12 Proven Pricing Strategies & Models (Update 2021) - Qualtrics

A pricing strategy is a method for deciding the price you will charge. The right price is the one that your customers will willingly pay, but which also ... Skiptomaincontent Login Support Back English/US Deutsch English/AU&NZ English/UK Français Español/Europa Español/AméricaLatina Italiano 日本語 한국어 Português русский 繁體中文 Nederlands Products XMPlatform TheExperienceManagementPlatform™Designtheexperiencespeoplewantnext.Andcontinuallyiterateandimprovethem.Meettheoperatingsystemforexperiencemanagement. Overview PlatformCapabilities ExperienceiD UltimateListening ActionsAutomation&Workflows SmartAnalysis&Recommendations Security&Governance XMEcosystem XMDirectory XMMobileApp ExperienceiDisaconnected,intelligentsystemforALLyouremployeeandcustomerexperienceprofiledata.LearnMore Engage CustomerXM Decreasechurn.Increasecustomerlifetimevalue.Reducecosttoserve. 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Whatisapricingstrategy? Apricingstrategyisamethodfordecidingthepriceyouwillcharge.Therightpriceistheonethatyourcustomerswillwillinglypay,butwhichalsomaximizesyourprofitsandbusinesssuccess. Pricingstrategiesvspricingmodels Pricingstrategiesareoftenmentionedinthesamebreathaspricingmodels.Soaretheythesamething?Notquite. Apricingstrategyisthewayyousettheprice. Apricingmodelisakindofpriceformat–it’spartofthewayyoupackageandpresentyourgoodsandservicestothecustomer. Anexampleofdifferentpricingmodelsissubscriptionvsone-offpayments.Takestreamingmedia–whicheverpricingmodelisused,theproductisthesame(films,TVshows,ormusic).Butwithsubscriptionpricing,you’resellingaccesstoalargelibraryoftitlesonatime-boundbasis,ratherthanchargingaone-offcosttoownorrentanindividualrecording. Asageneralrule,apricingstrategyisinternaltoyourbusiness,andapricingmodelisexternal,aimedtowardsyourcustomer.Youwon’tfindmanypricingstrategiesinmarketingcommunications,butyou’llfindplentyofpricingmodels. Whyisitimportanttogetthepriceright? Therightpriceisamatterofbalance.Ifyoupriceyourproducttoohigh,yourcustomerwon’tbuyit.Ifyoupriceittoolow,they’llbuyit,butyourmarginswillsuffer. Pricingcorrectlyinvolvesunderstandingconsumerpsychology.Whatwillahighorlowpricemeantoyourcustomer?Highpricescouldactuallyenhancetheperceivedvalueofsomething,especiallyifit’saluxurypurchaseassociatedwithstatusandaspiration. Andwhilelowpricesaremoreaffordable,yourcustomermayseeacheappricetagandperceivetheproductaslowerquality.Pricingtoolowcouldreducecustomertrustandevendegradeyourbrandvalue. It’snotjustaboutyouandyourcustomereither.Intoday’ssaturatedmarkets,there’sathirdfactorinthemix–yourcompetition.Whensettingprices,it’simportanttobenchmarkagainstwhatstrategiesyourcompetitorsareusingandwhatthey’rechargingforcomparableproducts. Thepricesinyourmarketnichewillprovideapsychologicalanchorpointforcustomersintermsofwhatafairpriceis,soyoushouldaimtokeepinrangeofyourcompetitors.Youmaychargealittlelessoralittlemore,takingintoaccountaspectsofyourproducts,brandsandservicesthatwilljustifypricedifferencestoyourcustomer(suchasenhancedproductfeatures,sustainablemanufacturing,excellentservice,no-frillsstoreexperienceandsoon). Cost,marginandmarkup Underlyingallpricingstrategiesisthebasicmathematicsofmakingaprofitandkeepingyourrevenueatahealthylevel.Todothis,youneedastronggraspofcosts,marginsandmarkups. Here’saquickrecap: Cost Thisistheamountyouspendtogetyourproductorservicetomarket.Itincludesthingslikemanufacturingandmaterials,costoflabortoproducetangiblegoods,paymenttoyoursuppliers,andanylossorwastagethathappensalongtheway.Forpricingpurposes,costofgoodsandservicesdoesn’tincludegeneraloverheadslikeheating,lighting,rentetc.orauxiliarybusinessfunctionslikemarketingandsales,whicharecategorizedasoperatingcosts. Margin Themargin(akaprofitmargin)isthepartofthepriceyouhaveleftoveroncethecostshavebeentakenout. Markup Markupiswhatyouaddontothecostofproducingorprovidingyourproductsandservicestoarriveatthepriceyourcustomerpays.It’softensetusingapercentageformula. 