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7 best pricing strategies you need to know


Price vs value concept

Pricing strategies can quickly revolutionize your business. Pricing strategies are essential as they will determine the profitability and competitiveness of your business. Without a strong pricing strategy, it will be hard for your business to compete. You need to use pricing strategies to ensure your business is running efficiently. Price action plans will bring your business the ability to go toe to toe with the competition. 

The seven strategies

So, what are the seven pricing strategies? The seven pricing strategies are value pricing, dynamic pricing, competitive pricing, cost-plus pricing, price skimming, penetration pricing, and economy pricing. Each pricing strategy presents its own benefits and will be helpful in different situations. You will need to fully understand each strategy to know how to use it to your advantage. Once you have mastered these pricing strategies, you can begin to use them to your advantage. These all have their own uses and are great for different businesses. Not every strategy will apply to your company, as some only apply to specific companies, such as dynamic pricing. 

1. Value pricing

A value price action strategy analyzes an item’s potential value and attempts to market the item at a price that consumers will see as fair. This pricing strategy works by pricing an item at the value your customers think it is worth. This strategy can be used to adjust the prices of your goods. If you notice that certain goods are just not selling, it may signify that they are overpriced. By lowering the prices of these goods, you may increase the likelihood of customers beginning to purchase them. This strategy is excellent for businesses adjusting their store’s prices or companies that don’t have competitors to base their prices on. Value price action plans will ensure that you charge a fair market value for your goods and services and make sure that you are usually running at a profit. A strategy like this can be used to bring balance to your store, making sure your prices are not too high for your customers or too low for your balance sheet. A value price action plan works for any business trying to increase sales or bring their balance sheet into the green. It is a moderate strategy that will provide reasonable, consistent returns over time. It is excellent for those who don’t want to take too much risk with their prices. 

2. Dynamic pricing

A dynamic pricing strategy includes changing your prices frequently to match current demand. Many businesses can’t change their prices exceptionally often, but a dynamic price action strategy can work wonders for those who can. Dynamic price action strategies are highly volatile, needing a great deal of management all the time to continue operating smoothly. Without proper management, a dynamic price action plan can become unreliable and provide small returns. A business should not rely on dynamic pricing strategies unless it is confident to actively manage the prices. Many companies use dynamic pricing strategies, and you probably encounter them every day. For example, when you stop to get gas, you may notice that the price changes frequently. This is because gas stations use a dynamic pricing strategy. This strategy is excellent for commodity-based goods like gasoline, as it allows sellers to quickly adjust for any changes in the commodity’s price. The oil price is constantly changing, significantly affecting a gas station’s overhead, so changing gasoline prices works to offset this price difference. 

3. Competitive pricing

Competitive pricing strategies work by basing a company’s prices off competitors’ prices. If a competitor is selling an item for five dollars, a competitive pricing strategy will suggest that you sell the same thing for slightly less than five dollars so that you can attract their customers. This strategy is excellent for those starting out fresh with their business and needs a starting point for their prices. If you open a business and immediately begin selling goods at unreasonable prices, you will risk customers turning your business down for cheaper stores. It is much easier to start your business pricing competitively than fighting to bring unhappy customers back into your store. A competitive pricing strategy is necessary for those looking to begin selling goods but can be worked away from after some time. Almost any business can easily take advantage of a competitive price action plan. Due to its simple nature, competitive pricing can allow any business to take advantage of it. The only exception to this strategy is businesses with no actual competition. In rising industries, companies may remain unchallenged in their prices, leaving them without a solid price range to stay inside to continue being competitive. However, you will rarely find a business that is immune to this strategy. Any business in a competitive community will need to adhere to this rule to stay in good standings with its customers. As soon a business begins overcharging its customers, it will start to lose valuable customers regardless of its size. Competitive pricing is critical to a company’s survival, giving it extreme importance regarding price action strategies. 

