A Definitive Guide to Pricing Strategies
Pricing products and services such as roof installation can be quite tough. When you set too high prices, you will miss on a valuable sale. When you set prices to be too low, you will miss on stacking up the revenue numbers. Thankfully, pricing doesn’t have to be all that complicated. There are dozens of pricing models and strategies you can implement to help you in better understanding how to get the right revenue numbers for your business. Whether you are a beginner in business or an established veteran, the tactics and strategies explained in this guide can go a long way to make a difference.
A pricing strategy is a model or method that is used to establish the best price for a product or service. It will help you in choosing the best prices to maximize profits and shareholder value while at the same time considering consumer and market demand. Pricing is not always as simple as its definition. There is a lot that goes into establishing the right pricing metrics. Pricing strategies account for many of your business factors such as revenue goals, target audience, marketing objectives, brand positioning, and product attributes. Pricing will also be influenced by external factors such as market demand, competitor pricing, among other factors.
Here are some of the most common pricing strategies you can implement for your business.
Competition based pricing
With this strategy, you will be implementing your pricing based on competition. This pricing strategy is focused on the existing market rate or the going rate for a company’s product or service. It doesn’t take into account the cost of the product or consumer demand. Competition-based pricing makes use of competitor’s pricing as a benchmark. Businesses that compete in a highly saturated space may choose this strategy because a slight price difference may be the deciding factor for customers. With this strategy, you can place your products slightly below your competition, the same as your competition, or slightly above your competition.
Cost-plus pricing strategy
This pricing strategy is solely based on the cost of producing your products or services. It is also known as markup pricing because businesses that use this strategy put a markup on the product to make a profit. The apply this strategy, all you need is to add a fixed percentage to the production cost of your products. This strategy is typically used by retailers who sell physical products. However, it may not be the best fit for the service-based market as these products will normally offer far greater value than the cost to create them.
Dynamic Pricing Strategy
The dynamic pricing model is also known as surge pricing, demand pricing, or time-based pricing. It is a flexible pricing strategy where pricing fluctuates based on market and consumer demand. There are many industries such as event venues, hotels, and utility companies that make use of this pricing method. All they do is apply an algorithm that factors in competitor pricing, demand, and other factors.