss-leadingprices,customerscometoexpectbargainsandwillbehesitanttopaythefullretailprice.Youcouldalsocannibalizerevenuesifyou'rediscountingsomethingthatdoesn’tincreasecartsizeoraverageordersize. Readmore:Learnhowbundlingyourproductscanhelpyouincreaseyourretailsales. Psychologicalpricing:usecharmpricingtosellmorewithoddnumbers Studieshaveshownthatwhenmerchantsspendmoney,they’reexperiencingpainorloss.Soit’suptoretailerstohelpminimizethispain,whichcanincreasethelikelihoodthatcustomerswillmakeapurchase.  Traditionally,merchantshaveaccomplishedthiswithpricesendinginanoddnumber,like5,7,or9.Forexample,aretailerwouldpriceaproductat$8.99insteadof$9.Fromacustomers’perspective,itlooksliketheretailerhasslashedeverycentpossibleofftheprice.Theirbrainreads$8.99andsees$8,not$9,andmakestheitemseemlikeabetterprice. InWilliamPoundstone’sbookPriceless,hepicksaparteightstudiesontheuseof“charmprices”(i.e.,thoseendinginanoddnumber)andfoundthattheyincreasedsalesby24%onaveragewhencomparedtotheirnearby“rounded”pricepoints. Buthowdoyouchoosewhichoddnumbertouseinyourpricingstrategy?Thenumber9reignssupremeinmostcases.ResearchersatMITandtheUniversityofChicagorananexperimentonastandardwomen’sclothingitemwiththefollowingprices:$34,$39,and$44.Guesswhichonesoldthemost? That'sright—itemspricedat$39evenoutsoldtheircheapercounterpartspricedat$34. Pro:Charmpricingallowsretailerstotriggerimpulsepurchasing.Endingpriceswithanoddnumbergivesshopperstheperceptionthatthey’regettingadeal—andthatcanbetoughtoresist. Con: Attimes,charmpricingcanseemgimmickytoshoppersanddecreasetrustbetweenyouandthem,whileasimplewhole-dollarpriceiscleanandperceivedastransparent. Learnmore: PsychologicalPricing:WhatYourPricesReallySaytoCustomers Premiumpricing:abovecompetitionpricing Here,youtakethepricingstrategyfromaboveandgototheotherendofthespectrum.Brandsbenchmarktheircompetitionbutconsciouslypriceproductsabovetheirowntomakethemselvesseemmoreluxurious,prestigious,orexclusive.Forexample,apremiumpriceworksinStarbucks’favorwhenpeoplepickitoveralower-pricedcompetitor,likeDunkin’. AstudybyeconomistRichardThalerlookedatpeoplehangingoutonabeachwishingforacoldbeertodrink.Theywereofferedtwooptions:purchasingabeerateitherarundowngrocerystoreoranearbyresorthotel.Theresultsfoundthatpeoplewerefarmorewillingtopayhigherpricesatthehotelforthesamebeer.Soundscrazy,right?  Well,that’sthepowerofcontextandmarketingyourbrandashighend.Beconfidentandfocusonthedifferentiatedvalueyouprovidetocustomersandensureyouarestillprovidingvalue.Forexample,highcustomerservice,appeasingbranding,etc.,willprovidethenecessaryvaluetocustomerstodemandhigherprices. Pro:Thispricingstrategycanworkitshaloeffectonyourbusinessandproducts:consumersperceivethatyourproductsarebetterqualityandmorepremiumcomparedtoyourcompetitorsduetothehigherprice. Cons:Thispricingstrategycanbedifficulttoimplement,dependingonyourstores’physicallocationsandtargetcustomers.Ifcustomersarepricesensitiveandhaveseveralotheroptionstopurchasesimilarproducts,thestrategywon’tbeeffective.Thisiswhyit’scrucialtounderstandyourtargetcustomersanddomarketresearch. Readmore:Learnhowtoconductmarketresearchsoyoucanbetterunderstandhowtopriceyourproducts,identifyyourtargetcustomers,anddiscoverthequirksofyourchosenniche. Anchorpricing:creatingareferencepointforshoppers