Setting the right pricing for a product and service is crucial in every business. However, pricing can be tricky. On the one hand, low-cost products may be perceived by some consumers as cheap and low-quality. On the other hand, an expensive product means not everyone can afford it and may only be meant for the rich and famous.
Product pricing can also affect the public’s perception of a brand. It also depends on the brand’s target market and their purchasing power. It can be a little complicated, especially if it already involves retailers. That is why a minimum advertised price (MAP) policy exists to benefit both manufacturers and retailers.
As mentioned, pricing can be tricky and can make or break a business. Price your products too low, and it may lead to bankruptcy because it may not cover the operational expenses and your employees’ salaries. Price them too high, and no one would want to buy your products. Like in the story of Goldilocks and the Three Bears, your pricing should be “just right.”
Pricing is an essential part of the marketing mix yet often taken for granted. However, companies should actually pay attention to how they price their products. After all, how can their target consumers purchase their products if they have no price?
Types of pricing
That said, there are different types of pricing that a lot of companies usually apply to their products and services. These are the following:
Economy pricing
This is a type of pricing that is intended to be more affordable for all consumers. A lot of supermarkets offer brands at low prices. The same applies in airline seat sales wherein the first few airline seats are sold at a promotional price. However, quality may be questionable at some point.
Price skimming
This refers to the pricing type wherein a brand sets the product pricing higher due to its perceived value. However, this pricing scheme may not be for the long-term, especially if there are new market entrants. These new competitors would usually introduce similar products at a lower price. To keep up with the competition, the original brand would lower its price as well.
Penetration pricing
This is somewhat opposite with price skimming. It may also be referred to as “introductory pricing.” Initially, the products will be sold at a low price — some even have additional freebies to attract buyers. But the more buyers the brand has, the latter will then hike up the price and take advantage of their increasing number of consumers.
Psychological pricing
One perfect example would be stored pricing their goods with 99 cents instead of $1. Apparently, this kind of pricing can be effective in thinking that it is more affordable than others. If you are a customer, would you rather buy a product worth $5.99 or $6? The former may seem cheaper, but it will depend on your choice and how you perceive value for money.
These are only some of the common pricing strategies that companies apply to their products. However, pricing will mostly depend on your target market, the type of products or services you are offering, and the branding itself.