Choosing the right pricing strategy largely determines the success of your business: too low a price threatens to lose profits, too high a decrease in attractiveness to buyers. The secret is that it is impossible to determine this delicate balance using universal methods. For each niche (and even a single company), choosing the best price is a unique process. However, there are several pricing strategies and models that will help you assess your product’s sales potential. Of course, each of them, to one degree or another, is the most applicable for individual market segments.
Main types of pricing strategies
High price strategy
This technique will allow you to get super profits, that is, to collect the cream from customers for whom this or that product is so important that they are ready to pay any price for its purchase. Even the highest on the market.
Such tactics of the pricing strategy is possible if the company has a group of wealthy customers with a constant demand for an expensive product. Setting high prices is reasonable in the following cases:
– no serious competition is planned in the near future;
– conquering a new market niche is too expensive for partners;
– the volume of raw materials and components for a new product is limited;
– difficulties in the sale of a little-known product.
The pricing policy in this case is aimed at maximizing profit while there are no competitors on the market.
Average price strategy
Otherwise known as neutral pricing. This principle applies throughout the entire life cycle of a product or service, except for the phases of declining demand. It is typical for companies focused on a long period of profit. Similar pricing strategies in marketing are quite common. They do not fuel price wars, prevent salespeople from getting rich on customers, and allow firms to earn a fixed return on investment.
Low price strategy
The price breakout policy can be applied at all stages of the life cycle of each product. The maximum effect is achieved at very elastic demand prices.
Similar pricing strategies are used to:
– penetrate the market, maximize the market share of sales (crowding out tactics);
– launch more working capacities;
– to prevent bankruptcy.
The purpose of this tactic is to obtain long-term, not one-time profits.
Target price strategy
Usually used by large corporations. At the same time, regardless of fluctuations in value, sales and profits remain stable. Here profit is the target rate.
Preferential Price Strategy
This technique is perfect for increasing the sale of goods while reducing its life cycle. The policy assumes discounts to the basic price of products and services.
Linked pricing strategy
And in this case, pricing is carried out taking into account the cost of consumption (that is, the price of the product + the cost of further operation by the client).
Follow the leader strategy
This tactic takes into account the cost of the product / service of the leading firm when setting its own prices, but does not set them the same. Products may cost more or less than the leading company, but within the technological or quality advantages.
Selection and implementation of the objectives of the pricing strategy
So, you have thought of everything and are ready to choose a pricing strategy in a startup. Fortunately, there is no need to invent anything: there are several proven options that suit products with different specifics and audiences. We have compiled the most effective product pricing models and identified their pros and cons to make it easier for you to decide.
Fixed price, or Flat-Rate, means that you provide the service/product to the customer at a fixed price. Fixed price does not mean that it will never grow – if you add new features, it is logical to raise the price of a product. Also, companies usually limit the period for receiving updates, making the upgrade possible for a fee.
Per User Pricing
The pricing strategy in a Per User Pricing product is much more common than a flat rate. The essence of the model is as follows: one user connects to the service, who pays monthly according to the established tariffs. If another user gains access to the service, the price increases.
Many services work with a similar pricing model in programs. She has several variations. The most popular technique is to provide trial access for several days with a full set of functions, so that the user can evaluate all the features of the service. Also sometimes startups offer a free product with additional paid options/upgrades. There are many examples – Slack, Dropbox. Some sites offer free access until the volume limit is exceeded. The mechanism of operation is similar to Google Drive, which gives you 15 GB of cloud storage for free, and offers its expansion for additional money.
Payment for a service/function
This pricing strategy in a startup is also quite common: the price categories in it are determined by the functionality of the product. The user sees several tariffs with functions and chooses the one that suits him according to the price and the necessary features. The more features in the tariff, the more expensive it is.
This startup pricing strategy is especially popular with online marketplaces. The bottom line is this: there are sellers and buyers on the site. Sellers place an ad about their product or service, the buyer finds the seller’s offer on the site and buys the product. The site charges a commission from the cost of the product: a percentage or a fixed amount. At the same time, the service can take a commission from the seller, from the buyer, or from all sides at once.