Anchorpricingisanotherproductpricingstrategyretailershaveusedtocreateafavorablecomparison.Essentially,aretailerlistsbothadiscountedpriceandtheoriginalpricetoestablishthesavingsaconsumercouldgainfrommakingthepurchase. Creatingthiskindofreferencepricing(placingthediscountedandoriginalpricessidebyside)triggerswhat’sknownastheanchoringcognitivebias.InastudyfromeconomicsprofessorDanAriely,studentswereaskedtowritedownthelasttwodigitsoftheirSocialSecuritynumberandthenconsiderwhethertheywouldpaythatamountforitemstheydidn'tknowthevalueof,suchaswine,chocolate,andcomputerequipment. Next,theywereaskedtobidforthoseitems.Arielyfoundthatstudentswithahighertwo-digitnumbersubmittedbidsthatwere60%to120%higherthanthosewithlowernumbers.That’sduetothehigherprice“anchor,”i.e.,theirSocialSecuritynumber.Consumersestablishtheoriginalpriceasareferencepointintheirminds,then“anchor”toitandformtheiropinionofthelistedmarked-downprice. Theotherwayyoucantakeadvantageofthisprincipleistointentionallyplaceahigher-priceditemnexttoacheaperonetodrawacustomer’sattentiontoit. Manybrandsacrossvariousindustriesuseanchorpricingtoinfluencecustomerstopurchaseamid-tierproduct.  Pro:Ifyoulistyouroriginalpriceasbeingmuchhigherthanthesaleprice,itcaninfluenceacustomertomakeapurchasebasedontheperceiveddeal. Con:Ifyouranchorpriceisunrealistic,itcanleadtoabreakdownoftrustinyourbrand.Customerscaneasilyprice-checkproductsonlineagainstyourcompetitorswithapricecomparisonengine—soensureyourlistedpricesarereasonable. Economypricing:forlowproductioncostsandhighvolumesales Aneconomypricingstrategyiswhereyoupriceproductslowandgainrevenuebasedonthesalesvolume.It’stypicallyusedforcommoditygoods,suchasgroceriesordrugs,wherethecompanydoesn'thaveabigbrandtosupportitsmarketing.Thebusinessmodelreliesonsellingalotofproductstonewcustomersonaconsistentbasis.  Settingupeconomypricingissimilartosettingupcost-pluspricing: ProductioncostxProfitmargin=Price Pros:Economypricingiseasytoimplement,cankeepcustomeracquisitioncostslow,andisgoodforcustomerswithpricesensitivity. Cons:Themarginsaretypicallylower,youneedasteadyflowofnewcustomersallthetime,andconsumersmaynotperceivetheproductstobehighquality. FreeGuide:ShippingandFulfillment101 Fromdecidingwhattochargeyourcustomers,tofiguringoutinsuranceandtracking,thiscomprehensiveguidewillwalkyoustep-by-stepthroughtheentireprocess Getthefreereadinglist GetourShippingandFulfillment101guidedeliveredrighttoyourinbox. Almostthere:pleaseenteryouremailbelowtogaininstantaccess. EmailaddressGetupdates We'llalsosendyouupdatesonneweducationalguidesandsuccessstoriesfromtheShopifynewsletter.WehateSPAMandpromisetokeepyouremailaddresssafe. Thanksforsubscribing.You’llstartreceivingfreetipsandresourcessoon.Inthemeantime,startbuildingyourstorewithafree14-daytrialofShopify. Getstarted Pricingstrategyexamples  Premiumpricing  Oneofthetopluxurybrandsintheworld,Gucciappliespremiumpricingtoitsproductsduetoitssuperiorquality.TheItalianfashionhouseisasuccessfulmanufacturerofhigh-endleathergoods,clothing,andotherfashionproducts.  Keyattributesinclude: High-qualitygoods Groundbreakingcreativityandinnovation Customization  It’sproductsareuniqueinstyleanddesign,andmadeforwealthyconsumers.ThebrandnameassociatedwiththisprestigeimageallowsGuccitocommandhighprices.You’llalsonoticeGucciitemsareusuallyneveronsalethroughofficialretailers,whichupholdsthebrand’simageasadistinguishedandrespectablebrand.  Value-based GlobalfashionbrandFashionNovahasmadeanameforitselfthroughinfluencermarketing.Thebrandworkswithdifferentwomenfromaroundtheworldtoshowcaseitsclothingonlineinluxuriouslocationsandstyles.  Seeingitsclothesonfamiliarwomeninhigh-endplacesmakesFashionNovaastatussymbolforbuyers.Womenwhopurchasefromthebrandfeellikeitaddsvaluetotheirlife,whichallowsFashionNovatopriceitsproductshoweveritwants. Penetrationstrategy Netflixisaprimaryexampleofabrandusingpenetrationpricingtoeliminatecompetitors.Inthelate1990s,DVDrentalswerebecomingpopular,withBlockbustercontrollingthemarket.YoucanprobablyrecalltheunforgettableBlockbustersmellofpopcorn,plastic,andcarpetcleaner. YetBlockbusterhadtwomajorflaws:latefeesandlimitedselections.Netflixofferedasolution.CustomerscouldorderDVDsonlinethroughthestandardpay-per-rentmodel,withabettermovieselectionandnolatefees.In2000,youcouldrentfourmoviesatatimewithoutreturndatesforlessthan$16permonth.TheaveragemoviewatchercouldpayunderonedollarperDVD,comparedtoBlockbuster,whichcharged$4.99perthree-dayrental.  