Various Pricing Strategies Available for Your Business

What should be considered when pricing a product or service?

There are a few things to consider when pricing a product or service:

• The price of the product or service 
• The cost of producing the product or service 
• The demand for the product or service 
• The company’s target market 
• Profit margin

In addition, it is important to keep in mind your company’s goals and strategies. Pricing can help you achieve these goals and strategies. For example, if you want to increase your sales, you might consider pricing your products at a lower level than your competitors. Conversely, if you want to better cover your costs, you might choose to raise your prices.

There are many different pricing strategies that can be used in business. Which one is right for your company depends on the specific situation and needs.

Location-Based Pricing

Location-Based Pricing is the process of setting prices for goods and services based on the geographic location of the consumer. In other words, a business will charge different prices for its products or services depending on where the consumer is located. There are a few reasons businesses might choose to implement location-based pricing.

One reason businesses might choose to implement location-based pricing is to increase sales in a specific area. By charging different prices based on where a consumer is located, businesses can attract more customers by offering them products or services that they may be interested in. Additionally, by charging different prices based on location, businesses can avoid competition from retailers who are also charging different prices based on location.

Another reason businesses might choose to implement location-based pricing is to reduce costs. By charging different prices based on where a consumer is located, businesses can reduce their costs by eliminating transportation expenses or inventory costs. 

Location-based pricing has been controversial in recent years due to concerns about privacy and data protection laws. Many consumers are uncomfortable with companies tracking their movements and using that information to charge them different prices. However, location-based pricing is still a popular strategy for businesses and will continue to be so in the future. 

Example Location-based Pricing Strategies

There are many different pricing strategies that businesses can use when implementing location-based pricing. These include:

1. Fixed pricing: In this type of pricing strategy, businesses charge the same price no matter where a consumer is located. This is the most conventional type of pricing strategy and is often used by retailers in traditional markets.
2. Per-item pricing: In this type of pricing strategy, businesses charge different prices for identical products depending on where a consumer is located. For example, a business might charge different prices for coffee based on which city the consumer is in.
3. Per-minute billing: In this type of billing strategy, businesses charge different rates for using services or accessing products based on where a consumer is located. For example, a business might charge more for phone calls made from within a certain area than from outside that area.
4. Flat rate billing: In this type of billing strategy, businesses charge the same price regardless of where a consumer is located or what service or product they are purchasing.
5. Dynamic pricing: In this type of pricing strategy, businesses adjust their prices based on factors such as market conditions or customer demand.

Urgency or Scarcity Pricing

When pricing a product or service, it is important to consider the urgency of the need. Products or services that are urgently needed (such as medical care) are typically more expensive than products or services that are not urgently needed. There are a number of reasons for this.

• First, there is a higher demand for products or services that are urgently needed.
• Second, the cost of producing an urgent product or service is generally higher than the cost of producing a product or service that is not urgently needed.
• Finally, there may be additional fees associated with providing an urgent product or service, such as charges for expedited delivery.

Creating a false sense of urgency or scarcity is also often used by businesses. You should use these strategies carefully – consumers are savvy and they can spot the BS of false urgency or scarcity tactics, which will only decrease their trust.

Some tips for pricing according to urgency:

1. Charge more for products or services that are urgently needed than for products or services that are not urgently needed.
2. Make it clear on the product or service’s packaging or website where to find information about how urgent the need is.
3. Specify additional fees, such as charges for expedited delivery, for products or services that are urgently needed.
4. Create a sense of urgency by advertising products or services as being “limited quantities available” or “sold out quickly.”
5. Make it difficult for customers to find information about the price of products or services that are not urgently needed.
6. Charge more for products or services that are not available online or in a store.
7. Charge more for products or services that require additional consultation from an expert such as a doctor, nurse, accountant, lawyer, or other expert.
8. Charge more for products or services that must be used immediately rather than waiting a certain amount of time (for example, within the next few hours). 
9. Charge more for products or services that have an expiration date. 
10. Charge more for products or services that are not eligible for other discounts and special offers.

Premium vs. Low-Cost Pricing Strategy

You can see this pricing strategy play out on social media.  On one hand, you’ll have someone share how great of a deal they got on an item.  On the other hand, someone will post showing their new luxury item that everyone knows comes with a premium pricetag.

Premium pricing is a pricing strategy where a product or service is priced above the competition, aiming to attract customers who are willing to pay more. This type of pricing strategy can be used when there is a demand for the product or service and the company wants to make sure that it has enough customers to maintain its profits. Premium pricing can also be used to differentiate a company from its competitors. It usually also comes with premium features and/or benefits and not simply a higher price tag.

Low cost pricing is a pricing strategy where a product or service is priced below the competition, aiming to attract customers who are willing to pay less. This type of pricing strategy can be used when there is not enough demand for the product or service and the company wants to make sure that it can still profit from its sales. Low cost pricing can also be used to compete with companies that are charging high prices for their products or services.  I actually rarely recommend this pricing strategy, and it definitely should not be considered a differentiator. When your costs rise – as they will with time – then your pricing has to rise and you may no longer be the lowest price. Or, a huge corporation that can afford throw away money comes in and outprices you. 

(Did you know … Amazon lost money for years, on purpose, by being the lowest priced competitor, and essentially pushed other companies out of the market by doing so. You and I can rarely afford to do this.)

Bundle Pricing Strategy

A bundling or customization strategy involves offering customers the option to purchase multiple products or services together as a package, in order to increase demand for those products or services. This can be done through the use of discount codes, special offers, or even exclusive packaging.

