Business Pricing Strategies
Posted by Alisha Solanki in Sep, 2014
What are Business pricing strategies?
Pricing refers to the process of setting a price for a product or service and more than any other element of your marketing mix and this is what will have the biggest impact on the amount of profit you make over time.
What are Business pricing strategies like?
A Business pricing strategy is like playing a game of chess. It sees what the opponent is doing and tries to counteract the moves.
What is the purpose of a Business pricing strategies?
Developing effective pricing strategies is a critical element of marketing as pricing is the only element of the marketing mix that creates sales revenue; the other elements create costs and sales volume. An effective pricing will help:
- Meeting profit objectives
- Meet or even beat the competitors prices
- Retaining or increasing market share
- Match the image or reputation of the business, product or even service
- Match the offer to market demand.
The main purpose of business pricing strategies is to try and give a prediction of your profit using some specific pricing strategies.
What are the different types of Business pricing strategies?
There are a number of different customer-based Business pricing strategies. They are as followed:
Skimming pricing
Often used for new products and services, especially technology.
The initial price is set high and attracts ‘early-adopters’ who want the product or service now and are willing to pay.
When this group has been satisfied, the price is reduced to appeal to more price-sensitive customers.
Penetration pricing
Aims for high sales through a lower price.
Often used for products and services that would not attract an initial market.
Discourages competitors because of the low profit margin.
A large target market and a high volume of sales are needed to meet profit goals.
Discount pricing
Aimed at the budget end of the market where customers are willing to let go of some quality or service for a lower price.
Discounting is a difficult strategy to use long-term – sales volumes must be consistently high to maintain good profit levels.
Flexible pricing
Your pricing strategy should be flexible. If you sell to multiple markets (e.g. you export to different countries), you do not need to set a single price across the board. However, remember that if you sell via the internet, customers will be able to buy at your online price wherever they are (provided you ship to their area).
Another example of flexible pricing is offering discounts for bulk-buying or returning customers. This rewards in customer loyalty, encourages positive word-of-mouth and increases sales in the long run.
What is involved with choosing the Business pricing strategies?
Selecting pricing strategies will typically involve reviewing these following factors:
Market availability – To see what is actually available in the current market and what is in popular demand and what is easily selling.
Customer research – What the customer is willing to pay for the products/services you have to offer to them.
What your competitor has to offer – To analyse whether or not your competitors are matching with the price you’re giving or even the service that is being provided.
Where does choosing the Business pricing strategies fit into the sales process of a business?
Introducing a new product line – the business will be required to conduct adequate research and gather what is available in the current market and select a pricing strategy accordingly. The business could use price skimming if the product line highly advanced in comparison to what is available in the current market.
Profit Failure – one of the many aspects a business will need to review whilst incurring a loss is to review their pricing strategy. This can assist the business in recovering a loss and determining the price at which a product should be sold.
Business plan reviews – a price-specific goal in a business will evidently be require a price strategy to be developed to achieve that goal
How does choosing Business pricing strategies impact on different areas of the business?
Determining the price of a product or service in a business operations is crucial. This can impact of the operations of the business as it can often be really difficult is setting your price at a mark- up where you’re not losing but not gaining much money.
Your price must be enough higher than costs to cover reasonable variations in sales volume. If your sales forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a factor of two or more and still be making a profit.
The price should almost never be lower than the costs or higher than what most consumers consider as being “fair”. This may seem quite clear, but there are many entrepreneurs that seem to miss this simple concept, either by miscalculating costs or by not researching enough to determine fair pricing. It is quite simple, if consumers won’t easily pay enough or more than the cost to make a fair profit, the entire business model should be reconsidered.
Impacts on the Gross Profit and Net Profit overall. Changing the pricing strategies. It also impacts on the Sales and Marketing Team and will also really impact the Customer and goals made for the business.
What terms are used when choosing Business pricing strategies?
Pricing Strategies – A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors.
Profit Margins – Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.
Market Segments – A group of people that share one or more characteristics. Each market segment is exclusive and marketing managers select on various criteria to create their specific target market(s).
Market Orientation – Market orientation attempts to tailor products to meet the demands of customers.
Marketing Objectives – A group of goals set by a business when indorsing its products or services to potential consumers that should be achieved within a given time frame.
Financial Objectives – Objectives set by a company, in which the target is measured in monetary terms, like certain amounts of profits, or a certain percentage increase in profits over a period of time.
Where can I find more information about choosing the Business pricing strategies?
http://www.smallbusiness.wa.gov.au/pricing-strategy/
http://timreview.ca/article/386#sthash.6cVEH2Hg.dpu
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