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Product pricing is the process of determining the financial value of the product or service that you provide to customers, and it is an important factor in achieving profits, competitiveness, and customer satisfaction. But how do you choose the right price for your product? What strategies can you follow to price your product professionally?
In this article, I will explain to you 12 different product pricing strategies, mentioning the advantages and disadvantages of each, and practical examples of their application. I will also give you some general tips to help you choose the right strategy for your product and market.
1. Consumer pricing strategy
This strategy depends on determining the value that the consumer places on the product, which may differ from the actual cost of producing it. In other words, this strategy seeks to know how much the consumer is willing to pay for the product, and to set a price close to that value.
Advantages:
Increase customer satisfaction and loyalty to the brand.
Increase brand awareness and distinction.
Increase profit margins.
flaws:
You need an accurate and continuous market study to understand the nature and expectations of the consumer.
It may not be suitable for every category of consumer.
You may lose market share to competitors who offer lower prices.
Examples:
Airlines offering different prices for the same cabin depending on demand, time and destination.
Insurance companies that determine the insurance premium according to the risks and circumstances of each customer.
E-commerce companies that use dynamic pricing according to the behavior and interests of each visitor.
2. Pricing strategy based on discount and offers
This strategy is used to increase the volume of sales and revenues in limited periods, by offering discounts or special offers on products. This strategy aims to attract more customers and motivate them to buy.
Advantages:
Increase buying and selling traffic.
Helps eliminate excess or expired inventory.
Creates a sense of urgency and opportunity in clients.
flaws:
reduce the profit margin per unit.
May negatively affect brand image or quality.
May reduce the value of the product in the eyes of the consumer.
Examples:
Fashion companies that offer seasonal discounts or on certain merchandise.
Telecom companies that offer free or discounted offers on certain lines or packages.
Travel companies that offer last minute deals or deals on specific destinations.
3. Excellent pricing strategy
This strategy is used to price products at prices above the market average, in order to show the quality, luxury, or distinction of the product. This strategy targets a group of consumers with high incomes or good taste.
Advantages:
Increase the profit margin per unit.
Increase the value and trust of the brand.
Create a sense of belonging and uniqueness in customers.
flaws:
Reduce sales volume and revenue.
You need a significant investment in promotion, distribution and service.
You face stiff competition from simulated rivals.
Examples:
Luxury watch companies such as Rolex or Audemars Piguet.
Luxury car companies such as Mercedes or Porsche.
High-quality cosmetics companies such as Chanel or Dior.
4. Pricing strategy based on cost
This strategy depends on determining the price of the product based on the total cost of its production, distribution and promotion, plus a certain percentage of the profit. This strategy ensures that all costs are covered and an acceptable profit margin is achieved.
Advantages:
It facilitates the process of calculating the price and profit.
Ensure the achievement of a specific profit target.
It is suitable for products with fixed or stable cost.
flaws:
It ignores demand, supply and competition in the market.
Reduce flexibility in dealing with changes in cost or market.
May result in loss of sales or profit opportunities.
Examples:
Construction companies that set the price of projects based on direct and indirect costs and targeted profits.
Manufacturing companies that price products based on primary and secondary costs and required margin.
Professional services companies that set the price of their services based on the hourly and additional costs and agreed wages.
5. Pricing strategy based on competition
This strategy depends on determining the price of the product by comparing it to the prices of competitors' products in the same market or category. This strategy aims to attract or maintain market share.
Advantages:
Increase sales opportunities and revenue.
It increases the comparability and competitiveness of the product.
Increase customer acceptance and loyalty to the product.
flaws:
reduce the profit margin per unit.
It reduces the value and distinction of the brand.
Increased competition and price wars.
Examples:
Food and beverage companies that offer similar or lower prices to their competitors in the same category or quality.
Telecom companies that offer similar or better packages or plans to their competitors in the same service or network.
E-book companies that offer similar or lower prices to their competitors in the same genre or category.
6. Penetration pricing strategy
This strategy is used to price products at very low prices when they are launched in the market, in order to attract as many customers as possible and to gain a large share of the market. This strategy targets the broad categories of consumers looking for lower prices.
Advantages:
Increase sales volume and revenue.
Increase the reputation and spread of the brand.
Increase barriers to entry for competitors.
flaws:
reduce the profit margin per unit.
It reduces the value and quality of the product.
Increase the risk of being imitated or downgraded by competitors.
Examples:
Smartphone companies that offer phones with high specifications and low prices, such as Xiaomi or Realme.
E-commerce companies that offer products at lower prices than traditional stores such as Amazon or Alibaba.
Low-cost airlines that offer flights at nominal prices, such as Ryanair or Air Asia.
