Pricing strategy - an underestimated element of strategic planning

Service Business

The functioning and development of a company depends primarily on the profits it achieves. Therefore, the right pricing strategy is one of the basic and at the same time the most important elements of planning. Price is a magical concept, because we deal with it every day and everywhere. All products and services have a specific value. It tells us which product we are dealing with: usually more expensive items, the so-called Branded ones are of better quality, and the cheaper ones are worse. So let's find out how to set the right price for the products offered in your company.

What is a pricing strategy?

A pricing strategy is establishing the value of the products or services we offer that allows the company to make a profit. It is also worth that the target recipient, i.e. the customer, remains satisfied with the level of the agreed prices. Or at least that the ceiling of our prices should not be a purchase barrier for him.

What pricing methods are most often used by companies?

Creating a pricing strategy is often neglected by traders. Most often, prices are set in such a way that a certain margin is imposed on the value of manufacturing or purchasing a finished product. On what level? Its amount is calculated according to the "random" method, without carefully checking the market prices and without any specific strategy.

Another popular way is to equate prices with competition. In this case, the entrepreneur optimistically assumes that the competition knows what they are doing when applying a certain level of product or service value on the market.

Neither of these ways is perfect, to put it mildly. Adding a margin to the value of the product may cause the price to be too high, which will discourage customers, or too low, which in turn will result in too little profit and, as a result, financial problems for the company. Adjusting prices to the competition also does not seem to be the best idea - we have no guarantee that what others are doing is good and in what financial situation the competitors actually are.

Pricing strategy - why is it worth creating?

The simple but ineffective pricing methods mentioned above should convince every entrepreneur to rethink the pricing of products in their own company. However, if they are not convincing, below are three specific reasons for creating rational pricing strategies.

  1. Introducing a pricing strategy allows you to avoid making chaotic decisions and making decisions on the spur of the moment. Careful planning of this element of the marketing mix (price) makes it possible to increase the effectiveness of activities, which translates into a greater chance of achieving the assumed goals. Besides, business goals and price levels are largely closely related to each other, because the goal the company is pursuing may turn out to be the maximization of short-term profits or, on the contrary, a long-term image building strategy and focus on achieving income in the long term.

  2. Thanks to an appropriate pricing strategy adapted to market conditions, we have a better chance of keeping customers with us and acquiring new ones.

  3. By choosing one of the types of pricing strategies, we effectively influence the image of our company on the market. By setting high prices for products we define as "luxury", we create the image of an elite company, where high quality has to be paid more. By focusing on low prices, we increase the availability of our brand to a large group of recipients.

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5 rules for creating a good pricing strategy

Since we already know that it is worth creating well-thought-out pricing strategies based on rational premises, then let's answer the question: how to do it right?

Each business venture has its own specificity and character - creating a pricing strategy should always be an individual matter for a specific company. However, it is worth paying attention to a few universal issues:

  1. The pricing strategy should be closely linked to the company's overall business strategy and the processes taking place in it. As the company's business goals change, the pricing strategy should also be modified.

  2. It is worth conducting a thorough analysis of the competition and estimating the thresholds / price categories in which it is the smallest. A good solution is to "shoot" with our price in the least competitive category, provided, of course, that we offer a similar quality of services.

  3. You should get to know your client well, and especially his needs. Thanks to this, it is more likely to determine how much he will actually be ready to pay for our product. In addition, knowing the needs of the target group well, we can offer its representatives exactly the product they need and the purchase of which will bring specific benefits for them.

  4. Many companies create products in several price ranges, which allows them to reach customers with different wallets. If this is not possible, then you should consider creating product packages with different prices, e.g. with additional services.

  5. Customers are attracted by promotions, sales, loyalty programs in which they receive points to be exchanged for "free" goods. When establishing a pricing strategy, it is worth making a plan of such services. The offer can include a discount for the first purchases, a percentage discount for regular customers, loyalty programs or periods of super promotion.

Examples of pricing strategies used in practice

Among the many types of pricing strategies used by companies, we can mention the following:

Skimming strategy

A strategy usually used for new, innovative products and for the so-called Prime Minister! or "new!" type products. It involves the use of inflated prices for a short time when a new product appears on the market. Many customers who want to buy an exclusive, fashionable product are willing to pay more to feel like a customer who is up to date with all the news.

Low price strategy

Used to gain a large market share, at the cost of greater profits in a short time. Such a strategy may also be aimed at preventing competitors from entering the market.

Prestigious pricing strategy

It mainly concerns exclusive and prestigious products. Introducing higher prices of highly reputable products very often allows you to increase their sales.

Pricing strategy

The most popular example here is the famous 99 cents. Such an approach to the price may cause a significant increase in sales, the price of PLN 19.99 for many customers seems much lower than PLN 20.00. The same applies to the difference between the full price and the "penny" price - according to research, for customers the price of PLN 200 is definitely more attractive than PLN 200.00. It is worth noting that the recent experience of the e-commerce industry in Poland shows that they convert endings with the number seven - 77 groszy or 97 groszy better than the traditional endings of 99 groszy.

Pricing strategy - summary

When planning the development of your company, analyzing the competition, creating business plans, let's not forget about creating a pricing strategy. This will allow for the systematization of financial issues and more effective planning of the anticipated profits.