In the four P’s of marketing as propounded by E. Jerome McCarthy, pricing is one of the crucial decisions of marketing. Hence, choosing the right pricing strategy is one major decision that often keeps most business owners up at night.
Some of the questions that come to mind when choosing a pricing strategy are
- Should you sell a little lower than your competitors?
- Should you sell at about the same price range as your competitors?
- Should you just set your price higher than every other person’s and position it as a luxurious brand?
Usually, most business owners go for option one; they build their marketing strategy around low prices. However, when it comes to pricing strategies for entrepreneurs, there are several strategies available to you. In this article, I’ll walk you through a good number of them. In the end, you should be able to choose which works perfectly for your type of business.
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What is Pricing Strategies?
Pricing strategies are the methods or models used to determine the best price for a product or service. Picking an ideal pricing strategy is not as simple as the definition — there is a lot to consider.
Furthermore, there are several factors and variables that affect pricing, such as product attributes, revenue goals, target audience, marketing objectives, and brand positioning.
Picking a suitable pricing strategy for your business is so important because, overall, it determines whether or not you win in business. Let’s quickly examine some of the pricing strategies available for you to choose from.
7 Pricing Strategies for Entrepreneurs in Nigeria
Below are a few common types of pricing strategies you can adopt.
For this strategy, you add up the entire cost incurred in production or required to deliver the service; then, you add a particular percentage to the subtotal — known as mark-up.
Many business owners find this strategy quite straightforward and time-saving. Furthermore, how big your margin goes is entirely your decision to make, depending on what range you consider profitable.
Value-based pricing, as the name suggests, aims to set the price of a product or service based on the customer’s perception of its value or worth. The operative word here is the perception of value; hence to use this strategy, you need to do a few things.
- Understand what your potential customers pay for a similar product/service. This shows you what their price expectations are.
- Then find the competitive advantage of your product/service over that of the competition and put a monetary value on it.
- Your next and final goal is to be able to convince your potential customers of the superior value of your product/service over the competition. Potential customers will always require justification for why they must pay a higher price for what they can get cheaper.
According to Eric Dolansky, Associate Professor of Marketing Brock University, “How much the customer is willing to pay for the product has very little to do with the seller’s cost and has very much to do with how much they value the product or service they’re buying.”
Therefore, it is your core marketing responsibility to influence their perception of the value of your product/service offering through your messaging.
Brands that use freemium pricing build their revenue model around offering certain products or services free of charge with the aim of drawing in leads and prospects whom they then charge a premium for related products and services, VIP/VVIP experience, advanced features, or functionality. An example of this is how many subscription-based services offer a certain number of days as a tester period for prospective customers to explore their offering and then decide whether or not to subscribe after the trial period. The number of days can vary from 3 to 7 days, 14 days, or even a month — the decision is yours.
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In a nutshell, with a competitive pricing strategy, you decide what to charge based on what your competitors are charging. You either sell at the same price — aka cooperative pricing or you sell lower than the competition, aka aggressive pricing.
Competitive pricing is largely reactive. Your focus is always on what your competition is doing, which is often a bane in decision making.
Premium pricing is keeping the price of your product or service artificially high with the goal of creating a perception among buyers that your product is luxurious and reserved for some certain class of people within the society. A good example of a product that adopts this strategy is Lamborghini. The luxurious car brand uses extremely premium pricing built around the perception that it offers class and elegance.
The principle with which this pricing strategy operates is that you could set a high price at the point of market entry, so you recoup your product development expenses from the early adopters. Subsequently, you can then lower your price as the market evolves, which enables you to also accommodate the price-sensitive customer segment.
This strategy only works if there is a sustained desire and demand for the product; however, this is not always the case for every new product.
This is quite similar to price skimming, except that for this strategy, you set a low price at first so you can gain entry into a very competitive market. Subsequently, as the market becomes aware of your product/service and the quality, you then raise your price.
There is no such thing as a perfect pricing strategy; you simply need to pick one that’s ideal for you. To do this, you need a good understanding of your market and the factors that can affect the demand for your product. Some of such factors to consider will include your cost of production, your target customers, your competition, and how you would like to position your brand in the market.
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- Ajayi Olalekan is a Professional SEO writer & editor with 8+ years of print journalism and writing experience across different platforms — blogs, website, eBooks and social media. His writing experience also cuts across industries like IT, fashion, education management, real estate, consulting and entertainment.
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