First will shall be taken a look at the meaning of Pricing and Pricing Strategies this will gives us a good and clearer meaning of the topic.
What is pricing? Pricing is a method adopted by a firm to set its selling price. It usually depends on the firm's average costs, and on thecustomer's perceived value of the product in comparison to his or her perceived value of the competing products.
What is pricing Strategies? Price planning that takes into view factors such as a firm's overall marketing objectives, consumer demand, product attributes, competitors’ pricing, and market and economic trends.
The pricing strategy of your business can ultimately determine your fate. As a business owner you can ensure profitability and longevity by paying close attention to your pricing strategy.
Commonly, for many businesses, the pricing strategy has been to be the lowest price provider in the market. This approach comes from taking a superficial view of competitors and assuming one can win business by having the lowest price.
Below are some pricing strategies to consider.
Competitive pricing: Use competitors' retail (or wholesale) prices as a benchmark for your own prices. Price slightly below, above or the same as your competitors, depending on your positioning strategies. Note you must collect competitor pricing information by observation rather than by asking them. Otherwise it could be seen as collusion
•Cost plus mark-up: This is the opposite of competitive pricing. Instead of looking at the market, look at your own cost structure. Decide the profit you want to make and add it to your costs to determine selling price. While using this method will assure a certain per-unit margin, it may also result in prices that are out-of-line with customer expectations, hurting total profit.
•Loss Leader: A loss leader is an item you sell at or below cost in order to attract more customers, who will also buy high-profit items. This is a good short-term promotion technique if you have customers that purchase several items at one time.
•Close out: Keep this pricing technique in mind when you have excess inventory. Sell the inventory at a steep discount to avoid storing or discarding it. Your goal should be to minimize loss, rather than making a profit.
•Membership or trade discounting: This is one method of segmenting customers. Attract business from profitable customer segments by giving them special prices. This could be in the form of lower price on certain items, a blanket discount, or free product rewards.
•Bundling and quantity discounts: Other ways to reward people for larger purchases are through quantity discounts or bundling. Set the per-unit price lower when the customer purchases a quantity of five instead of one, for example. Alternately, charge less when the customer purchases a bundle or several related items at one time. Bundle overstocks with popular items to avoid a closeout. Or, bundle established items with a new product to help build awareness.
•Versioning: Versioning is popular with services or technical products, where you sell the same general product in two or three configurations. A trial or very basic version may be offered at low or no cost.
Avoiding the Lowest Pricing Strategy
Having the lowest price isn't a strong position for business. Larger competitors with deep pockets and the ability to have lower operating costs will destroy any small business trying to compete on price alone. Avoiding the low pricing strategy starts with looking at the demand in the market by examining three factors:
1. Competitive Analysis: Don't just look at your competitor's pricing. Look at the whole package they offer. Are they serving price-conscious consumers or the affluent group? What are the value-added services if any?
2. Ceiling Price: The ceiling price is the highest price the market will bear. Survey experts and customers to determine pricing limits. The highest price in the market may not be the ceiling price.
3. Price Elasticity: If the demand for your product or service is less elastic, you can then have a higher ceiling on prices. Low elastic demand depends on limited competitors, buyer's perception of quality, and consumers not habituated to looking for the lowest price in your industry.
The low price strategy is best avoided by small business but there are conditions such as a price war that can drag a company into the lowest price battle.
Evading a Price War
A price war can wreck havoc in any industry and leave many businesses, out of business. Care should be taken to avoid a Price war.
Take these tips to evade a deadly price war:
•Enhance Exclusivity: Products or services that are exclusive to your business provide protection from falling prices.
•Drop High Maintenance Goods: There may be products or services in your business that have high customer service and maintenance costs. Drop the unprofitable lines and find out what customers don't want.
•Value-added: Find value your business can add to stand out in the marketplace. Be the most unique business in the category.
•Branding: Develop your brand name in the market. Brand name businesses can always stand strong in a price war.
Carefully, consider your price decisions. Your business depends on it.