5pricingstrategiestoknowabout 1.Penetrationpricing Anewbusinessentersthemarketwithgoodspricedwellbelowwhatitscompetitorsarecharging.Customerinterestisdrawnbythelowpriceandgoodvalueonoffer.Oncethebrandisestablishedandhasacquiredastrongcustomerbase,itbeginstobringitspricesinlinewithwhat’stypicalfortheindustry. Adoptingthisstrategyinvolvesrisk.Itmeanstakingahitonprofitsduringtheinitialphase,whichnotallnewbusinesseswillbeabletosurvive.However,it’sapowerfulwaytocapturemarketsharefromwell-establishedcompetitorsandcanhelpdevelopacompanycultureoffocusandefficiency. 2.Premiumpricing Ifanitemcostsmore,acustomerwillperceiveitashavingmorevalue.That’sthelogicbehindpremiumpricing.Abusinessusingpremiumpricingintentionallychargesmorethanitscompetitors,tradingonabrandthat’sallaboutqualityandprestige. Tomakethisstrategywork,brandvalueandproductqualitymustbecarefullybuiltandmaintained.Theupsideisthatmarkupandmarginwillbehigherthantypicalfortheproductcategory. 3.Priceskimming Takingitsnamefromtheworldofdairygoods,priceskimmingisthestrategyofchargingahighpricewhenaproductisnewonthemarket.The“cream”ofthecustomerbaseareearlyadopterseagertobethefirsttoaccesstheproductandwillingtopayapricepremium.Overtimeastheproductislessnovelandappealing,thepricemaybereducedtoappealtosuccessivelevelsofthecustomerbasewhohavelessappetiteandhigherpricesensitivity. Thisapproachhastheobviousadvantageofbringinginmorerevenueearlyintheproduct’slifecycle,andmaximizingprofitbytakingadvantageofeverylevelofpricetolerancewithinthecustomerbase.Itcanalsohelpsupportperceptionsofpremiumqualityandmaketheproductmoredesirable. Onthedownside,it’swell-recognizedbycustomersandmanypeoplearelikelytowaititoutratherthanpaymoreearlyon.Itssuccessalsodependsonthenatureoftheproduct–aspirationaltechcompaniesdowelloutofthisstrategy,butothersectorsmaynot. 4.Bundlepricing Asmuchaboutproductpackagingaspricing,bundlingisthepracticeofgroupingseveralitemstogetherunderasinglepricetag. Bundlepricingcanbeausefulpsychologicalnudgetechniquetomotivatecustomers,especiallyifyouletthemknowthatthecollectivevalueoftheitemsinthebundleisgreaterthanthebundleprice. Itcanincreaseappealintermsofutilityandease,especiallywheretheitemsarecomplementaryinfunctionorform(thinkshampoo&conditionersets,orburgerandfriesmeals).Bundlingisalsousedtohelpwithinventorymanagement–youcanbundletogetheraless-popularitemwithatopsellerinordertohelpmoveitofftheshelves. 5.Loss-leading Likepenetrationpricing,loss-leadingusesverylowpricestograbcustomerattention.Thismightbeintheformofaspecialoffer,orsingleproductlinewhichissoldataheavilyreducedmargin.Thebusinessrecoupsthelossonotherproductswithhealthiermarginswhichcustomersdiscoveraftertheyhavebeendrawninbytheloss-leadingitem. Notethatloss-leadinghasamoreextremecousin,knownaspredatorypricing.Thisiswhereacompanyaggressivelyunderpricesaproductinordertodefeatitscompetition.Predatorypricingisillegalinmanyregions.IntheUS,predatorypricingisoftengaugedusingtheAreeda-Turnertest. 