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Pricing is a tricky part of pricing strategies. It is not an exact science due to the multiple pricing models that can be applied. However, a pricing strategy must take into consideration all factors of pricing including price sensitivity, the pricing model used, and market conditions.
Best pricing strategies will always apply pricing with customer value in mind. Review these six proven pricing strategy tips to boost your sales.
What is a Pricing Strategy?
Pricing strategies are one of the most important decisions an entrepreneur makes, as they account for so many factors. They also have external influences that can change how you price your products and services.
Choosing a pricing strategy is often overlooked by entrepreneurs who initially work with their COGS to set prices or make small adjustments based on competitors’ rates; however, it's worth taking time to learn about every factor involved to find out what will be best suited for your business objectives and target audience!
Price Elasticity of Demand: Best Way to Determine the Best Pricing Strategy
The Price Elasticity of Demand is used to determine how a change in price affects consumer demand. The more consumers are willing to purchase at different prices, the elastic it will be deemed; and vice versa.
For example, if people still buy cigarettes even when it is $10 per pack (which would make them 40% less likely) then they're considered an "inelastic" product because changes in pricing don't affect their sales volume as much - making for good investments on behalf of companies that produce these products.
However, cable TV or movie tickets tend to suffer from fluctuations due to high-priced items like this: Cable rates can jump up 20%, but unless you have other channels available nearby your house then you'll probably just pay another 50 cents each.
Types of Pricing Strategies
- Competition-Based Pricing
- Dynamic Pricing
- Freemium Pricing
- Cost-Plus Pricing
- High-Low Pricing
- Skimming Pricing
- Premium Pricing
- Project-Based Pricing
- Penetration Pricing
- Bundle Pricing
- Psychological Pricing
- Value-Based Pricing
- Hourly Pricing
- Geographic Pricing
Tips For Making a Pricing Strategy Successful
No matter what types of pricing strategies you adopt, these tips will help to make them super effective. Let’s check the details of each tip for an in-depth understanding.
1. Adjust the Price Sensitivity Threshold for Your Product or Service
Price sensitivity thresholds are relied on heavily when making decisions on if a product or service will be purchased. If there is low to no price sensitivity involved then you need to raise prices significantly higher than your competition to get customers to switch brands.
Consumers with lower price thresholds are less loyal and more prone to make irrational purchasing decisions based on emotional attachments or pricing models that create pricing inefficiencies.
2. Price to your Target Market's Reference Prices
The pricing reference point is created from many factors, but the primary ones are pricing consistency with previous purchases as well as pricing comparison with other competitive brands.
If you cannot get customers to pay for a product higher than your target market's pricing reference points then no amount of pricing creativity will ever make it sell.
You either need to lower prices or develop new pricing so it aligns better with how consumers view pricing and what they will accept within industry standards.
3. Apply Pricing Models that Allow for Inflation Protection
Inflation protection must be included in all strategic thinking when applying pricing models. It is critical to apply pricing models that will afford you pricing protection during times of inflation or commodity pricing spikes.
Once it is applied to a pricing model then stick with it, but also review pricing strategies yearly to ensure the pricing model's effectiveness remains constant and consistent.
It must be reevaluated over time due to outside market factors that include: economic conditions, customer base changes, supply and demand changes, production cost increases, market value trends, and new competitors entering the marketplace.
4. Consider Different Pricing Models for Different Products or Services
Pricing models can vary greatly based on product or service type. Some industries are more sensitive to pricing than others. And competitive pricing strategy works best in those situations.
While some companies may have pricing sensitivity from their target markets for lowering prices (e.g., charging $1.99 for a product when the pricing reference point is $2.00) while others may have pricing sensitivity from their target markets if pricing goes up (e.g., charging $1,000,000 for a widget when the pricing reference point is $10,000).
It all depends on how consumers view pricing and what they consider to be fair pricing models within your industry.
5. Apply Pricing Models that Will Allow You To Move Inventory Quickly
Pricing strategies can impact sales and lead time on your products or services because some pricing models will take longer to sell than others and will not be as effective at generating additional sales.
Some pricing models need to be applied due to temporary marketing conditions that cause shortages in pricing models (e.g., pricing a product very low to generate sales quickly) and others because pricing is low but demand is high.
The pricing strategy must always be applied based on the pricing model's effect on customer value which will determine pricing model effectiveness in generating additional sales and reorders from target markets.
6. Apply Pricing Models that Will Allow You to Capture Additional Profits
Pricing models should apply pricing strategies that offer pricing leverage or pricing security for your company's products or services.
This will help you keep a competitive advantage over others and it will also protect against price erosion due to commodity pricing trends, market conditions, or increased competition within target markets.
While you are applying a competition based pricing strategy, this approach will make things smooth for you to set the optimum price.
A successful and competitive pricing strategy should be based on pricing models that align pricing with value perception, pricing consistency with industry standards, and pricing comparison to other brands.
This is a very basic formula required for pricing success. The main difference between successful companies and others who fail at pricing their products or services are those who incorporate pricing strategies that include the best tips available today to create pricing tactics. This approach affords them unique pricing advantages over similar competitors.
Don't forget, you can get a fully automated USA based dropship website, built for you, in whatever niche you want, in 72 hours or less. Go to https://learn.dropshipusa.io/webclass to register for our free webinar that will teach you our secret dropship model, and how you can get it built for you in only 3 days!