Top 10 Strategies to Price Your Products
Pricing strategies hold enormous significance for all kinds of businesses. With growing internet penetration and the booming eCommerce industry, it has become all the more important for online vendors in India to choose the right pricing strategy for their business. Setting the appropriate prices results in enhanced sales, better conversion rates, and a higher competitive edge.
Pricing Strategies: Factors to Consider
Owners of eCommerce businesses need to consider the following factors before fixing the prices of their products:
Advertising and Other Expenses
The choice of your pricing strategy depends upon which of the above parameters are favorable for your business and which are not.
Pricing Strategies: 10 Ways to Set the Product Prices
Given below are 10 smart techniques to figure out the perfect price for your products:
1. Discount Pricing
Customers always love special deals, discounts, and seasonal sales. No doubt, Discount Pricing is the most popular pricing strategy among retailers. In this, the products offered at a high price are marked down to sell them in greater volumes.
Discount Pricing is especially used when sellers want to get rid of the out-of-season and old stock. This will not only increase traffic to your online store but also lead to improved customer loyalty. However, it is better not to deploy this strategy too frequently lest it hampers the reputation of the retailer.
2. Loss-Leader Pricing
Loss-Leader Pricing is another form of discount pricing, in which the online merchants encourage their customers to buy additional products by offering one or more of them at much-reduced prices. In other words, the low-cost products are combined with the high-cost ones to persuade the customers into buying more products. It is an aggressive pricing strategy that works well in raising the overall sales per customer and compensates for the profit loss caused by cutting the cost of the original product.
However, as in the case of discount pricing, loss-leader pricing should be used occasionally since it narrows down the profit margins.
3. Premium Pricing
As the name implies, the Premium Pricing strategy involves setting your product prices above those offered by the competitors. This creates a halo effect of your brand and attracts buyers who are looking for high-quality, luxurious products. While products may not appeal to the price-sensitive shoppers, it does boost your base of high-end customers.
Owing to their positive perceptions, a number of premium products end up being the best-selling products online. However, this strategy needs to be carefully implemented as the customers can prefer to buy elsewhere if they get the same quality product at a lesser price.
4. Competitive Pricing
Competition-based pricing, or competitive pricing, is a market-oriented strategy that relies on competitor data for product pricing decisions. In this technique, the sellers set the prices of their products at comparable rates with their competitors. Depending upon the quality of the product, it is priced lower or higher relative to the competitor's price.
Competitor pricing proves effective in expanding the target audience yet prevents sellers from hiking the cost of their products.
5. Psychological Pricing
Also known as Charm Pricing, the Psychological Pricing strategy delves into the psychological behavior of the customers instead of their rational decision-making patterns. For example, a product priced at Rs. 999 has a greater emotional appeal than a product priced at Rs. 1000. Charm pricing often prompts people into impulse buying and thus, significantly pushes the number of sales.
But the method is not suitable for high-priced and good-quality products as it lessens the profit margins.
6. Anchor Pricing
Anchor Pricing is another sort of psychological pricing strategy in which the retailers clearly mention the original as well as the discounted prices of their products. Also called Reference Pricing, this approach is commonly used for eCommerce selling as the shopping websites allow for a side-by-side display of the regular price and the decreased one. In this way, Anchor Pricing makes the customer think that they are getting fantastic deals on products.
However, this strategy escalates the level of competition and diminishes the profit margins.
7. Multiple Pricing
Multiple Pricing, also known as Bundle Pricing, is utilized to sell several products in one bundle. This method is typically employed to sell products online, especially in the case of apparel and grocery business. For instance, a merchant may offer track pants, sweatshirt, and cap in one set and sell it at a lower price than the total cost of individual products.
Just like loss-leader pricing, multiple pricing helps the sellers in generating high volume sales per customer.
8. RRP-based Pricing
Another common pricing strategy, RRP (Recommended Retail Price) or MSRP (Manufacturer's Suggested Retail Price) method, basically intends to standardize the pricing across all retailers at different locations. This technique is especially beneficial in the case of household appliances and consumer electronics which are usually mass-produced.
It is a type of cost-based pricing that considers the manufacturing costs, profit margins of the retailers and the manufacturer, and the cost of similar items of other brands. Although MSRP-based pricing is regarded as quite efficient and safe, it doesn't give the sellers a good competitive edge.
9. Keystone Pricing
Keystone Pricing is another simple technique that saves retailers from working out complicated rules for pricing their products. In this method, the products are priced double the value of their wholesale cost and bring about sufficient profits. However, the marked-up price may be too high or too low with respect to the prevailing market conditions like demand and availability of the product.
10. Dynamic Pricing
Dynamic Pricing also called Surge, or Demand Pricing is a time-based method that entails modifying the prices of products as part of the changing market environment. In this strategy, the prices are altered on a weekly or daily basis. Dynamic pricing technique works great for maximizing profits and propelling sales. However, the method cannot be used in every situation and tends to mar the reputation of the brand if used too often.
Today, several people start their work by setting up products to sell online from home before establishing physical stores alongside. In view of emerging eCommerce trends, retailers are generally required to vary their strategies periodically. Simply stated, there is no one perfect pricing strategy for every online seller. Hence, it is best to adopt a blend of reliable techniques that are appropriate for the kind and size of your business.