High low pricing is nothing but a kind of practice where most of the products are higher priced than the market rates and few amount of products are offered with prices lower than the market rates.
Benefits of High-Low Pricing
In the high-low pricing strategy, the benefits can be observed in the marketing and profit section.
- Increase of Profit: If the strategy can be properly implemented, the high-low pricing can yield huge profits. It is applicable in the situations where the customers purchase the additional items which are fully priced.
- Marketing Benefits: This technique can easily become the marketing method of the business. The low priced items should be continuously advertised in this method.
Risks of High-Low Pricing
Besides the advantages, you can find few risks of applying the high-low pricing strategy in the business:
- Customer Loyalty: When the customers are aware that bulk products are being sold at increased rates, they may shift their loyalties.
- Risk of Loss: If the business cannot implement the strategy in the right way, or dealing with the price sensitive shoppers, then it can easily face loss in their low-price promotions.
Examples of High-Low Pricing Strategy
In the high low pricing promotions, the high-priced items generally focus on the quality of the products and the low price are used to attract the customers. Here are some practical examples of this strategy:
Skimming: It is particularly a short term strategy used during the time of the launch of a product. The short period can enjoy high demands from the market. At this point of time, high prices are set and the eager buyers are not concerned about it. They are ready to pay any price they are being charged. This discriminatory pricing helps in gaining your short term profit.
Market Penetration: This approach is just opposite skimming used during the launch of new products. In this strategy, you enter the market with a low price for attracting a wide range of customers. You can gain a huge market share and loyalty from your customers during this time period. As soon as the market share is gained a bit, the prices are raised to sustain in the long term.
Premium: In the premium strategy, the price points are generally established at the top of the industry with luxury images of the brand. Here the price is associated with quality. Thus if you can promote your brand with the quality and can reach the upper class buyers, you can definitely expect the higher price points.
Loss Leaders: During the resale businesses, the loss leadership techniques can be used. The discounts and the sales promotions are offered for attracting huge traffic into your business. The cross marketing techniques are used to place the premium products for the higher profit margins.
The high-low pricing strategies are basically designed to attract customers. In some cases, the customers can be offered both the promotional price and the regular high priced product and allowed to choose from them. The shoe and the fashion industry use this strategy extensively.