How to Determine the Right Pricing Strategy For Your Business

Pricing strategies to attract customers to your business · 1. Price skimming · 2. Market penetration pricing · 3. Premium pricing · 4. Economy ... WATCHNOWFROMUSCCFOUNDATION:WhatBusinessesNeedtoKnowNowAbouttheCOVID-19OmicronVariant Beta Start Everythingthatyouneedtoknowtostartyourownbusiness.Frombusinessideastoresearchingthecompetition. Start Run Practicalandreal-worldadviceonhowtorunyourbusiness—frommanagingemployeestokeepingthebooks. Run Grow Ourbestexpertadviceonhowtogrowyourbusiness—fromattractingnewcustomerstokeepingexistingcustomershappyandhavingthecapitaltodoit. Grow GoodCompany Entrepreneursandindustryleaderssharetheirbestadviceonhowtotakeyourcompanytothenextlevel. GoodCompany VirtualEvents Start Everythingthatyouneedtoknowtostartyourownbusiness.Frombusinessideastoresearchingthecompetition. BusinessIdeas Strategy Startup Run Practicalandreal-worldadviceonhowtorunyourbusiness—frommanagingemployeestokeepingthebooks. Finance HumanResources Technology BusinessFinancing Grow Ourbestexpertadviceonhowtogrowyourbusiness—fromattractingnewcustomerstokeepingexistingcustomershappyandhavingthecapitaltodoit. Sales Customers Marketing Thrive GoodCompany Entrepreneursandindustryleaderssharetheirbestadviceonhowtotakeyourcompanytothenextlevel. GrowthStudio AsktheBoard TheLeap LaunchPad AttendanEvent AboutUs CO—BrandStudio Lookingforyourlocalchamber? ChamberFinder Interestedinpartneringwithus? MediaKit Run»Finance 7SmartPricingStrategiestoAttractCustomers Aneffectivepricingstrategyisessentialforcontinuedsalessuccess.Here'showtodeterminetherighttacticforyourbusiness. By: EmilyHeaslip,Contributor Share Thereareseveraloptionswhenitcomestodevelopingapricingstrategy.Choosingtherightoneisessentialtoyourbusiness'ssuccess.—GettyImages/SDIProductions Settingyourbusiness’spricesmayseemsimple:Listyourproductforhigherthanitcostsyoutomanufactureoracquireit,andyou’llmakeaprofit. Butyourpricesaremorethanjustnumbers.Thewayyoupriceyourproductsorservicescanbeareflectionofyourbusiness’sidentity,howyouviewandtreatyourcompetitorsandhowyouvalueyourcustomers.That’swhyit’simportanttohaveacarefullyplannedpricingstrategy. Whattoconsiderwhensettingyourpricingstrategy Settingyourproductorservice’spricesshouldn’tbeahaphazarddecisionfocusedentirelyonprofit.Itshouldbeacalculated,informedchoiceinwhichyourbusinessidentity,brandandfinancialstabilityareconsidered. Aswithanybusinessdecision,determiningyourpricingstrategystartswithassessingyourownbusiness’sneedsandgoals.Thisinvolvessomecommercialsoulsearching—whatdoyouwantyourbusinesstocontributetotheeconomyandworld?Thiscouldmeanembracingatraditionalretailstrategy,establishingaservicebusinessmindsetoremphasizingpersonalcustomerrelationshipsinyouroffering. Onceyoudefineyourgoalsandneeds,dosomeresearchonthemarketyou’reentering.Determinethreetofivemaincompetitorsintheindustrybyconductingonlineresearchorscoutingoutlocalbusinesses.Nomatterwhatpricingstrategyyouadopt,whatyourcompetitorsaredoingwillimpactyourbusiness’ssuccessandfuturedecisions.Understandingyourcompetitors’strategiescanalsohelpyoudifferentiateyourbusinessfromotherbusinessesinthemarket.Inaneconomywheretherearethousandsofsmallbusinessesprovidingthesameproductsandservices,aneffectivepricingstrategycanhelpyoustandout. Agoodfinalstageinyourresearchisspeakingwithpotentialcustomerstogetafeelforhowtheyvalueyourbrand,productorservice.Thiscangiveyouvaluableinsightintohowtosetyourpricing.Thiskindofresearchcanrangefromcasualconversationswithfriendsandfamilytoformalsurveysofpotentialbuyers. Whileyoumayhavealreadydonesomeofthislegworkwhendevelopingyourbusinessplan,it’sgoodtohaveasmuchinsightandinformationaspossiblebeforeyoudecidewhatpricingstrategytoadopt. Pricingstrategiestoattractcustomerstoyourbusiness Therearedozensofwaysyoucanpriceyourproducts,andyoumayfindthatsomeworkbetterthanothers—dependingonthemarketyouoccupy.Considerthesesevencommonstrategiesthatmanynewbusinessesusetoattractcustomers. 1.Priceskimming Skimminginvolvessettinghighpriceswhenaproductisintroducedandthengraduallyloweringthepriceasmorecompetitorsenterthemarket.Thistypeofpricingisidealforbusinessesthatareenteringemergingmarkets.Itgivescompaniestheopportunitytocapitalizeonearlyadoptersandthenundercutfuturecompetitorsastheyjoinanalready-developedmarket.Asuccessfulskimmingstrategyhingeslargelyonthemarketyou’relookingtoenter. 