How To Choose The Right Pricing Strategy For Your Business
Written by Luke Glassford
The original goal before the 2012 London Olympic Games was to hit a ticket revenue target of £376 million, but Paul Williamson, the manager of the ticket program, and his team blew that target away.
The inclusive and tiered pricing strategies they used, including ‘pay your age’ for young people, enabled them to generate ticket revenues of £660 million - 75% more than their original target.
In the below guide, we explain why it’s important to determine your pricing strategy and provide some examples of pricing strategies you can use to scale your revenue.
What is a pricing strategy?
A pricing strategy is a methodical and systematic approach that businesses, startups, and entrepreneurs conduct to find the best cost for their products/services.
It can help you choose your prices to maximise profits and shareholder value while taking into account consumer and market demand.
Why is a pricing strategy important?
The breathtaking revenue figure generated in the 2012 Olympic Games is tied to the power of an effective pricing model.
- A pricing strategy improves your business's revenue growth and resources. It helps you scale your sales revenue and profits because you are selling at the best price.
- Pricing strategies help you portray the value of your product/service to your target customers.
- An efficient pricing strategy will cut down the risk of loss. No business wants to go bankrupt, so a pricing strategy removes that risk.
- Pricing strategies help your customers to be confident about your product and become your brand evangelists.
Every buyer wants to feel satisfied after buying your product and your price can make them feel confident and trust you for more transactions.
If you would like to learn more about how Gambit Partners can help your business develop an effective pricing strategy, arrange a free consultation call with us now:
Different examples of pricing strategies
There are many different pricing strategies your business could adopt. Below we look at some of the most common pricing strategies to give you some inspiration…
1. Loss-leader pricing strategy
Ever visited a physical or online store to buy a discounted product and, in doing so, went on to buy some other items that caught your eye?
If you did, the seller made up for the loss of the original product by using the loss leader framework.
This strategy involves selling something for such a good price it attracts attention and exposes your customers to your wide range of products.
Supermarkets are a great example of this - applying massive discounts to something like milk to attract customers in and encourage them to buy more while they are there.
2. Market penetration pricing
It is difficult to jumpstart the cost of your offers in a new marketplace especially if you have a start-up.
This type of pricing involves lowering your prices below your competitors’, so as to get more early customers. This strategy can generate losses in the long run, so it’s important to review your pricing model once you have achieved sufficient market penetration.
3. Skim pricing strategy
Also known as price skimming, this is a pricing strategy in which you set the price for new products or services high and then lower them as new competitors enter the market.
It is the opposite of market penetration pricing, but can have great results if used correctly. The likes of Apple and Nike are notable examples of using skim pricing - releasing new products at higher prices to attract early adopters, and then lowering prices later as new features or designs are released.
Price skimming works best if your market is not yet over-crowded or if you are launching a new and innovative product.
How do you feel when you get a luxurious product? You feel on top of the world, right?
Apple's smartphone products are premium priced in the market and people still buy them. In a recent iPhone users statistics report, 56.6 million iPhone units were sold in Q1 2022.
This model is effective if you target the right customers who are prepared to pay for the right product.
5. Freemium model
Mostly seen in the software industry, a freemium pricing model gives customers restricted access to a tool or product for free, with the option to expand their access to different features if they pay for a subscription.
This may not be suitable for all business models, but it can be a powerful strategy to attract new customers and build your brand reputation, trust and credibility.
6. Bundle pricing
Bundling up products and services into one transaction can be a great way to increase your average order value.
If you have two products or services that are related, bundling them into one deal which gives a slight discount to customers can have a big impact on your bottom line.
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