May 21

How Pricing Strategy Affects Your Marketing



Pricing Strategy is one of the most important aspects of the Marketing Mix. Not only does your pricing affect your bottom line, but it also determines a lot about your potential customer.

If your products are priced too low, you run the risk of not being profitable. Even worse, you may be communicating that your product is inferior to others in the market. But if they’re priced too high, you could be turning away your target customer.

Below, we’ll take a look at the types of pricing strategies. Understanding each pricing scheme will help you decide what you want your business to look like in the overall market.

Types of Pricing Strategies

There are several pricing strategies including:

  1. Competition-Based Pricing – pricing based on the “going rate” for similar products/services
  2. Cost-Plus Pricing – also known as markup pricing. You decide how much profit you want to make on each unit sold, and add that to the cost it takes to produce it.
  3. Dynamic Pricing – most often seen in companies like hotels and airlines. Dynamic pricing is flexible, and the prices will fluctuate based on demand.
  4. Freemium Pricing – typically seen from Software companies. You offer a free basic version of your product, then hope that your customers will pay to upgrade for full functionality.
  5. High-Low Pricing – you introduce your product at a high price, but lower it as the product drops in relevance. This is most common among retailers who sell seasonal items.
  6. Hourly Pricing – trading your time for money.
  7. Skimming Pricing – skimming pricing is very similar to High-Low pricing. You introduce your product at the highest possible price, then lower that price over time. The difference between High-Low and Skimming pricing is that skimming lowers the pricing gradually over time.
  8. Penetration Pricing – this can be viewed as the opposite of High-Low pricing. With this strategy, you introduce your product with an extremely low price, in order to take attention away from your competitors who are charging more. This isn’t sustainable in the long run, but can go a long way to establishing a loyal customer base.
  9. Premium Pricing – premium pricing is a marketing strategy of its own. Luxury brands like Louis Vuitton and Apple use high pricing as a way to communicate exclusivity.
  10. Project-Based Pricing – you charge a flat fee per project instead of breaking down an hourly cost.
  11. Value Based Pricing – pricing based on what the customer is willing to pay. Staying in tune with the market is essential for this strategy.

Where Pricing Strategy Fits In Your Marketing Plan

Pricing is important because it determines how cash will flow in your business. It will also determine who your customers are, and how you promote to them. As you move on to your Promotional Strategy, understanding your price will help you rule out a lot of bad ideas.

What Pricing Strategy do you use in your business? Have you tried experimenting with any others? What were the results. Let me know in the comments below.


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