We’ve previously explored on this blog the marketing mix (See: Like a salad ) which is essential to be aware of when you’re intending to launch a product. We’ve discussed the product strategy and now we will explore the subject of the pricing strategy. In this post, we will see how to set a price, how to determine your pricing goals, how to determine what strategy to use and tactics to refine your pricing. To find out more than just keep reading.
What's in a price?
So, how do you go about determining the price of your products and services? 1) Establish pricing goals 2) Estimate demand, costs, and profits 3) Choose a price strategy to help determine a base price 4) Fine-tune the base price with pricing tactics (Lamb, Hair, McDaniel, Summers, & Gardiner, 2016, p. 247)
Where are you heading?
Pricing goals are what you hope to gain by selling your product or service. These need to be attainable not pie in the sky wishful hopes but goals that can be easily measured and tracked. The three most common pricing objectives cited are the profit-oriented, sales-oriented and status quo oriented. Below we’ll discuss these further
“We’ve made AU$xyz this month”: the profit motive
If your objective is to make the most profits possible and make the best use of these profits you will probably be profit-oriented. You may have invested a lot to bring this product to market and your goal is to get a substantial return on that investment..
“We’ve sold xyz units this week alone!”: the sales motive If your objective is to gain traction in a specific market and be an industry leader you may be sales-oriented. You’re looking to get a chunk of the market share and you may focus on the number of units of your product sold rather than simply the profit you have made.
“We’ll match the competitors' price guaranteed.”: the status quo motive If your objective is simply to stick to standard market value for your products and charge neither higher or lower than your competitors you may be status quo oriented. In Australia, you have to be careful about how you implement this type of pricing. Varying prices among competing brands is intended to ensure that the market remains competitive and that consumers have the broadest range of products to choose from (Lamb et al., 2016, p. 242)
Strategic Strategist
The pricing strategy will determine how you’ll make those gains we discussed above. It’s the way we decide on the starting price of the product or service we’re selling. It also helps us determine how we maintain momentum throughout the product life cycle (See: Get a life(cycle!) for more info on the product life cycle). The three pricing strategies we will be discussing are price skimming, price anchoring, and penetration pricing.
It’s skim or swim: price skimming This pricing strategy is about charging top dollar and promoting till the cows come home. Brands use this when they know that the product will sell despite the high price tag. A product sold this way is perceived as special and worthy of its price tag. This might be used for products like mobile phones, laptops, digital cameras, TV’s, etc.
Anchors Aweigh! price anchoring This pricing strategy is being used when the top dollar is being charged in order to give an impression of high value. Any subsequent products won’t be priced in the same way so it will give the impression of getting something for nothing when in fact the lower priced item may still be quiet expensive. This might be used in cosmetics, skin care or luxury apparel, etc.
A penetrating gaze: penetration pricing This pricing strategy is about charging a lower initial price to get the most amount of consumers to buy the product. The profits being made because the product is more accessible and therefore more desirable to the largest amount of people. This type of pricing is often used by phone, internet or cable TV services providers.
Tactics for the Win
Where are you? Geographic pricing This is a tactic for pricing that is determined by where the product is shipped from (free on board origin pricing), the zone from which the product is shipped (zone pricing), the brands location (freight absorption pricing) or a designated location for shipment (basing-point pricing) (Lamb, 2016, p.252). Alternatively, the pricing may be the same for everyone regardless of the above differences (uniform delivered pricing).
I’m at a loss! Leader pricing This is a pricing tactic that is determined by a desire to win over a customer from a rival brand. This usually involves charging below market cost for a product in order to entice the customer to choose the brand. Enticing the customer to favour your store and by corollary buy others items while they are there. This is often used by supermarkets.
In for a penny in for a pound: Price bundling This pricing strategy involves selling two or more products together at a reduced cost. The items individually will be slightly more expensive and so will entice the consumer to buy the bundled product instead. You might see this in the travel, cosmetics or electronics sector.
By and by: Two-part pricing This tactic involved splitting the total cost into two separate payments. This can entice the consumer to buy a product they may of otherwise not considered or been able to purchase. This may be used for online courses, gym memberships, or other services.
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References: Lamb, C.W. Hair, J.F. McDaniel, C. Summers, J. and Gardiner, M. 2016, MKTG3 3rd Asia Pacific Edition, Cengage Learning Australia Pty Ltd, South Melbourne
In this post, we’ve explored the various aspects of determining the pricing for your product or service. From how to set a price, how to determine your pricing goals, how to determine what strategy to use and the tactics you can use to refine your pricing. I hope you’ve learned something new and actionable for your product research and development. It’s wonderful to have ideas but it’s great when you know how to make them a reality.
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