A Simple Guide to Pricing Strategies

Setting prices for products and services such as roof installation can be tough. When you set prices too high, you miss out on valuable sales. When you set them too low, you miss out on valuable revenue. However, pricing doesn’t have to be complicated. There are many pricing models and strategies that can help you in better understanding how to set the right prices for your prospects.

Pricing Strategy

A pricing strategy is a model or method that is used to establish the best price for a product or service. It helps in choosing prices and maximizing profits and shareholder value while at the same time considering consumer and market demand. Pricing is not as simple as its definition. There are a lot of issues that must be considered. Prices are also influenced by external factors such as consumer demand, overall market, and economic trends a well as competitor pricing.

Here are the most common pricing strategies you should be familiar with;

Competition-based pricing

Competition based pricing is also known as competitive pricing. It is a pricing strategy that is focused on the existing market rate for a company’s products or services. It doesn’t take into account the cost of a product or consumer demand. It is focused on using the competitor’s prices as a benchmark. Businesses that compete in highly saturated spaces may choose this strategy because a slight price difference may be the deciding factor for consumers.

Cost-plus pricing strategy

This type of pricing strategy is solely focused on the cost of producing your products or services, in what is known as the cost of goods. Businesses using this strategy add up a markup on their products based on the profit they want to make. To apply this strategy, add a fixed percentage to the production cost of your product. This form of pricing is mostly used by retailers who sell physical goods.

Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing or time-based pricing. It is a flexible pricing strategy when prices will normally fluctuate based on the market and consumer demand. Most of the industries that apply dynamic pricing include hotels, event venues, airlines, and utility companies. They normally apply an algorithm that considers competitor pricing, demand as well as other factors. These algorithms allow companies to shift pricing to match when and what customer is willing to pay at the exact moment they are willing to make a purchase.

High low pricing strategy

A high-low pricing strategy happens when the company initially sells a product at a high cost but lowers the price drops depending on relevance. What makes the price drop include factors such as discounts, clearance sales, end year sales among others. This is why this pricing may be called a discount pricing strategy. This form of pricing is mostly used by retail firms who sell seasonal or constantly changing items such as clothes, furniture, and decor.

Another pricing strategy is an hourly pricing strategy that is used by consultants, contractors, and freelancers who provide business services. Hourly pricing is essential when trading time with money.

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