Product Pricing Strategies
Product pricing plays a critical role in the success of any business. Whenever a product or service is provided, some form of price is charged to the purchaser. Moreover, pricing affects the perception a customer or potential customer has of the product itself, and to some degree, should reflect the value delivered. Thus, it is important to understand various pricing strategies which can be used, and to consider which may work best in a given situation.
First, it is important to understand the basics. The list price is the price listed in the catalog, or in the direct advertisement. However, discount pricing is when prices are lowered below the list price, typically for a special promotion or occasion. Buying in bulk is just what it sounds like, allowing customers to purchase in larger volumes to receive a price reduction.
Moving beyond the basics, there are a number of other pricing strategies that firms commonly use. Market penetration is when prices are kept as low as possible to attract customers who may otherwise not be interested or to attract those away from competitors. Competitive pricing is when the price remains closely in line with competitors price so as to remain competitive in the market. Loss-leader pricing is when prices are kept below cost in order to attract customers, and then relying on additional sales of other items or services to offset the loss.
Psychological pricing is when the prices are set in certain patterns, adjusting to consumers mindsets. For example, a price of $4.99 is seen as more attractive than $5.00, as the consumer may believe they are getting a better deal. Similarly, odd-even pricing is when prices are set at a value just below a round number, often discounting some amount. Pool pricing is when a bundle of items or service are sold together at a discounted rate, allowing customers to save money if they purchase the bundle rather than each item individually.
Finally, as technology advances and changes, so does pricing. Dynamic pricing can adjust the price of an item or service depending upon demand and supply characteristics. For instance, an airline may have a different price on a flight from NY to LA depending on how full the flight is. Furthermore, international pricing scenarios add a complex layer of decisions when deciding on how best to price a product or service.
In conclusion, product pricing is an important part of any business, and a number of decisions must be made when establishing the pricing for ones products and services. By understanding the various pricing strategies that are available, as well as the context of the market in which one operates, one can make an informed decision which can lead to increase profit, customer loyalty, and brand image.
