The identification and application of the right pricing strategy can bring out a great difference in your total sales and profits. But, what are the various pricing strategies that one has to make a choice from? Take a look at the following.
What are the Cost-Based Pricing Strategies?
The cost-based pricing strategies are made on the basis of the price of a primary product or service.
- Absorption pricing – It deals with variable costs and also, the allotment of fixed costs.
- Time and materials pricing – Customers are billed for the labor and the items sustained by the firm with a profit mark-up.
- Cost plus pricing – It deals with variable costs, allotment of fixed costs along with a preset mark-up percentage.
- Break even pricing – It is the practice of fixing a price at an appropriate level at which a firm gains zero profit. This pricing strategy finds basis on the evaluation of variable costs and the guesstimate of the total number of units to be put up for sale.
- Marginal cost pricing – A price is fixed close to the marginal cost that is needed to manufacture a product. This pricing strategy is applied to utilize an unused manufacturing capacity.
What are the Strategic Pricing Strategies?
The strategic pricing strategies are related to the application of product pricing for brand positioning or preventing competition.
- Predatory pricing – Fixing a price which is low enough to compel rival businesses to move out from the market.
- Limit pricing – Fixing a very low long-term price that will prevent prospective competitors from foraying into the market.
- Price leadership – A price point that is set by one firm and followed by its competitors.
- Penetration pricing – Fixing a price lower than the market cost for increasing market share.
What are the Value Pricing Strategies?
The value pricing strategies are based on the belief and idea of consumers regarding the value of a product or a service.
- Price skimming – Fixing a high price at the initial stage of a product launch in order to earn high profits.
- Premium pricing – Fixing higher prices than the market rate to offer premium experience to the customers.
- Value pricing – Fixing a price on the basis of a supposed value of a product to the customers.
- Dynamic pricing – Changing a price continually on the basis of the keenness of the customers to shell out.
What are the Teaser Pricing Strategies?
The teaser pricing strategies involve the practice of attracting customers by offering products or services at a lower price or absolutely free and then, cross-selling pricey products or services.
- High-low pricing – Fixing the price of a few items lower than the market rate for gaining customers and fixing the price of all other products higher than the market rate.
- Loss leader pricing – Offering attractive deals on certain products with the hope of attracting customers to purchase other standard-priced products.
- Freemium pricing – Offering an essential service absolutely free and charging a certain amount for a higher level of service.
A Look at the Miscellaneous Pricing Strategies
The pricing strategies mentioned below do not fall under any particular category.
- Shadow pricing – Assigning a price to an intangible asset that has no market value.
- Psychological pricing – Fixing a price below a rounded number.
- Transfer pricing – Setting the price of a product which will be sold from one ancillary of a mother concern to another.
Decide which one is the apt pricing strategy for your business after careful and wise consideration.