Pricing is a fundamental part of any business model and should be included in the marketing plan. It is an essential factor for companies to be competitive.
It consists of determining the cost of an item or service to achieve the desired level of profitability. There are an infinite number of pricing strategies, such as psychological pricing, high or prestige pricing, skim pricing, cost-based pricing and so on.
In this article we explore the key factors in defining a pricing strategy and explain several pricing examples so that you can identify the strategy that best suits your type of business.
Pricing strategy and profitability
In order to achieve success in any business, it is essential to determine the right pricing method to achieve your objectives. Whether it is to maximise profits, maintain market share, enhance brand image or drive sales.
To do this, it is important to take into account the company’s objectives, market conditions and the preferences of your potential customers. Pricing strategies in marketing are a key tool when it comes to launching a product or targeting your inbound marketing content.
Good pricing is essential for a company to remain competitive and to maximise conversions. Therefore, understanding the market situation and setting the right price is paramount to achieve the desired goals and optimise profits.
Success lies in striking the right balance between profitability and business objectives to ensure satisfactory results.
Key factors in implementing a pricing strategy
As we have already seen, pricing is the process of determining the price of a product or service offered in the market. Without a doubt, it is a critical part of digital marketing and plays an important role in a company’s business strategy. It involves assessing the cost of goods and services, evaluating the competition and taking into account the buyer persona’s desires.
Pricing tactics are essential to create attractive prices that are both advantageous to the company and desirable to customers. Here are some keys to successful pricing:
- Know your target audience: identify their needs, their economic profile, their desires and buying habits in order to set the highest price the customer is willing to pay.
- Competitor analysis: research your competitors’ prices and what the product or service they offer is like.
- Costs: Product prices should reflect the costs of production, including materials, labour, overheads and profit margin.
- Perceived value: the price should reflect the quality of your products and you should be able to convey this to the end consumer.
- Product life cycle: lower prices may be necessary to attract customers and gain market share.
- Company objectives: Pricing strategy should be aligned with company objectives, such as increasing profitability, improving market share or improving competitive position.
- Flexibility: It is important to consider the possibility of offering discounts, promotions or special packages to attract more customers and increase sales.
- Monitoring and adjustment: monitoring competitors’ prices will provide you with valuable information, especially if you opt for dynamic pricing strategies.
Types of pricing strategies
You know what a pricing strategy is, now you just need to define the one that best fits your business. There are many different strategies for pricing a product or service. Here are some examples of pricing strategies:
Psychological pricing strategy:
This strategy involves setting prices that seem attractive to customers, so that they feel that the amount of money to be paid is lower than the real amount. For example, setting the price at €9.99 instead of €10.
The skimming strategy, also known as selective penetration strategy, consists of setting a high price for a new and unique product or service in the market. The company focuses on setting high prices in a market segment willing to pay a high price for an innovative or exclusive product. This pricing strategy is often used for technology or luxury products.
Price skimming strategy
This strategy consists of lowering the price as the product life cycle progresses. As the market becomes saturated and competition increases, the company can gradually reduce prices to attract new market segments and increase its market share. They are also very useful for getting rid of older models or those with low turnover.
This strategy involves setting low prices to attract customers and gain market share (product penetration). Once you have built up a customer base, you can increase the price to increase profits.
Promotional pricing strategy
This strategy aims to get the best price in the market and involves offering discounts to attract customers and increase sales. Discounts can be temporary or permanent. The risk is to set prices too low and incur losses.
Objectives of pricing
The main objective of pricing is to set prices for products or services that are profitable and allow the company to maximise its revenues and profits. However, there are several other objectives that can be pursued through pricing strategies. Some of the most common objectives are:
- Increase market share.
- To match prices with the competition.
- Improve brand image.
- Improve stock turnover.
- Maximise long-term profitability.
The choice of objectives will depend on the overall objectives of the company and its position in the market.
Boardfy is the best tool to implement pricing strategies in online shops.
Pricing is a complex task that requires insight and experience. It requires an understanding of the market, the competition, the customers and the production process. It is therefore essential to have an effective and targeted pricing policy. Marketing pricing can help maximise profits and increase conversion rates.
Successful pricing depends on a combination of factors, including understanding the target audience, analysis of competition, costs and perceived value, flexibility and the ability to monitor and make adjustments.
As we have seen, there are many types of pricing strategies. In the end, pricing is a device that can be used to build competitive advantage and increase sales.
Increase your profits with Boardfy
A 100% automated pricing department that works 24/7 for you, always setting the optimal price according to the rules you set.
Thanks to Boardfy you will be able to:
- Monitor your competitors’ prices in real time.
- Make the necessary price adjustments automatically to be the best competitor at all times (if your margin and your set strategy allow you to do so).
- Apply smart pricing strategies.
- Optimise your Google Shopping campaigns to lower your costs and increase your sales.
Try us for free!