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Pricing is one of the most important factors for any business. Setting prices too low or too high can limit a brand’s growth. How much a brand charges for a product or service will directly affect how much it will sell. Understanding pricing strategies can make or break a brand’s marketing efforts and, getting the price right can result in a huge revenue boost.
A good pricing strategy can help determine a price point where brands can maximise profits on each sale. Pricing can also be used to represent the brand identity as the price is often perceived as a mark of quality (high price) or value (low price).
6 Pricing Strategies
Pricing at a premium
With premium pricing, brands are able to set higher prices than their competitors. Premium pricing works best during the early days of a product’s life cycle and is great for small businesses who are offering unique products and services.
For customers that are willing to pay a premium price, brands must work hard to create an excellent value perception. This means that, along with a high-quality product or service, brands using this pricing strategy need to be super-sizing their brand marketing efforts to create the emotional connection with their target customers as well as paying attention to packaging, excellent store experience and more.
Pricing for market penetration
The main goal of market penetration is to attract consumers by offering lower prices. Many new brands use this tactic to lure buyers away from the competition. The downside of penetration marketing is that it can result in a short term reduction in profitability as the brand increases market share. Nevertheless, when consumer awareness is increased, this strategy can drive significant long term profits for a brand. In the long run, once the market is sufficiently penetrated, brands can then raise their prices to reflect their position in the market.
Economy pricing is aimed at attracting price-conscious consumers. This strategy is widely used by businesses in the generic food supply and retail industry. Businesses keep the cost of their products low by minimising the costs associated with production and marketing. This strategy is a good choice for big companies but, can be dangerous for smaller brands who lack the volume of sales that large corporations enjoy – so they may be unable to profit when prices are kept low.
A price skimming strategy enables businesses to improve sales by setting high prices on products and services during its introductory phase. The business then lowers the prices gradually as competitors appear on the market. The main benefit of a price skimming strategy is that brands can maximise profits at an early stage before dropping the prices. Once the price drops, the company can then target price-conscious consumers.
This unique pricing strategy is based on creating emotional value of the product or service with consumers. For example, the practice of setting prices just below full monetary units – $99 instead of $100. The general reasoning behind this strategy is that consumers tend to focus more on the first number than the last. Psychology pricing aims to increase demand through the illusion of enhanced value.
Small businesses utilise bundle pricing to accelerate sales. This enables brands to sell multiple items for a lower price than when bought individually. This strategy is one of the best ways to move dormant stock fast as well as increasing value perception for consumers.
Tools for pricing strategy
Both retailers and ecommerce brands can take advantage of various pricing tools. These tools are amazing when it comes to optimising prices and keep the brand ahead of the competition. Some of the tools to check out are, Omnia Dynamic Pricing, Repricer Express, and Repricer.
How can e-commerce brands manage price perception?
Price perception is defined as the way consumers perceive a brand’s price level. It creates a distinction between the customer’s perception and the actual price of an item. As with many other factors, perception can be different from reality, so in the realm of pricing, what matters is how customers perceive a product price. For example. Even though a company may have the lowest price possible, if consumers think that it’s too expensive, it will not be able to accumulate sales.
There are different strategies for improving price perception for example:
- Offering low prices
- Marketing the items with these low prices
- Offering deals
- Tailoring the customer experience
To know which strategy to use, brands must gain a better understanding of their current price position against the customers’ perception. Checking your prices against your competitors’ can also reveal any price gaps. Understanding consumers’ perception will reveal how these gaps are perceived.
What brands need to know about Neuromarketing
Neuromarketing is a field which explains the way in which consumers shop in terms of unconscious decisions. It is a study on the role that emotions play in a consumer’s buying decision. The goal of neuromarketing is to understand everything relating to the consumers’ experience. Many researchers want to know how buying decisions are influenced, and in doing so, the aim is to improve customer attraction and retention. Neuromarketing is applied in almost every industry today and, some of the most common examples are:
The right packaging
Neuromarketing is used to re-imagine presentation and packaging. Neuromarketing takes the role of packaging onto a whole new level by studying what consumers want to see. For example, brands such as Campbell’s Soup and Frito-Lay have utilised neuromarketing in order to redesign their packaging. The companies studied what consumers want including the type of colour, text and imagery that they want to see.
Colour is important
Brands should familiarise themselves in the ways that colour can affect the buying decision of consumers. When choosing the colour, take into account how it may make the customer feel. Colour plays an important role in evoking different emotions and, using the right colours can have a powerful effect on marketing and sales. Many neuromarketing experts have divided different colours into subgroups that can be used for targeted marketing. For example, blue is the best choice if brands want to target professionals.
One interesting finding that neuromarketing has revealed is that many consumers have a “fear of missing out”. This is the reason why brands greatly rely on timed offers as these play on the fact that people are simply worried that they may lose out on a deal.
Use Gaze to Direct Attention
When creating ads with the image of a person or animal, make sure to strategise their gaze. James Breeze published a study on the power of a person’s gaze in an advert. According to the results of the study, “When the subjects were shown an ad with the baby looking straight out of the page, the viewers become fixated on the baby’s face, and paid less attention to the heading and ad copy.” You can direct the audience’s gaze with visual devices such as water falling on the product (Clinique) or have a person engaged in using the product to draw focus to the product.
The power of 9
There is a reason why products are priced at $5.99 instead of $6 and it is all down to the pricing psychology behind the number 9. Some brands call this phenomenon “charm prices” which can be very effective. In an experiment conducted by MIT and the University of Chicago, among items priced at $34, $39, and $44 – products sold at $39 were the best sellers despite being mid-priced.
The long and the short of it
According to Les Binet and Peter Field, who published the research ‘The Long and the Short of it: Balancing the short and long-term effects of marketing’, brands can create a recipe that will make advertising effective. However, the kind of ingredients that marketers use will establish whether a brand achieves short-term or long-term effects.
According to Field, a brand will be able to achieve long term success when it has an emotional connection with its prospects. This means that, whilst strategic pricing is important, emotional connection is still the better predictor when it comes to consumers making a purchase.