AfterNetflixwipedoutBlockbuster(andothercompetitors,likeHollywoodVideo),iteventuallyraiseditspricestomaximizeprofitmargins.Thelowpricepointletpeopletrytheserviceandgetfamiliarwiththebrand,whichhelpedNetflixlaunchitsonlinestreamingservicein2007.  Competitivepricing Ifthere’sonethingyouknowaboutCostco,it’sthediscountsyoureceiveonalltypesofproducts:bread,vegetables,giantlobsterclaws,seven-poundtubsofNutella,expensivebottlesofscotch,andeventhefour-personsteamsauna.  Thebrandusesacompetitivepricingstrategybasedonmarketconditionstodetermineprices.Itaimstoofferthelowestpossiblepricesforbulkandwholesalepurchasescomparedtoothergrocersandretailersinthemarket.ShoppersgetthediscountsthroughaCostcomembership,whichhasanear90%renewalrate.  Movingforwardwiththebestpricingstrategyforyou There’sneverablack-and-whiteapproachtosettinganeffectivepricingstrategy.Noteverypricingstrategywillworkforeverykindofretailbusiness—everyentrepreneurwillneedtodotheirhomeworkanddecidewhatworksbestfortheirproducts,marketingstrategy,andtargetcustomers. Nowthatyouhaveadeeperunderstandingofsomeofthemostcommonpricingstrategiesforretailbusinesses,youcanmakemoreinformedchoicesandcreatemorepersonalizedshoppingexperiencesforbuyersbygivingthemthebestpricepossible. Readytocreateyourfirstbusiness?Startyourfree14-daytrialofShopify—nocreditcardrequired. EmailaddressStartfreetrial PricingstrategiesFAQ Whatisapricingstrategy? Pricingstrategyreferstothemodelsabusinessusestofindthebestpriceforitsproducts.Businessesbasethepriceoftheirproductsandservicesonproduction,labor,andmarketingexpensesandthenaddonacertainpercentagesotheycanmaximizeprofitandshareholdervalue. Whyisapricingstrategyimportant? Apricingstrategyisimportantbecauseitdefinesthevaluethatyourproductisworthforyoutomakeandforyourcustomerstouse.Italsoallowsyoutomaximizeprofitmargins,pluscreatecompetitiveadvantagebysettingpricesthathelpmaintainmarketshare. Whatareexamplesofpricingstrategies? Keystonepricing Multiplepricing Penetrationpricing Loss-leadingpricing Psychologicalpricing Bundlepricing Economypricing Cost-pluspricing Premiumpricing WhatdoesMSRPstandfor? Themanufacturersuggestedretailprice(MSRP)isthepriceamanufacturerrecommendsyousellitsproductfor.MSRPisalsoreferredtoasthe“listprice.” Abouttheauthor LindseyPeacock LindseyPeacockisawriter,editor,andAmericanexpatinvadingtheGreatWhiteNorth.Whensheisn’thelpingentrepreneursbuildtheirbusinesses,you’llfindheratthenearestdogparkwithCharlie,hergingerhuskypup. Email Pinterest Facebook Twitter LinkedIn Topics: Sell Join446,005entrepreneurswhoalreadyhaveaheadstart.Getfreeonlinemarketingtipsandresourcesdelivereddirectlytoyourinbox.EmailaddressSubscribe Nocharge.Unsubscribeanytime. Thanksforsubscribing. You’llstartreceivingfreetipsandresourcessoon.Inthemeantime,startbuildingyourstorewithafree14-daytrialofShopify. Searcharticles Search Join446,005entrepreneurswhoalreadyhaveaheadstart.Getfreeonlinemarketingtipsandresourcesdelivereddirectlytoyourinbox.EmailaddressSubscribe Nocharge.Unsubscribeanytime. Thanksforsubscribing. You’llstartreceivingfreetipsandresourcessoon.Inthemeantime,startbuildingyourstorewithafree14-daytrialofShopify. QuickstartGuides TrendingProducts Startabusinesssellingin-demandproducts BusinessIdeas Findanicheorbusinessideaandgetstarted StartanEcommerceBusiness Practicalstepsforstartingabusinessfromscratch StartaT-ShirtBusiness Everythingyouneedtoknowaboutsellingt-shirts WhatisPrintonDemand? Sellcustomizedproductswithoutholdinginventory WhatisDropshipping? 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