The 5 most common pricing strategies | BDC.ca

How to price your product: 5 common strategies

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Figuring out how much to charge for your product—for example, determing whether it's more practical to charge by unit or through yearly contracts—is ultimately a strategic planning question.

In fact, the pricing of a product is one of the most important aspects of your marketing strategy, which also includes product, promotion, placement (or distribution) and people.

Generally, pricing strategies include the following:

  1. Cost-plus pricing—simply calculating your costs and adding a mark-up
  2. Competitive pricing—setting a price based on what the competition charges
  3. Price skimming—setting a high price and lowering it as the market evolves
  4. Penetration pricing—setting a price low to enter a competitive market and raising it later
  5. Price bundling—combining products and/or services to increase value, and therefore price

Your pricing strategy should be part of both the marketing mix and the general business strategy. If yours is a new company, you must establish yourself in the marketplace, and so would likely want to generate cash flow through some form of penetration pricing.

If you are established, you probably already have built up some trust in the marketplace, so you can apply one of the other strategies, such as premium pricing, or bundling. Either way, you must use a strategy appropriate to your target market.

All pricing strategies are two-edge swords. What attracts some customers will turn off others. You cannot be all things to all people. So you have to pick your primary customer segment and price based on that segment’s needs and buying behaviours.

To sum up, if you can be patient about selling to a particular kind of client, go with the targeted premium-pricing model. If you are trying to break into a market, use the penetration-pricing model.

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