7pricingmodelstoconsider 1.Freemium Yourbasicproductorserviceisfree,orad-supported.Userscanopttopaymoreforpremiumfeaturesorabetter/ad-freeexperience.AnexampleofabusinessusingafreemiummodelisDropbox,whichoffersasmallamountofstoragewithafreeaccount,andchargesusersifandwhentheywantmorespacefortheirfiles. 2.Flat-ratesubscriptions Userspayasetcostonaregularbasis,forexample$9.99forunlimitedmusicstreamingfromalibraryofmediathatyouown.Spotifycurrentlyusesthismodelforitsmainproduct(althoughitalsooffersaconcessionrateforstudentsandabulkpricefamilyplan). 3.Tieredsubscriptions Aswithflat-ratesubscriptions,theuserpaysaregularfee,buttheycanchoosehowmuchtopaydependingontheirexpectedusagelevelsordesiredfeatures.Thismightbecombinedwithfreemiumpricing(wherethelowesttierisfree).Thismodelissometimesusedasaformofpriceanchoring–wherethelowestandhighesttiershelptopositionthemediumtierasthebestvalue. 4.Payasyoufeel/paywhatyouwant Thecustomercanpayasmuchoraslittleastheywantto.Thisapproachisoftenusedforcharitysalesorfundraising.ThebandRadioheadusedthisapproachwhentheyreleasedtheirInRainbowsalbumin2007. 5.Bulkpricing Pricegoesdownasthevolumeofgoodsorservicesgoesup.ThisiscommoninB2Bsalesandwholesaletransactions. 6.Marketpricing Pricefluctuatesaccordingtothemarket,risingandfallinginlinewithsupplyanddemand. 7.Slidingscalepricing Pricevariesaccordingtothemeansofthecustomer.Thismightbeusedinsettingslikehealthcare,whereclientneedisconsideredfromanethicalpointofviewaswellasafinancialone.Thisissimilartopaywhatyoufeelpricing,butthereisarecommendedorstandardpricepublished,andpricesoutsidethatarenegotiatedonacasebycasebasisbetweenbusinessandcustomer. Howtochooseapricingstrategy Choosinghowmuchtochargeandhowtostructureyourpricingisabigdecision,andonethatdeservessomeconsiderationandresearch. Beclearoncosts Beforeyouthinkaboutprice,youneedaclearunderstandingofthecostofyourgoodsorservices.Makesureyouincludeeveryelementofproductdevelopment,manufactureandsupply,andthedeliveryofservices(includingthingslikeequipmentanduniformcostsifapplicable).Addapercentagetocoverlossesandwastetoo. Benchmarkagainstcompetitors Carryoutcompetitoranalysistolearnwhatcomparablebusinessesarecharginginyourmarket.Aswellaslookingatcurrentprices,explorehistoricalpricepatternstoseeifthey’veemployedtechniqueslikepenetrationpricingorlossleadinginthepast. Thinkaboutyourtimeline Ifyou’reconsideringatime-boundpricingstrategysuchasprice-skimmingorpenetrationpricing,youneedtoknowhowlongyouwilldoitforandwhattheimpactwillbeonyourprofitsoverthattimeframe.Isaninitiallosssustainable?Ifpriceskimming,canyoupredictwhentotakedownyourpricesonascheduleinordertogetthebestresults? Researchpricesensitivity Lastbutnotleast,it’scrucialtogettoknowyourtargetaudience’spricesensitivityandwhattheyarewillingtospend.YoucanuseestablishedresearchmethodslikeVanWestendorp’sPricingIndexandGabor-Graingerpricingtechniquetogetprecise,detaileddataaboutwhatyourcustomerswillbepreparedtospendwithyou. DownloadourfreeeBook:HowtoPriceProductsforMaximumProfitability DownloadNow Relatedresources PricingResearch PriceSensitivity9minread PricingResearch PricingSurveys:Methods,Tips,&Templates14minread PricingResearch ConjointAnalysisforPricingResearch8minread PricingResearch HowtoRunaPricingStudy8minread PricingResearch Value-basedPricing9minread Productexperience ProductLaunch19minread ProductPositioning ProductBundling17minread SEEMORE PriceSensitivity Justaminute!Itlookslikeyouenteredanacademicemail.ThisformisusedtorequestaproductdemoifyouintendtoexploreQualtricsforpurchase. There'sagoodchancethatyouracademicinstitutionalreadyhasafullQualtricslicensejustforyou! 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