Is your company planning to launch a new product or service in the market and need to figure out how to set the ideal pricing strategy to increase sales?
No problem, with a little attention and some targeted tips, you can build a successful pricing strategy.
Putting a good pricing strategy in place is critical for a company, as the pricing you choose will change the perception of the product in the eyes of the user. Not surprisingly, it is one of the pillars of any winning marketing strategy.
To understand how to build an effective pricing strategy, you will need to consider many important factors that will help you create the right market research and calculate and set the right price for the right product.
What are you waiting for? Read on if you are curious to find out how to build the right strategy for your business.
What is pricing and why is it important for a company
Pricing is one of the most important actions for a business and is based on determining an ideal price for a specific product.
This determination, in order for it to be functional and successful, must be established through a process by which all the relevant variables will be evaluated in order to achieve a consistent and justified price that will help you increase sales.
Often many companies determine the cost of individual products without examining any parameters by superficially deciding the value of what they offer or through a pricing strategy based solely and exclusively on competition. This is a serious mistake that could cost the company reputation and profits.
Therefore, it is important to take time to reflect, carrying out a process that will lead you to analyze every variable that may affect the final price of the product you want to launch.
This will also affect, if done correctly, brand perception, the value of the product or service you want to offer, and obviously sales.
But now let’s get down to the practical part and see what steps you need to take to optimize and establish the right pricing strategy for your product.
How to choose the right pricing
As mentioned above, determining the right selling price of a product requires a process of analysis that takes into account all the factors that influence the market, such as:
- The area of reference
- The type of product or service
- Uniqueness / exclusivity of the product
- Brand awareness
So let’s take a detailed look at all the steps to consider when creating the ideal price strategy for your company.
1. Define the goal
The corporate pricing objective is the outcome you propose to achieve through the pricing strategy you will implement. Based on the goal you set for your business, you can consider possible price ranges to adopt.
Each company may adopt different strategies and goals but we can summarize at least 3 main goals that fuel different businesses.
- Profit maximization: here you should try to maximize the difference between total costs and the selling price, obviously always based on market demand, trying to follow the trend based on demand and competitors.
- Gain specific market share: if this is your business goal then your goal is to increase your percentage of sales relative to your competitors. To do this you can either reduce prices relative to competitors or offer a higher quality product at a similar cost to theirs.
- Survival: So here the goal is to keep the business alive without necessarily maximizing profits by adopting a competitive market price to cover costs. This may be the case for a start-up that needs primarily to attract market share.
2. Identify the question
The second step to follow involves audience segmentation and analysis of potential consumers. Based on the goal you have set, the target audience will determine the price range to tap into.
The purpose of this process is to understand consumer demands, needs and interests through market research and analysis to find out trends, trends in a particular industry, consumer needs and their expectations regarding price.
Let me give you an example, if you refer to a product that has a lot of competition and does not have a powerful differentiating factor, the consumer will be able to evaluate by comparing prices, choosing the cheapest one and thus pushing you to reduce the cost.
If, on the other hand, you have created a successful brand identity and offer your product to an audience that is familiar with your brand or target consumers who are oriented toward perceived quality, you can adjust the price by increasing it.
3. Create a cost estimate
It is essential at this point to make a cost estimate regarding production expenses, for raw materials, distribution, marketing and sales in order to integrate the investment made into the final cost, thus ensuring a loss-free economic return.
It is also important to keep a constant eye on this estimate as it may change over time and any final prices may need to be adjusted.
Therefore, it is necessary to monitor and update estimates taking into account the profitability of the service or product you offer.
4. Evaluate competitors
Performing an SEO analysis of competitors is crucial to assessing how they operate in the market and what are the reference prices of a related product to yours.
You will then have a guideline as to whether or not to reduce prices without generating losses.
The moment you have all these aspects clear in mind, you can move on to choosing the right strategy for you, thus arriving at the final price of your product.
But what are the pricing strategies you can use? I will show you the most significant ones in a moment.
Examples of effective pricing strategies
With a good pricing strategy, designed ad hoc according to the sales goals set by the company, the relevance to be achieved and the costs to be incurred for the proposal in the market, it is possible to greatly increase sales of both new products to be launched and the stock already available.
To do this, there are different strategies that can be put into practice, here I show you some of the most used in the contemporary context.
Skimming Pricing
Also called market skimming strategy, it is the ideal strategy for those companies that offer innovative products, such as those belonging to the technology sector, and have very high production costs.
The ‘goal of companies that undertake this pricing technique concerns achieving a high initial profit margin that can cover the investment made to launch the new product.
This is a tactic that involves a very high initial price that is gradually reduced over time in order to immediately attract early adopters, that is, consumers who want to be the first to buy a particular product, and later more price-sensitive parts of the market.
Penetration Price
Another fairly common strategy is market penetration, a strategy whose goal is to enter a new market or acquire a large share of an existing one through relatively low prices for the products or services the company offers.
Such low costs encourage consumers to give the product a try, with the possibility that they will then become, repeat customers.
In practice, this strategy involves offering a product at a lower initial price than the competition, which will increase over time as the brand becomes established.
The companies that usually undertake this technique have low production costs and belong to the food, large-scale retail, telecommunications and financial services sectors.
It is a pricing strategy that allows you to easily enter your target market and immediately attract a large segment of consumers. In this case it is the consumers themselves who will increase the value of the product you offer.
Premium Price
Premium pricing, also known as prestige pricing strategy is perfect if the company’s intention is to build a strategy on luxury.
Companies that decide to rely on this pricing strategy usually have high production costs due to the research and development processes that make the finished product unique and extremely innovative.
The price this time will communicate an exclusive value of the product and automatically of the brand itself and will appeal to a niche market that is willing to pay more in order to obtain a prestigious, exclusive and superior product.
In such an approach, the price is not downward but is raised and exaggerated in order to establish a high final price, justified by the value of the product itself, materials used, innovative design, innovative packaging, and customized services.
Bundle Pricing
Bundle pricing, also known as bundle pricing, is a strategy that involves a plan in which a company includes a new product and increases sales volume through a true package including products or services that are complementary to the main one.
This strategy ensures that prices can be lower than buying each individual product and the customer’s perception is that of a bargain because, included in that cost are other goods, thus increasing the average cart value. Perfect if the company’s goal is to increase sales and attract new potential customers.
Dynamic price
Dynamic pricing strategy, involves a real-time change in the price of a given product or service based on factors such as demand, supply, weather, seasonality, and so on.
This is a strategy used more in tourism, logistics, and e-commerce. Just think of the costs of airline tickets, which vary depending on the time of year, the day of the week, and the time of day you travel.
This pricing technique is realized when the company intends to maximize profits by raising prices when market demand is high and charging lower prices, stimulating the price-sensitive consumer, when demand is low.
In conclusion, now that you have all the tools to build an effective and successful pricing strategy, all you have to do is evaluate all the aspects we have listed, and once you have outlined the process best suited for you, you will be able to achieve your business goals effectively and sustainably.
For professional help you can always turn to Factory Communication, we will help you get your startup and new product off the ground with strategies tailored just for you.
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