Defining Pricing Strategy: What Is It and How Will It Benefit My Business?

Whether a business sinks or swims can boil down to one crucial component: pricing. A pricing strategy will determine the profitability, revenue, market share and overall viability of a company. Extensive analysis needs to be carried out – ready to find out the tactics behind the prices on a tag?

Want to master the language of pricing? We break down all the important concepts here.

Request a demo

What is a Pricing Strategy?

A pricing strategy is a frame of reference for a business to set, alter and manage the prices of their products and services. Price is the amount of money required to purchase a good or service while a pricing strategy weighs internal and external factors to determine this amount.

The Role of a Pricing Strategy in a Business

It is a structured approach that allows them to respond to ever-changing market factors and to determine the most optimal price point. Choosing the right pricing tactics is essential to not only compete in a volatile market but also to communicate the value of a product to a wider audience. Pricing is one of the most critical factors – a lack of market research and customer comprehension can swiftly lead to the demise of a business.

The Different Types of Pricing Strategies

Depending on an organization’s offerings and targets, there are a variety of pricing strategies that can be employed to reach goals.

Value-Based Pricing

Value-based pricing does not depend on historical prices. Instead, this strategy determines an acceptable price point based on the perceived value of the product or service to customers. This customer-focused approach means the final price is set according to the potential benefits or gains the product or service offers.

Dynamic Pricing

Dynamic pricing strategies equip companies to swiftly and effectively respond to the ever-changing market landscape. This approach allows businesses to adjust their prices in real time, taking into account factors such as competition and seasonal demand. PricingHUB’s mission is to help you navigate these changes with our dynamic pricing solutions, enabling prompt adjustments and optimizing your return on investment.

Jadeo, Europe’s leading online destination for party accessories and supplies, needed to update its strategy according to seasonality.

PricingHUB employed separate tactics to better optimize prices for 1) recurring products and 2) once-off events i.e. Christmas, and Halloween. In both scenarios, our customer-centric methodology and elaborate machine learning models assumed pivotal roles in enhancing their strategy. Our Machine Learning (ML) tools carry out extensive analysis of datasets, ensuring that the price is adjusted to meet customers’ needs, no matter what the season.

Penetration Pricing

Psychological pricing does exactly as it suggests – it capitalizes on human psychology to better target customers. Whether you are a business owner or -shopping, it is a strategy that can be observed daily. The 9-digit phenomenon states that customers will consider a price point of $199.99 a good deal, despite essentially being $200.

Skimming Pricing

Skimming pricing is commonly employed when a new product is introduced to the market. Initially, a high price is set to maximize revenue. After the initial demand at this premium price is met, prices are gradually lowered to attract a wider audience and capture a broader market segment.

Competition-Based Pricing

Also known as Competitive Pricing or Competitor-based pricing, the rubric of this strategy is based on the going rate for a product service. Factors such as costs incurred by production or consumer demand are not taken into account. Our solution allows you to tap into competitive data, defining price rules that enable you to respond rapidly to competitors’ adjustments.

Subscription-Based Pricing

A popular pricing model applied by SaaS and streaming companies, subscription pricing involves paying a recurring fee at a regular interval (typically monthly or annually). Tiered subscription services can cater to a variety of customer needs and budgets.

High-Low Pricing

High-low (otherwise known as discount pricing) is one of the most popular pricing strategies. High-low pricing involves setting an initial high and then discounting heavily due to a lack of relevance and seasonality. A stellar example of the appeal of discounted prices is the annually anticipated Black Friday sales.

Cost-Plus Pricing

In Cost-Plus Pricing (also known as mark-up pricing), a mark-up percentage is added to the total cost of producing one unit of a product. This straightforward and widely-used strategy ensures that all expenses are covered. However, it does not take external factors such as competitors or market demand into account. At PricingHUB, we consider all market aspects before determining the optimal price. If you’re seeking a strategy that will truly benefit your business and bottom line, cost-plus pricing should not be your first choice.

Discover the benefits of Machine Learning in our Pricing strategies

Meet one of our pricing experts

Request a demo

Contact-us

Industry-Specific Strategies

Different industries call for diverse pricing strategies; it’s not one-size-fits-all.

E-commerce and Retail

In the e-commerce and retail industries, dynamic pricing is a price optimization strategy that adjusts prices in real-time based on multiple inputs and market dynamics. By fine-tuning prices in response to demand, seasonality, and competition, businesses can strategically attract customers while maximizing profit.

Manufacturing

Cost-plus pricing is widely applied in the manufacturing industry to cover all costs after production. By using the unit cost of a product or service as a core determinant, a company can apply a markup in a bid to ensure a profit margin.
For instance, automotive manufacturers often use cost-plus pricing to account for the significant expenses involved in producing vehicles.

Factors that Influence Pricing Strategies

Pricing is a nuanced matter as there are many factors to consider before settling on a figure.

Customer Price Sensitivity

Customer price sensitivity refers to how a price alteration will impact a customer’s willingness to buy. Businesses engaging with customers with high price sensitivity could adopt a dynamic strategy. Conversely, dealing with less sensitive customers allows organizations to consider more premium pricing strategies. any companies will strategically employ price elasticity data to optimize their strategies and enhance their overall market and customer knowledge.

With the exposure and access to more options than before, customer price sensitivity is at an all-time high. Remaining competitive in today’s ever-evolving markets requires in depth-customer knowledge and the support of pricing tools, like us!

Measuring customer price sensitivity is very challenging in our current markets, pricing solutions as pricinghub can help you….

Market Conditions

Economic conditions exert a major influence on pricing decisions. Inflation, interest rates and general economic stability also can negatively impact consumer spending power. In order to maintain profitability during uncertain periods of recession, price adjustments may need to be made.

Business Objectives

Pricing is a strategic decision and is one that must align with a business’s objectives. Whether the goal is to boost profit margins, increase market share or signal oneself as a premium brand, the pricing strategy will be chosen according to these aims.

Customer-Centric Pricing Strategies

Among the plethora of strategies available, customer-centric pricing strategies have been leading the way. Increased demand by consumers coupled with ever-increasing competition calls for a greater understanding of a target market’s needs. Customer-centric pricing is at the core of PricingHUB – we prioritize forging and maintaining long-term profitable relationships, over short-term and no-repeat transactions.

Learn more about PricingHUB