Types of Pricing Strategies You Can Use for Your Business
One of the many things that most businesses focus on is their pricing, and oftentimes, they seek help from business accountants to review their pricing strategy. Pricing is crucial for all companies because it will significantly affect profitability and cash flow.
If you want your business to have a positive cash flow, you must have the right pricing strategy. Fortunately for you, we have listed some of the pricing strategies you can have for your business to serve as your guide.
Let’s take a look at the different types of pricing strategies:
1. Skimming Pricing
Skimming is a pricing model wherein companies set their product’s initial price at a higher tier then eventually drops it once they’ve already achieved their target profit. It perfectly works for brands with established names in the industry or for brands that offer a very interesting product. It works for them because customers will surely patronise their offer no matter the product’s price.
Let’s take technology as an example. Once a particular brand releases a new phone model with high-end features, they will place the product on the market set at a high price. Some customers will not look at the price; they will look at the features of the phone and the brand that released it, encouraging them to buy it regardless of its price. After a few months since the product was released, the company will eventually drop the price to appeal to more price-sensitive customers.
One of the benefits of skimming pricing is that even if the business drops its product’s worth, it will not lose anything since it already gained its expected returns when it initially released the product set at a high price.
2. Penetration Pricing
Penetration pricing specifically targets the general public since the pricing for this model is only set at an average, which most people can afford. If you use this type of pricing, you must gain as many sales as possible to make up for the low price rate and meet your company’s profit goal.
Companies that use this pricing model usually want to be the market leader in the industry. They set their product’s price at a lower margin because they want to make it affordable for many people. The cheaper the product is, the more accessible it is for consumers, making them a market leader since people choose them over other brands due to their price offer.
3. Image Pricing
This pricing model best works for brands offering high-end goods. It usually caters to elite consumers who can afford expensive products. Companies that use this model usually set their price high because they only produce limited-edition products that only a few consumers can have and afford. However, it’s not an easy pricing model to pull off because companies must be able to market their products as high-value and worthy investments.
4. Discount Pricing
Discount pricing and penetration pricing are pretty much similar since they both need to have as many sales as possible to meet their profit goals. However, brands that use discount pricing don’t prioritise the product’s quality. Their only goal is to meet their expected profit, and the satisfaction and enjoyment of their customers are only secondary. But, discount pricing is a highly effective model because some consumers prefer to purchase products for their price rather than buy quality products beyond their budget.
5. Loss Leader
A loss leader is more of a strategy. Brands use this to entice customers inside their business. They usually front low-priced items to their customers, and once they have encouraged the customer to buy the item, they will offer other products with a higher price from their brand.
The type of pricing strategy perfect for your business will depend on your overall business strategy. To choose the best pricing strategy, you need to consider different factors, such as the volume you can deliver, your target market, the competitors and the market you play in. Once you’ve come to understand these factors, you can now mix and match the types of pricing strategies mentioned here so that you can gain a competitive advantage in the market.
If you are looking for the best accountant on the Gold Coast to help you with your pricing strategy, New Wave Accounting has got you covered! We help you figure out the issues within your business then create business growth strategies to allow your business to grow and scale. We serve clients across Queensland. Book a consultation with us today!