Determining the Ideal Pricing Strategy for Business Development
When starting a business, pricing is one of the most important things that may seem easy. According to profitwell.com, variations in the pricing of a product can affect revenue by up to 20–50% rather than focusing solely on acquisitions. Unfortunately, less than 5% actually consider the pricing strategy.
Defining Pricing Strategy
Pricing strategy is defined as a set amount of money for your product. It refers to the model or method used to set the best price on a product or service. The goal is to maximize profit and shareholder value while considering consumer and market demands.
There are many factors that need to be taken into account when making a pricing strategy such as revenue goals, marketing objectives, target audience, brand positioning, and product attributes. Pricing strategy is also influenced by external factors such as consumer demand, competitor prices, as well as market trends and the overall economy.
The Most Common Pricing Strategy for Business
The strategy referred to in determining the price of a product is not as simple as calculating production costs and adding mark-ups. In general, here are several types of pricing strategies that can be used in business.
1. Value-based pricing
With value-based pricing, you price your product according to the appropriate value according to the consumer. The application of this strategy is considered the most suitable for this type of SaaS business.
2. Competitive pricing
When using a competitive pricing strategy, you set prices based on what competitors charge. This can be a good strategy in the right circumstances. For example, like when you are just starting a business that is just starting, but doesn't have much room left to grow.
3. Price skimming
If you set your price as high as the market will tolerate and lower it over time, you will use a price skimming strategy. The goal is to explore the market's upper bounds and lower prices to reach everyone. If you choose the right product, it can work if you use it carefully.
4. Cost-plus pricing
One of the simplest pricing strategies is cost-plus pricing. You simply calculate the cost of producing the product and add a certain percentage to it. While it's simple, it's actually less than ideal for anything unless you're selling a physical product.
5. Penetration pricing
If your product market is highly competitive, it will be difficult for a new company to establish a benchmark. One of the ways that some companies try to push new products is to offer a much lower price than competitors.
This pricing step is called penetration pricing. This move may attract consumers and sales volumes well. However, you will need more loyal customers to stay in the event of future price increases.
6. Economic pricing
This strategy is more popularly used in the commodity goods sector. The goal is to price the product lower than competitors and earn more money back. While this is a good method to get people to buy products like coke, it won't work for SaaS products and subscription businesses.
7. Dynamic pricing
In some industries, your business can stay safe by constantly changing prices to match current demand for goods. However, this method will not work well for subscription and SaaS business types.
From the customer's point of view as a target market, they certainly expect consistent monthly or yearly expenses. That way, they will immediately decide to buy your product service for the long term.
When you want to change your pricing strategy, the most important thing in the early stages is to determine the actual value that is being changed. However, what is no less important is determining value metrics, setting the ideal customer profile and customer segmentation, and completing research and experimentation for users.
Through the Marketing Pricing Strategy program designed by Prasmul Eli, you can understand the basic principles that form the basis for pricing. That way, you can also provide optimal benefits for the company.