4. Cost-plus pricing

Cost-plus pricing strategies work by adding all the goods’ costs together and adding them to the price of a good. These pricing strategies are widespread, taking the cost of a good into account while pricing the good. It is essential to use cost-plus pricing strategies to ensure that your business is staying profitable. Without using this price action plan, you could run into revenue problems. Forgetting to take the cost and labor of an item into account while pricing can lead to your business running at a loss. You need to make sure that you are always running at a profit, and a cost-plus pricing strategy is excellent for this. A cost-plus price action plan is commonly used by body shops. When giving you the pricing of a repair, they will often tell you how much they are charging for parts and labor in addition to the average price. This allows the body shop to justify the price markup and lets the customer know exactly where their money is going. Your business must use a cost-plus strategy to ensure that your business is not ever running at a loss. Used in conjunction with other methods, this plan can be beneficial for your business.

5. Price skimming

For most businesses, price skimming is extremely dangerous. However, to some companies, a skimming pricing strategy can be golden. The process works by setting prices extraordinarily high and slowly bringing them down over time to catch anyone willing to spend the extra money to get a product early. Many electronics sellers use this strategy, setting prices high and slowly bringing prices down over time. For example, video game creators will often release a game and put it on the market for $60 and slowly bring the price down over time. This strategy works to pay off any debt that the company collected during the game, ensuring a profit in the end. Without price skimming, companies like this would run at a loss and go bankrupt. While it can be annoying to the average consumer, price skimming is necessary for some industries’ survival and profitability. 

6. Penetration pricing

Penetration pricing strategies and skimming pricing strategies essentially work in opposite ways. Penetration price action strategies are generally used by small companies looking to join a highly competitive industry. This price action strategy effectively undercuts the competition to build a presence. After a business has built up a company in the field, it will begin to slowly raise prices up to a competitive level. This strategy can be risky as you will need a high number of customers that are willing to continue purchasing from you, or you will run into problems staying profitable. A pricing strategy like this should only be used by companies needing to find a foothold in a competitive market and shouldn’t stay at the price levels for long. Maintaining penetration pricing levels can quickly ruin a business into the ground if customers don’t continue using your services. 

7. Economy pricing

Economy pricing strategies are based on bringing customers rather than income. Like penetration price action strategies, economy pricing runs below the market value to bring in more customers. Using this strategy, businesses rely on low production costs to continue to make a profit while selling low-priced goods. Several business models rely on these types of price action strategies, such as supermarkets. Supermarkets use this strategy to save on production costs but sacrifice individual revenue to bring in more customers. This strategy is vital for businesses with access to cheap production and who want to lure high quantities of customers. A company can quickly increase revenue with an economy pricing strategy if it has access to affordable production costs. Large businesses take advantage of this pricing strategy all the time by outsourcing production to cheaper areas. As a result, it is easy to ship goods into areas with expensive labor and undercut local sellers who cannot afford to sell goods at lower prices. This strategy works efficiently, moving small business out of the area and lowering production costs. 

Real-world scenarios

If you were to open an electronics store today, you would have a wide variety of excellent price action plans available to you. To start, you could use competitive pricing strategies in your store. You could simply shop around other electronic stores in your area to find which prices work the best and use them as starting points. After you have gotten business moving, you could use the value-based price strategy. Using this strategy, you would take the items you are selling and evaluate the price you believe customers would pay for these items. This would be an ongoing process and would help you decide if you are under or overpricing your goods. Even after you have set up your business and things are running smoothly, you could still come back to this strategy to evaluate certain goods that are either overselling or underselling. This price action plan is excellent for small price changes in your store but could use some help from other pricing strategies to truly soar. Once you have gotten business turning, you will turn away from these simple pricing strategies to pick up higher revenues and more efficient growth. 

You will need to regularly sit down and analyze your sales to see if you need to switch any of your pricing strategies around. If you notice that you are constantly running at a loss, you may want to consider picking up a cost-plus price action strategy. This will ensure that you are at least staying profitable on each sale to have better chances of staying afloat. Every situation you encounter will bring a new price action strategy into play. You will need to consistently make adjustments to your pricing strategy, ensuring that every price in your store is precisely where it needs to be. 

You may notice that you use different pricing strategies in various areas of your store. This is entirely normal and necessary. Every item in your store will encounter diverse customer exposure and will need to be priced differently. For example, goods that are highly valued at their release can easily be price skimmed, while others will simply always have the same market value. These variances are expected but will need active management to ensure that they do not become off-balanced. These differences can take time to learn and keep track of but will become manageable over time. While you may not ever have to use some of these price action plans, you will use most of them in conjunction with each other. 


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