2.Marketpenetrationpricing Pricingformarketpenetrationisessentiallytheoppositeofpriceskimming.Insteadofstartinghighandslowlyloweringprices,youtakeoveramarketbyundercuttingyourcompetitors.Onceyoudevelopareliablecustomerbase,youraiseprices.Manyfactorsgointodecidingonthisstrategy,likeyourbusiness’sabilitytopotentiallytakelossesupfronttoestablishastrongfootinginamarket.It’salsocrucialtodevelopaloyalcustomerbase,whichcanrequireothermarketingandbrandingstrategies. 3.Premiumpricing Premiumpricingisforbusinessesthatcreatehigh-qualityproductsandmarketthemtohigh-incomeindividuals.Thekeywiththispricingstrategyisdevelopingaproductthatishighqualityandthatcustomerswillconsidertobehighvalue.You’lllikelyneedtodevelopa“luxury”or“lifestyle”brandingstrategytoappealtotherighttypeofconsumer. Ifyou’vealreadylaunchedyourbusiness,youcanexperimentwiththesestrategiesuntilyoudeterminewhatworksbestforyourbusiness.Youcanalsovarystrategiesbetweenproductsdependingonthemarketforeachgoodorservice. 4.Economypricing Aneconomypricingstrategyinvolvestargetingcustomerswhowanttosaveasmuchmoneyaspossibleonwhatevergoodorservicethey’repurchasing.Bigboxstores,likeWalmartandCostco,areprimeexamplesofeconomypricingmodels.Likepremiumpricing,adoptinganeconomypricingmodeldependsonyouroverheadcostsandtheoverallvalueofyourproduct. 5.Bundlepricing Whencompaniespairseveralproductstogetherandsellthemforlessmoneythaneachwouldbeindividually,it’sknownasbundlepricing.Bundlepricingisagoodwaytomovealotofinventoryquickly.Asuccessfulbundlepricingstrategyinvolvesprofitsonlow-valueitemsoutweighinglossesonhigh-valueitemsincludedinabundle. 6.Value-basedpricing Value-basedpricingissimilartopremiumpricing.Inthismodel,acompanybasesitspricingonhowmuchthecustomerbelievestheproductisworth.Thispricingmodelisbestformerchantswhoofferuniqueproducts,ratherthancommodities. Howdoyouknowwhatacustomerperceivesaproducttobeworth?It’shardtogetanexactprice,butyoucanusecertainmarketingtechniquestounderstandthecustomer’sperspective.Askforcustomerfeedbackduringtheproductdevelopmentphase,orhostafocusgroup.Investinginyourbrandcanalsohelpyouadd“perceivedvalue”toyourproduct. 7.Dynamicpricing Dynamicpricingallowsyoutochangethepriceofyouritemsbasedonthemarketdemandatanygivenmoment.Uber’ssurgepricingisagreatexampleofdynamicpricing.Duringlowperiods,Uberscanbequiteanaffordableoption.But,whenarainstormhitsduringthemorningrushhour,thepriceofanUberwillskyrocket,giventhatdemandisalsolikelytorise.Smallermerchantscandothistoo,dependingonseasonaldemandforyourproductorservice. Whichpricingstrategyisrightforyou? Eachofthesesevenstrategiesoffersdifferentadvantagesanddownsides.Attheveryleast,youmustmakesureyourpricingstrategycoversyourcostsandincludesamarginforprofit.Determiningyourneedsupfrontcanclarifywhichstrategiesareidealforyourbusiness. Ifyou’vealreadylaunchedyourbusiness,youcanexperimentwiththesestrategiesuntilyoudeterminewhatworksbestforyourbusiness.Youcanalsovarystrategiesbetweenproductsdependingonthemarketforeachgoodorservice. Focusonfindingtherightrangeofcosts,ratherthanpinpointingaspecificnumber.“Don'twastetimedebating$500vs.$505,becausethisdoesn'tmatterasmuchuntilyouhaveastrongerfoundationbeneathyou,”wroteProfitwell. Regardlessofwhichtacticyouchoose,pricingyourinventoryproperlyisessentialforcontinuedbusinesssuccess.Youmayhavethebestproductintheworld,anexcellentteamandabeautifulstorefront,butifyoucan’tpriceyourproductseffectively,yoursaleswillultimatelystruggle. CO—aimstobringyouinspirationfromleadingrespectedexperts.However,beforemakinganybusinessdecision,youshouldconsultaprofessionalwhocanadviseyoubasedonyourindividualsituation. FollowusonInstagramformoreexperttips&businessowners’stories. CO—iscommittedtohelpingyoustart,runandgrowyoursmallbusiness.LearnmoreaboutthebenefitsofsmallbusinessmembershipintheU.S.ChamberofCommerce,here. Amessagefrom You’reinvitedtojoinaprivatenetworkofCEOs. Discoverhow45,000CEOsaregrowingtheirbusinesses.Connectwithverifiedcompaniesonasecureprivatenetworktofindnewclients,raisemoneyandfindreliablesolutionsforanybusinesspriority. LearnMore PublishedNovember17,2021 Formorefinancetips Finance DoYouNeedFinancialProjectionSoftware? Finance WhichTypeofAccountingServiceDoYouNeed? Finance HowtoWriteaFinancialForecastforYourBusiness Bycontinuingonourwebsite,youagreetoouruseofcookiesforstatisticalandpersonalisationpurposes.KnowMore IAgree