Is there a strategy behind the way you price your products?
Product pricing can be the most powerful tool to promote sales. That’s true! However, do you feel uncertain about your current pricing strategy and consider it “not quite right”.
Taking the time to determine the correct pricing can be a powerful growth lever. If you optimize your pricing and get more people to pay higher amounts, you will end up earning more revenue than companies that treat pricing more passively.
There are five main pricing strategies we are going to explore in this video.
1. Cost-Plus Pricing Strategy
A cost-plus pricing strategy is one of the most straightforward ways to price your offers.
Here’s how it works: First, you would determine the total cost of producing and selling your product or service — also known as the cost of goods sold (COGS). This includes product sourcing, packaging, shipping, storage, marketing, overheads, and any other cost required to produce and sell the product or service.
If you want to further reduce the total cost, you must control the source of purchase and find a cost-effective source of goods. A good source of goods reduces the cost of purchasing, packaging, and transportation, which normally are the main part of your total cost.
For example, if you are in the jewelry business, you always feel at ease sourcing from Nihaojewelry. This source supplier is a factory specializing in the production of jewelry, and all their products are factory prices. So the prices of your products are very competitive. As a factory supplier, Nihaojewelry has its cooperative logistics company, which offers the lowest shipping price and fast delivery to customers. In addition, people who are just starting a business or in small businesses, often don’t want too much cash investment. A supplier like Nihaojewelry that does not need a minimum order quantity is necessary. Buying 1 piece is the same price as buying 1,000 pieces. These are all key factors to consider when looking for a source supplier and have a wiser pricing strategy.
Once you’ve determined the COGS, you would apply a fixed percentage to make a profit. This is why the cost-plus pricing model is often referred to as ‘markup pricing.’
2. Competitive Pricing Strategy
Competitive pricing — also known as competition-based pricing — follows the going market rate for a product or service.
When using this pricing strategy, you would research the prices offered by your closest competitors and price your offers similarly. Just be careful not to join a ‘race to the bottom’ — this is when businesses keep undercutting each other in an attempt to win more business but inadvertently drive down profits for everyone.
This pricing strategy also works well when you’re able to price your product or service similar to competitors, in addition to offering extra features, perks, or benefits that your competitors don’t offer.
3. Psychological Pricing Strategy
If you’ve ever walked into a discount store, you’ve experienced psychological pricing firsthand.
This pricing strategy is all about using human psychology principles to increase sales. A common tactic is ‘charm pricing’ — when a price ends in 9, 98, or 96 to make it feel cheaper than it is. This works because when people read from left to right, the number appears smaller.
Another psychological pricing tactic is called price anchoring. It works by anchoring the price high and then offering a lower price to make the price seem like a good deal. For example, “$100 NOW $69.”
4. Bundle Pricing Strategy
Whenever you offer two or more products for a single price, you’re using a bundled pricing model. A classic bundle pricing strategy example is when fast-food chains like Burger King’s offer meal deals.
5. Hourly Pricing Strategy
When you give a low price at a fixed time, it will be more attractive. Because the price is lower than usual, and the time for this low price is limited. People have a sense of urgency because, after this time, there will be no such cheap price.
This is also a common method for merchants to do low-price promotional activities, and the sales effect is usually good.
You can combine multiple strategies together to create the perfect pricing for your offer. Ultimately, huge profits come from competitive prices. The competitive price given by the right supplier, coupled with strategic pricing, can make your sales grow rapidly.
Do you have a better way of pricing? Are you confused about finding a suitable supplier? You are welcome to share with me in the comments section below.
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