A pricing strategy must consider the profit margin.
A pricing strategy is a mechanism that is adopted to establish how much a service or product will be offered . This is the methodology that is applied when defining the amount that will be requested in exchange for what is being marketed.
It should be noted that the idea of strategy can be associated with planning (the drawing up of a plan) or a tactic (the system used to obtain or do something). The price , meanwhile, is the amount or value in monetary terms.
Its importance
The price is part of the so-called 4Ps of marketing , along with the product, the promotion and the place or point of sale. It is understood that these four elements are the pillars that must be combined when developing a marketing plan to successfully reach the target audience.
It can be said that the price is the money that a company intends to obtain from the buyer or user when selling an item or providing a service . That amount must be defined taking into account a multiplicity of variables.
When the pricing strategy is not correct, the company can suffer various problems that threaten its finances. Covering costs is essential to maintain operations, but the analysis must include other factors since cost-based prices are not always the most convenient.
It should be taken into account that the values that are defined are not unchanged. There may be seasonal prices or discounts and sales may apply, for example. Price adjustment, in short, is usually essential due to the dynamism of the economy and market fluctuations.
The value perceived by the customer has to be considered in the pricing strategy.
Types of pricing strategy
A pricing strategy is a way of determining the amount of money to charge for a service or product. Depending on the planning, it is possible to distinguish between several types of pricing strategies:
- Skimming price strategy : It consists of starting with very high prices that are then reduced when the products lose their relevance due to technological advances. In this framework, we speak of a skimmed price.
- Competitive pricing strategy : It is based on setting the price according to current market values.
- Penetration pricing strategy : A penetration price is lower than the competition . Its purpose is to attract new customers and achieve initial sales.
- Psychological pricing strategy : Small changes or temporary offers are introduced to attract buyers, who understand that this is an opportunity to take advantage of.
- Package or bundle pricing strategy : It involves combining different products to offer them together at a reduced price.
- Seasonal pricing strategy : They aim to stimulate demand at specific times.
- Premium pricing strategy : Set high prices to build a luxury or quality feel.
- Freemium pricing strategy : It works by offering a free version of a service or product and then charging for another more complete or advanced version.
- Dynamic pricing strategy : Modify amounts frequently based on competition, demand, and other variables (such as price adjustments for inflation ).
- Loss leadership pricing strategy : An item is offered very cheaply to attract customers, hoping that they will also end up purchasing others at a higher price.
- Differential pricing strategy : The same product is offered at different prices depending on the consumer's profile (if they are retired, a student, a customer of a specific bank, a member of an affiliate system, etc.).
The use of artificial intelligence in pricing strategy is expected to grow in the future.
Aspects to consider
The design of a pricing strategy, as we already indicated, requires paying attention to different aspects. Costs are among the main factors: generally, it is essential that the price be higher than the cost to obtain profitability . However, there is the possibility of selling an item below cost to attract buyers who will also end up purchasing other products, in this case with high prices.
Competitor analysis is also necessary. In a monopoly or oligopoly, the manufacturer can set prices almost at will since customers have few (if any) alternatives. On the other hand, if there are many competitors, demand plays an essential role.
Of course, the role of buyers must also be considered. You have to estimate how much they are willing to pay for the product, a decision that has to do with the perception of quality, novelty and other issues.
Finally, the company's objectives cannot be overlooked. If the aim is to prevent the entry of competitors or increase sales , prices must be reduced. On the other hand, if the idea is to increase value or profit margin, prices can rise.
Examples of pricing strategies
Take the case of a hamburger chain that begins operations in a new country. To attract customers, opt for a limited-time promotional pricing strategy . For three months, it keeps prices below those of its competitors. The intention is that, after that period, prices can be increased little by little without losing the customers already won.
Consider a supermarket involved in a price war with its rivals. The strategy you use is to set several bait prices to attract buyers.
Another example of a pricing strategy is found in a clothing store that, due to the change of season , sets clearance prices . Thus, at the end of winter, it offers jackets and other coats with discounts of up to 50%. In this way, it stimulates sales of products that, at that time of year, do not usually have much demand.
It should be noted that affordable prices are sometimes not the chosen path. There are also prestige prices : companies that sell at a high price to maintain or increase brand value, regardless of the specific characteristics of each product.