Pricing in marketing strategy is one of the most powerful tools in your marketing arsenal. Whether you are pricing a product or service, pricing can be used to attract customers with lower prices, charge more for higher quality, differentiate products and services from competitors, encourage loyalty among repeat buyers.
Pricing has an enormous influence on how consumers perceive your company and its products or services. In this blog post, we are going to talk about pricing in marketing strategy.
What is Pricing?
Pricing is the process of setting a price for your product or service before it reaches your customers.
Why Pricing in Marketing Strategy?
Marketing pricing strategies are designed to achieve one or more objectives such as:
Attract new customers with low prices; Charge premium prices for better quality and services; Differentiate products from competitors’ pricing; Encourage customer loyalty with discounts and special pricing for repeat customers.
The Influence of Pricing
Pricing has a huge influence on how consumers perceive your company and its products or services. For example, if you own an ice cream shop that is selling delicious high end gelato but you price it as cheap as the traditional ice-cream shops, your customers are going to perceive you as a cheap ice-cream shop even though your gelato is very high quality.
How Pricing Can Be Used in Marketing Strategy?
There are many pricing strategies that marketers use. Outlining a key strategy is important to pricing your products or services. You have to consider multiple pricing objectives, market conditions and competitor actions before selecting the right pricing strategy for you.
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Key Pricing Strategies
This pricing strategy bases its pricing on the value your product or service provides to customers. Value-based pricing takes into account both tangible and intangible benefits, as well as positive customer perceptions of your products or services rather than just their costs.
Psychological pricing – This pricing strategy uses psychological cues such as odd numbers (e.g., $99.99), pricing ending with “0” or “00” (e.g., $19.99) and pricing that uses the number nine, such as $49 instead of $50 to make customers think they are getting a deal; even though you may not be selling at a discount compared to your competition this pricing strategy makes customers perceive you as such.
This pricing strategy adds a standard percentage of the cost to determine price. The standard percentage is often based on the pricing strategy you choose (i.e., differentiation, penetration or competition). The cost-plus pricing method ignores any benefits to customers and focuses only on what it costs for companies to produce their products or services which can lead them to set prices that are too high for most of their target market.
This pricing strategy bases its pricing on the prices set by competitors. If your competitor is charging $100 for a product that you are also selling, then it would be unwise to price yours at $110 because customers will purchase from your competitor due to their lower price. In competitive pricing, you are not trying to beat your competitor but attract customers by pricing lower than competitors.
This pricing strategy bases its prices on the perceived value of specific customer segments and is often used for customized products or services that appeal to a specific market segment such as premium pricing for luxury brands. For example, if you are selling a luxury product to rich customers, pricing it as low as the same mass-market products would make you lose money and burn your reputation because those customers value high quality.
Perceived Value Pricing
This pricing strategy bases its prices on what people think is fair or appropriate given their perception of how much benefit they will receive from using your product or service. Customers may perceive pricing a low cost item as unfair if they don’t think it provides the same benefits as expensive items, but this strategy depends on how much benefit customers receive from your products or services which can be hard to measure.
Pricing Strategies for Different Business Types
Different pricing strategies will work better depending on the industry type. For example, pricing strategies for retailers are different than pricing strategies for software companies.
Retail pricing – Retailers often benefit from offering products at a variety of price points to appeal to the most potential customers and increase their market share (e.g., charging higher prices but also having lower-priced items).
Software pricing – In pricing software, it is important to consider the costs of development as well as what benefits customers receive from purchasing your products or services. For example, a customer may be willing to pay more for additional features but not want to pay much for basic functions they don’t need.
Manufacturer pricing – Manufacturers will often use price discrimination pricing strategies to charge different prices for the same product or service. For example, charging customers more based on their willingness to pay or where they live.
Services pricing – Services pricing is very unique because services are often intangible products that need to be delivered by people who require payment rather than purchasing a physical good. Unlike manufacturing pricing, it is important to consider the costs of providing service to customers (e.g., employees wages, equipment and marketing).
How to Adjust Your Pricing
Pricing in marketing strategy sometimes needs to be adjusted. If pricing is too high, customers will not buy your products or services. If pricing is too low, you may lose money because it costs more to produce the product than what you are charging for it. For example, if a coffee shop wanted to sell its drinks at $0.75 but it only cost them $0.50 to make each drink, then they would lose $0.25 per drink sold.
The pricing strategy you choose for your business needs to be carefully evaluated and adjusted based on the market conditions in order to maximize profits while not losing customers due to pricing issues.
In the event you do want to adjust your pricing, be sure to consider pricing elasticity and how demand for your products or services will change with pricing changes.
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