One of the critical activities relating to revenue generation is selecting the right Price,(4P’s are Price, Place, Promotion, and Product) for your product/ service.
But for this posting we will only talk about which pricing strategy is appropriate for your company; but let’s first review some basic terms.
Price is an amount of money or value that is given in the exchange of goods or services.
Pricing strategy considers your targeted market segments, market environment, your competitions, internal financial goals, buyer’s payment process, timing international exchange issues and most important, your company’s goals and objectives.
Some of the pricing objectives can be: profit/margin objectives, increasing market share, ROI goals, maintaining/holding sales volume or defending your market share.
Some pricing attributes are: list price (published price), discounts, and credit terms.
Given that, let’s look at a few (this is not a complete list, but gives you a range of ideas to work with) pricing strategies in more detail.
- The ROI pricing strategy uses the return on investment calculation to set the product price based upon defined time and profit structure.
- The Price skimming strategy is where goods are sold at higher prices so that fewer unit sales are needed to break even, versus a Penetration pricing strategy, which entails setting the price low with the goals of attracting customers and gaining market share.
- Freemium price strategy is offering a product or service free of charge and then charging a premium for advanced features or functions.
- Marginal pricing strategy is setting the price of a product to equal the extra cost of producing an extra unit of output.
- Aggressive (predatory) pricing strategy is used against competitors. It is illegal in some countries
- Premium pricing strategy is the practice of keeping the price of a product or service artificially high to encourage favorable perceptions among buyers.
- Price discrimination strategy is setting a different price for the same product in different market segments.
As you can see, a pricing decision is not one dimensional, but must be looked at from various aspects.
Most importantly, does your pricing strategy support your company’s goal(s) and objective(s)? If not than you are wasting a lot of time, energy, money and resources!