An example of this type of pricing strategy would be Groupon’s Combo Deals where customers can buy multiple items at a discounted price. Or any BOGO sale that you come across. Uber Eats offers something similar, where they now allow you to add on a stop at another store that would be on the way of your delivery for no extra delivery fee.

Penetration Pricing Strategy

Penetration pricing is a pricing strategy employed by companies to increase the quantity of sales made to potential customers, most often when either the company or the product is trying to break into the market. In essence, penetration pricing is charging a low price for an item that is intended to penetrate a market segment where similar products are sold at a higher price. The rationale behind penetration pricing is that it will encourage potential customers to try the product and, as a result, increase the likelihood of them becoming long-term customers. 

Penetration pricing can be used in a variety of ways, including using introductory or special offers to drive traffic to the product, bundling products with other services or products, and using tiered prices. The goal is always to get potential customers into the buying cycle so that they can purchase the product at a lower price point. It’s important to note that penetration pricing doesn’t always work; if it’s applied incorrectly, it could actually discourage potential customers from purchasing the product. 

Targeted Pricing Strategy

In targeted pricing, you focus on specific customers and make your products or services available only to them at a lower price than you would charge to other customers. This can be done through exclusive deals, coupons, or discounts that are specific to a certain group of customers. 

An example of this type of pricing strategy is Costco. They set prices for their memberships low, and then offer wholesale pricing so that consumers (in this case most often businesses that purchase frequently) are likely to visit multiple times per month, which results in higher sales for the company.

Fixed Price Strategy

A fixed price strategy involves setting a price for an item and not adjusting it regardless of how much demand there might be for that product or service. Fixed prices can help businesses maintain control over their expenses, which can lead to higher profits down the road.

This can be a difficult strategy to implement successfully, because it requires discipline on the part of the company’s management. If prices are set too high, customers may be unwilling to purchase products at fixed prices. If prices are set too low, the company may not be able to cover its costs and may have to reduce its product offerings or staff. 

One way around this difficulty is to establish a range of prices for fixed items, with the lowest price representing the most popular option and the highest price representing the least popular option – such as the price grid we mention below. This way, customers have a better chance of finding something they want at a price they’re comfortable with.

An example of this fixed pricing strategy is Apple’s iPhone. They set a price for their iPhones early on in their development cycle, and do not change the price once it is set. When is the last time you saw a sale for a new iPhone? (If you do see a sale … let me know. It’s way past time for my husband to have a new phone and like I said, these sales don’t happen!) Apple continues this strategy despite increasing competition from other phone companies.

Price Grid Strategy

A price grid strategy involves setting different prices for different levels of demand for an item or service. This helps businesses manage their inventories and avoid overproduction or under-selling by setting different prices based on how much stock they have available.

This grid pricing strategy is often related to the pricing strategy above, and the next one below:

Middle-of-Three Price Strategy

The middle ground between high pricing and low pricing exists what is known as “middle priced” products or services. In this scenario, a business sets its prices somewhere in between high and low prices. The goal of using this pricing strategy is to appeal to both customer groups: those who want to purchase goods or services from a company that charges above average prices, and those who want to purchase goods or services from a company that charges below average prices. 

Studies show that if you offer three price points, most of your customers will choose the one in the middle. This allows you to attract more customers by pricing your products and services at a point that is comfortable for them. 

There are many factors that go into developing an effective middle pricing strategy. These factors include: the product or service being offered, the competition, the market conditions, and the company’s costs.

97 Cent Pricing Strategy

One popular pricing strategy that was first implemented extensively by Sam Walton at WalMart is to set all prices at slightly less than a round number.  For example, instead of $20 it would be $19.97 or $19.99.  This allows customers to feel as if they are getting a great deal, while still providing WalMart with enough profit to cover its costs. 

Studies have shown that a majority of customers will purchase items when they are offered at a price that is slightly less than a whole number greatly shifts the perception of value. In the example above, consumers perceive the price to be $19 instead of $20.

Therefore, by setting all prices at slightly less than round numbers, WalMart can attract a large number of customers without having to sacrifice profit.

Some companies also use this pricing strategy to denote items on clearance or final sale. For example, at Nordstrom Rack prices ending in .93 or .97 are clearance items and those marked down from their original price.

Discounted Pricing Strategy 

A discounted pricing strategy involves offering lower prices on selected items than what is being charged for regular items in the same category. This can help companies attract new customers by offering them products at an affordable price point, while still providing them with quality products. For some companies, this discounted pricing on select items is used as a means to introduce customers to their product or service, with the goal of then earning their repeat business or upgrading them to higher priced items. 

The goal of discounted pricing is usually twofold: first, it’s designed to make regular products more affordable; and second, it’s meant as an incentive for customers to buy more than one item rather than just one regular product. Discounted pricing can also lead customers down a path towards becoming loyal buyers over time.

Pricing Placebo Effect

Price is one of the most important factors in a company’s success. Price affects how much consumers are willing to pay for a good or service, and it directly impacts a company’s bottom line. Price also affects how much customers are willing to trade off quality or features for lower prices.

The placebo effect has been studied extensively in medical settings, where it is well known that some treatments work simply because they are given to patients expecting them to work. The placebo effect can also be observed in business settings, where companies may sell products and services simply because they believe they will be more successful than their competitors; or how the perceived value of an item increases at higher price points.

There are several factors that can affect the effectiveness of a pricing strategy. First, pricing must be based on realistic assumptions about market demand and competition. Second, pricing must be consistent with company values and the overall brand image of the company. Finally, pricing should be adjusted frequently as market conditions change so that the company remains competitive long-term.