In this day and age, it seems everyone is either buying or selling products online. Either as small online businesses, or a merchandise as a part of a social media marketing plan, or even drop shipping products from other sellers. One thing they all have in common: they must all set a price for their product.
Why Price Is Important
Consumer behavior studies show the purchasing habits of consumers will always take into account the price of a product before they make a purchase. Many new business owners make the faulty assumption that a lower price is always the best way to go. On the contrary, price is reflective of how much a potential customer deems your product is worth paying for. In other words, extreme highs and lows in price are bad for business.
Here’s an example: Many people will search for a bargain price when searching for new smartphone models, leading marketers to believe that advertising at a low price will attract buyers. Apple’s smartphones are consistently higher in price than other models released in the same year, despite having very few extra features sometimes. Apple continues to choose a higher price point for its products because its marketing strategy implies that they value their products at a higher price. Thus, their consumers also assume that their products are worth the price tag. Consumers tend to assume that expensive products are of higher quality, and are more valuable.
Pricing Strategies To Consider
Marketing professionals may state that there are 4, 5, or even up to 7 different marketing strategies. The concepts that are applied to design these strategies remain unchanged, and only the method that is used differs as the product changes.
We’ve already gone over a pricing strategy that values products at an extraordinarily high price point. These are a few other common pricing strategies you should take into consideration when setting a price for your product.
Lower Than Your Rivals
This is one of the more obvious pricing strategies. It is a common tactic for business owners to choose a lower profit margin, so long as they are at a lower price when compared to others in the market. It is important, however, not to go too low. If the price is extremely low it risks being viewed as the lower quality product, and consumers will prefer to spend extra money (if they can) on the higher-priced products.
For some types of subscriptions or other low-priced items, marketers choose to focus on the fact that their price is lower than that of an everyday purchase of negligible price. For example, an insurance company can advertise that their plans cost less than buying a cup of coffee every day. When you add up the price of 30 cups of coffee, the plan doesn’t sound so cheap. However, people rarely make that direct mathematical connection and might think that they are getting a bargain. This makes the marketing strategy effective at attracting new customers.
Free Now, Pay Later
For large purchases that are usually paid in installments to keep them affordable, many businesses choose to forgo the first installation, even the first few. In this way, people may be tempted to make a purchase even if they do not have money for a down payment. This is especially effective in homeownership where down payments are a major obstacle.
Deciding On a Pricing Strategy
Before deciding which strategy to use when setting a price for your product, you should always conduct industry-level research followed by testing. Testing a price at the industry level is the only way to determine whether the strategy is effective, without the risk of incurring large losses.