Pricing strategies: how to choose the best approach
Finding the optimal pricing mix is a complex task that requires market research and consumer sentiment. You need to consider the willingness of customers to pay a certain amount, but the business needs to make a profit. There are different pricing strategies that can help balance the expectations of customers and the business.
Following a pricing strategy allows you to price goods or services according to the financial objectives of the business. Choosing the best approach will help to launch a new product effectively and attract customers’ attention.
There are several key approaches to developing a strategy. These include:
- “Cost-plus” conception, where the price is based on the cost of production plus a fixed percentage;
- value to customers;
- dynamic pricing, where costs can change according to demand and market changes.
The choice of one approach depends on the business model, product lifecycle, and market niche. Different strategies may have advantages and disadvantages. The company must choose the optimal solution that will allow it to develop and profit.
Characteristics of cost and value-based approaches
An effective strategy is when a company considers its costs and the product’s value to consumers.
Pricing, where cost plays a key role, involves some factors:
- accounting for manufacturing costs;
- analysing overheads;
- shaping the desired level of profit.
These will influence the product’s pricing. At the same time, focusing on cost alone may not produce the expected result. In this case, costs do not reflect the value customers put into the product.
The value-based strategy takes the following factors into account:
- the customers’ perception of the product and the company;
- market demand and its fluctuations;
- offer uniqueness.
This approach enables companies to attract consumers willing to pay a high price for products. This strategy is popular with luxury brands. It allows such companies to position their offering as exclusive.
A practical solution would be a strategy that addresses both cost and value. Digital marketplaces such as TikTok are an example of this.
An overview of dynamic pricing
This strategy involves changing the price in response to market trends. The cost of the product is adjusted when demand, supply or competitive conditions change.
The advantage of this approach is that it uses psychological pricing. This makes it possible to influence customers’ perceptions of value. A prime example is the rejection of round numbers: USD 9.99 instead of USD 10. This gives the consumer a sense of the product’s affordability.
A dynamic approach also allows companies to adapt quickly to changes in the market. If demand increases, the price can increase, and customers will be willing to pay it. If demand falls, the cost can also fall, helping to maintain customer loyalty. In addition, companies can use a flexible marketing strategy to maximise profits. This involves introducing promotions and discounts on products that are not popular with consumers. Companies also use this option to optimise stock levels or clear obsolete products.
Each strategy has its characteristics. It is important to choose the one that will work for a particular business.
