How to choose your pricing strategy
Now that you know the different types of pricing strategies, your next step is to choose one for your business. Make an effective pricing strategy with this guide.
1. Determine your value.
A value metric refers to how a company determines the value of one product unit for sale. For example, if you sell footwear, then you would determine the value of one pair of shoes. If you sell a monthly service subscription, then you would determine the value of the services and features that a customer can access during a one-month period.
To establish your value metric, identify the basic unit of the product or service you sell. If you were to sell just one unit of your product or service to one customer, what would this be?
2. Evaluate pricing potential.
Pricing potential refers to the approximate price you can charge for your product or service. To evaluate the pricing potential for your product or service, consider factors such as your operating costs, consumer demand, and competitive products.
3. Review your customer base.
Another important consideration when it comes to pricing strategy is how your current customer base has responded to prices thus far. How much have they been willing to pay for products and services? Have any changes in price discouraged or boosted sales?
Use these insights to refine your buyer personas. Creating fictional versions of your ideal customer segments can help you determine pricing.
4. Determine a price range.
Price range refers to prices for a product or service that fall within what a customer and seller find appropriate. To determine price range, ask yourself these questions:
Another factor in pricing is taking a look at your competitors’ pricing. Make a list of competitive products and how they are priced. Then, decide whether you want to beat competitors’ prices (set your products at a lower price) or communicate more value than competitors and price your products higher.
6. Consider your industry.
Different pricing strategies work for different industries, so it’s a good idea to investigate the most common ones used in your industry. For example:
In addition to your industry, your brand and business model are important factors in pricing your offerings. A brand identity can affect consumers’ perception of the brand and quality of the offerings, so make sure your pricing strategy corresponds to the brand.
For example, a brand that focuses on affordability could choose economy pricing, while a brand that offers innovative products could succeed with a price-skimming strategy. If you are still working to build brand equity, penetration pricing could make it easier to enter a market and build a customer base.
8. Gather feedback from customers.
When considering how to price an existing or new product, customer feedback can be invaluable. Survey current and potential customers with questions such as:
9. Experiment with pricing.
Conduct a few live experiments to gather data on how your products will perform at different prices. For example, you could A/B test—introduce a product at two different prices to separate audiences—to find out which price is favored. You could also position your products next to competitive products in your marketing messaging, to find out how consumers respond.
Live experiment results combined with feedback from customers can supply you with insights for successful product launches. You may even be able to reduce the trial and error that often comes with introducing offers to the marketplace.
https://www.coursera.org/articles/pricing-strategy
Now that you know the different types of pricing strategies, your next step is to choose one for your business. Make an effective pricing strategy with this guide.
1. Determine your value.
A value metric refers to how a company determines the value of one product unit for sale. For example, if you sell footwear, then you would determine the value of one pair of shoes. If you sell a monthly service subscription, then you would determine the value of the services and features that a customer can access during a one-month period.
To establish your value metric, identify the basic unit of the product or service you sell. If you were to sell just one unit of your product or service to one customer, what would this be?
2. Evaluate pricing potential.
Pricing potential refers to the approximate price you can charge for your product or service. To evaluate the pricing potential for your product or service, consider factors such as your operating costs, consumer demand, and competitive products.
3. Review your customer base.
Another important consideration when it comes to pricing strategy is how your current customer base has responded to prices thus far. How much have they been willing to pay for products and services? Have any changes in price discouraged or boosted sales?
Use these insights to refine your buyer personas. Creating fictional versions of your ideal customer segments can help you determine pricing.
4. Determine a price range.
Price range refers to prices for a product or service that fall within what a customer and seller find appropriate. To determine price range, ask yourself these questions:
- What is the minimum price you can charge for a product or service and still make a profit based on the cost of production, marketing, and any overhead costs?
- What is the maximum price you can charge for a product or service without alienating your target customers?
Another factor in pricing is taking a look at your competitors’ pricing. Make a list of competitive products and how they are priced. Then, decide whether you want to beat competitors’ prices (set your products at a lower price) or communicate more value than competitors and price your products higher.
6. Consider your industry.
Different pricing strategies work for different industries, so it’s a good idea to investigate the most common ones used in your industry. For example:
- In the SaaS industry, freemium pricing with different price tiers to purchase more features is a common strategy to offer customers a path to upgrade as their software needs increase.
- In the restaurant industry, luxury brands might use premium pricing to create an image of higher quality.
- In the service provider industry, designers, consultants, and other service providers might use project-based pricing to customize the service outcomes and the price for individual customers.
In addition to your industry, your brand and business model are important factors in pricing your offerings. A brand identity can affect consumers’ perception of the brand and quality of the offerings, so make sure your pricing strategy corresponds to the brand.
For example, a brand that focuses on affordability could choose economy pricing, while a brand that offers innovative products could succeed with a price-skimming strategy. If you are still working to build brand equity, penetration pricing could make it easier to enter a market and build a customer base.
8. Gather feedback from customers.
When considering how to price an existing or new product, customer feedback can be invaluable. Survey current and potential customers with questions such as:
- What do you think is an appropriate price for this product?
- How much would you be willing to pay for this product?
- If this product were on sale for [example price], how likely would you be to buy it?
- What price is so low that you’d question its value?
- What price is so high that you'd consider it too expensive?
9. Experiment with pricing.
Conduct a few live experiments to gather data on how your products will perform at different prices. For example, you could A/B test—introduce a product at two different prices to separate audiences—to find out which price is favored. You could also position your products next to competitive products in your marketing messaging, to find out how consumers respond.
Live experiment results combined with feedback from customers can supply you with insights for successful product launches. You may even be able to reduce the trial and error that often comes with introducing offers to the marketplace.
https://www.coursera.org/articles/pricing-strategy