Setting up a pricing strategy

Not sure which pricing strategy is best for your product or service? Learn more about how to implement a pricing strategy effectively using a next-generation pricing solution like PricingHUB’s artificial intelligence.

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Penetration Pricing
Price Skimming
Predatory Pricing

Strategic Alignment
Price Discrimination
Competitive pricing

Economy pricing
Price Anchoring
Bundling strategy

What is a pricing strategy?

A pricing strategy, or pricing strategy, describes all the decisions and actions taken to determine the price of a good or service. It is essential for a company and is one of the areas of the marketing mix in which it needs to develop a strategy to establish itself in a market.

This is a key decision, since the company’s future may depend on its pricing strategy. Indeed, by applying an appropriate and well thought-out strategy, a brand can acquire crucial market share or a reputation that will boost its sales in the future. Conversely, if a pricing strategy is applied without proper prior study, the brand’s image can be tarnished for a long time to come, and customers will move away from your company.

How do you set up a pricing strategy?

Traditionally, a company must carry out a competitive analysis and a market study before implementing a pricing strategy. This involves analysing the prices set by competitors for similar products in order to get a clear idea of the key points in the market. One of the many points to analyse is the price elasticity of demand, which is linked to the psychological price. In other words, you need to know how much your target is prepared to pay for your offer or service. At the same time, you need to determine its internal profitability. Knowing the cost of the product will help you determine the selling price and the margin you want to achieve. Finally, a company wishing to implement its pricing strategy must also take into account its positioning and product range. It is on the basis of all this information that a pricing strategy can be properly established.

How can a price be set?

There are two common ways of establishing an average price before embarking on a particular pricing strategy:

Firstly, you can establish your prices by marking up costs. This simply involves calculating your product-related costs, such as production costs or other miscellaneous variable costs, and then adding a profit margin.
Alternatively, you can choose to base your prices on the value of the product or service on offer. To do this, you need to be aware of what your product represents in the eyes of customers in order to determine what price equates to that.

Fnac Darty puts the customer at the heart of price definition

Find out how Fnac Darty measures consumer price sensitivity in order to adapt quickly to the market and anticipate changes.

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Different pricing strategies

There are different pricing strategies, and each one corresponds to a particular situation.This is why, before determining the appropriate pricing strategy, it is important to be aware of the context and the market in which the company operates, in order to define the most appropriate pricing strategy.

Skimming strategy

The skimming strategy consists of setting a very high price to reach customers with high purchasing power. It’s a strategy that ‘skims’ its customers, to maintain a top-of-the-range image and a clientele with high purchasing power.This strategy is applied in particular to luxury products.

Penetration strategy

The penetration strategy consists of applying a low price to gain a foothold in a new market.This strategy is usually applied in markets where competition is strong. By applying a much lower price than its competitors, the company wins over and retains a large proportion of demand, and becomes profitable through sales with lower margins but high volumes. This strategy is particularly common in the telephony and telecoms sectors. Predatory pricing is another low-price strategy, which is much more aggressive towards competitors.

Alignment strategy

The alignment strategy consists of setting prices in line with those of competitors so as to enter the market while avoiding a price war.This strategy is generally applied to food and consumer products.It allows you to develop your products without necessarily attracting too much attention from the outset, so that you have more room for maneuver later on.

Price discrimination strategy

The price discrimination consists of setting prices for the same product or service based on various customer segments, such as age, location, purchasing behavior, or time of purchase. This strategy allows a business to maximize revenue by capturing the varying willingness to pay among its customers. By segmenting the market and setting prices accordingly, companies can optimize their profits while catering to different customer needs. However, implementing price discrimination requires a thorough market analysis to ensure fairness and compliance with regulations, as well as an understanding of consumer behavior to avoid potential negative perceptions. When executed properly, price discrimination can be an effective tool to enhance market penetration, customer loyalty, and overall profitability.

Modulated pricing strategies

The aim of these strategies is to vary prices constantly in order to adapt to the market and its situation. This can be done in 3 different ways:

Differentiated pricing strategy: a different price is applied to the same product depending on segments such as the customer segment, the distribution channel, the location or the socio-economic situation.
Optional pricing strategy: the company offers various options, supplements and extras for a given product, which can be applied when the product is purchased.

Yield management strategy: mainly applied in the tourism and transport sectors, this strategy aims to adjust prices on a daily basis to maximise and optimise available capacity and occupancy.

Use PricingHUB to implement a successful pricing strategy

With PricingHUB, the next-generation pricing Saas, you can implement your various pricing strategies easily and efficiently. The artificial intelligence used by the platform enables you to analyse your market and determine the price elasticity of your targets for your products and services through continuous testing.

The platform also enables you to effectively automate pricing in line with the commercial objectives you have defined. The implementation of a pricing strategy takes so many factors into account that it is preferable to rely on big data analysis and elasticity tests for successful implementation.
Thanks to machine learning, you can put in place the pricing policy you want: skimming policy, penetration policy, alignment policy, etc.

The success story of a company that has placed its trust in us: LaFnac

La Fnac of our many customers is La Fnac, which has undergone a meteoric rise since it started using our artificial intelligence. In fact, thanks to our AI, the company has seen €700,000 in additional revenue, a 1% increase in turnover and a 5% increase in margin.

So, like La Fnac, don’t hesitate any longer and put your trust in PricingHUB to optimise your pricing policies.Unleash the power of your pricing now, contact our team of experts for a free demonstration.