A pricing strategy is a set of principles that help you decide the prices for your products and services. Pricing strategies allow businesses to make more money, dominate their market, and gain competitive advantage. Fintalent’s pricing strategy consultants observe that it’s important to remember that there are two main types of pricing: Fixed price or variable price (also known as per item or cost based).
Fixed price is a fixed amount that you charge for a product or a service. Fixed price is the most common method of pricing in the world, used by most businesses. Often fixed price products are sold at full price and you might even find them on sale.
Variable price means that you charge customers based on their willingness to pay (which is also known as discretionary income). For example, an e-commerce store might sell a product for $60 and then charge customers $40 from those who want to pay less, with the difference going to pay for the shipping costs. This type of pricing has two forms: milestone-based pricing or flat-rate pricing.
Milestone-based pricing is when you sell something at a low price, but you get more money as the milestone gets closer and closer. For example, you offer an e-book for $20, but if a customer buys it before the end of the year, he will only pay $10.
Flat-rate pricing is when you charge customers one flat rate regardless of whether they buy one product or multiple products.
It is crucial to understand that your pricing strategy should be directly related to the marketing strategy of your business. In fact, pricing strategies are often intertwined with marketing strategies so that they complement each other.
For example, a startup that is building its first sales pages will not be able to choose the best pricing strategy until they have some lead generation and conversion rate data. In fact, pricing strategy often depends on knowing the intention of your customers so that it can be validated. For example, if you sell a product for $100 and you know that most customers will only buy one at a time, you should place this product in the “single item” section of your store (once they’ve bought the first item).
In case you’re curious, here are some deductions people usually make when they try to implement a pricing strategy:
Pricing strategies are too complicated. Pricing strategies are too expensive to set up. Pricing strategies only work for specific products. Pricing strategies won’t work for new products. My competitor is already charging a certain price and I am not willing to be cheaper than them.
In the first instance, you will have a hard time setting a pricing strategy if you haven’t done any market research that allows you to know your market needs, wants and needs. Pricing strategies might be complicated but they are certainly not impossible to implement . A pricing strategy should always be part of your strategy for your business, otherwise it will be ineffective (at best) or even disastrous (at worst).
In the second case, pricing strategies are not expensive at all. It is certainly more expensive to implement a bad pricing strategy than a good one because a bad pricing strategy will negatively impact your business. A good pricing strategy can help you make more money at lower costs and with fewer risks, which will certainly make it cheaper than having no pricing strategy at all.
In the third and fourth cases, you are probably underestimating how powerful your pricing strategy can be. This happens because you are looking at your pricing strategy from the wrong angle: it is not about what you charge for your products and services (that is their selling price or full price, or a combination of the two), but rather what you charge for your marketing efforts (see point 4).
Speaking of pricing strategies and marketing efforts, there’s also this incorrect assumption that your business simply needs to compete with the prices set by your competitors. That is a very dangerous premise. First, other companies are not always more successful than you due to being cheaper in all aspects . Second, it would be a very bad idea to have the same pricing strategy as your competitor because you’ll be spending more money than you need to.
If you are starting a business, it is definitely sensible to choose a pricing strategy, but do not believe that having one will automatically result in making money! There are so many factors that affect your future pricing strategies and profitability.