7. Wavy Pricing Strategy
This strategy is used to price products at different prices depending on the level of demand, supply or time. This strategy aims to take advantage of selling and profit opportunities at all times and circumstances.
Advantages:
Increase profit margin at peak demand.
Increase sales volume when demand is weak.
Increase pricing flexibility and efficiency.
flaws:
It reduces customer satisfaction and loyalty to the product.
You need a sophisticated system for setting and constantly changing prices.
It may lead to a permanent decrease in the price of the product.
Examples:
Airlines that change ticket prices depending on booking level, occupancy and time.
Fuel companies that change gasoline prices according to the level of supply, demand and taxes.
The chat companies affiliated to Orange, Vodafone, Etisalat, WE, … whose minute price changes according to the level of use, time and network.
8. Psychological pricing strategy
This strategy is used to price products at prices that affect the consumer's psyche and motivate him to buy. This strategy is based on the principles of psychology and consumer behavior.
Advantages:
Increase customer demand and admiration for the product.
Increase customer satisfaction and value.
Increase the chance of repeat and referral.
flaws:
May result in loss of profit due to discounts or round-ups.
May lead to a decrease in confidence or clarity for the client.
It may lead to negative feedback or complaint by the customer.
Examples:
Using imperfect prices like 9.99 pounds instead of 10 pounds to show that the product is cheaper than it is.
Use comparison prices such as 15 pounds instead of 20 pounds to show that the product is on offer or discount.
Use multiple prices such as 3 for 25 pounds instead of 10 pounds each to show that the product is in a bargain or savings.
9. Indicative pricing strategy
This strategy is used to price products at prices that direct and guide the customer to choose the right product for him from among a group of different products in price, quality and advantages. This strategy is based on the principle of contrast and effect.
Advantages:
Increase the customer's options and freedom to purchase.
Increase the chances of selling higher or lower margin products.
Increase the customer's ability to evaluate and compare products.
flaws:
It may lead to confusion or confusion for the customer.
It may lead to a decrease in sales of medium or low priced products.
It may lead to a decrease in customer satisfaction or loyalty to the product.
Examples:
Electronics companies that offer products in different categories such as basic, advanced or luxury.
Hotel companies that offer rooms of different types, such as standard, view, or suite.
Donation companies that offer different contribution options such as 10 pounds, 50 pounds, or 100 pounds.
10. Optional pricing strategy
This strategy is used to price products at prices that allow the customer to choose what he wants to pay for the product, based on his ability, desire, or discretion. This strategy is based on the principle of trust, justice and participation.
Advantages:
Increase customer satisfaction and loyalty to the product.
Increase the client's sense of responsibility and belonging.
In some cases, it increases the chances of selling and making a profit.
flaws:
Reduce profit margin in some cases.
It reduces the value and quality of the product.
Increase the risk of exploitation or manipulation by the customer.
Examples:
Music companies that offer songs or albums at optional prices, such as Radiohead or Nine Inch Nails.
Software companies that offer programs or applications at optional prices, such as Humble Bundle or Pay What You Want.
Social service companies that provide services or products at optional prices, such as hot drink restaurants or free libraries.
11. Bundle pricing strategy
This strategy is used to price a group of products at one price lower than the sum of their prices when sold separately. This strategy aims to increase the value and quantity of sales and profit.
Advantages:
Increase sales volume and revenue.
Increase the customer's sense of saving and benefit.
Increase the chances of selling complementary or similar products.
flaws:
reduce the profit margin per unit.
It underestimates the value and quality of products.
You increase the risk of being overbought or wasted.
Examples:
Food companies that offer integrated meals at reduced prices, such as McDonald's or KFC.
Telecom companies that offer multiple packages at attractive prices, such as Orange or Vodafone.
Travel companies that offer all-inclusive tours at reasonable prices such as Expedia or Booking.
12. Differential pricing strategy
This strategy is used to price the same product at different prices according to a category, geography, time, or customer channel. This strategy aims to exploit each customer's ability and willingness to buy.
Advantages:
Increase profit margins in each category or market.
Increase market share in each category or market.
Increase customer loyalty and consumption of the product.
flaws:
May lead to anger or complaint from the customer.
May result in lost selling opportunities in certain categories or markets.
It may lead to a decrease in the reputation or confidence of the brand.
Examples:
Movie companies that offer different prices for cinema tickets according to the category of visitor, such as the student, the elderly, or the group.
Software companies that offer different prices for their programs according to the customer's geography, such as the United States or India.
The chat companies affiliated with Orange, Vodafone, Etisalat, WE, … that offer different rates for calls according to the communication channel such as phone, internet or messages.
Thus, we have reviewed 12 product pricing strategies that will improve your sales and increase potential customers for your company, do not forget to share with us in the comments which of these strategies do you prefer
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