Pricing Strategies

Product, place, promotion, and price are considered the marketing mix in marketing strategy. These are controllable market tools that help businesses get desired responses from their consumers. Pricing, being one of the 4 Ps of marketing, is an important aspect in influencing demand for a product. For a consumer price is a random number next an item but it is more than just that for a business. Pricing affects everything from profit margins and sales to brand positioning and market shares. If prices are higher than the product’s actual worth then the demand for the product will automatically fall, and if prices are made relatively lesser, it leads to a loss for the business. Businesses have the liberty to choose from various different strategies, in accordance with their product and targeted market. Before setting the price for a new product, the company takes various factors into account, like the ability of the consumers to pay, market conditions, competitor's moves, and many more. Let's get to know some common Pricing Strategies that companies adapt to, for its targeted customers and also against competitors:

Psychological Pricing

At the start of a presentation, Steve Jobs would often show a very high price which he would later scratch to display a much lower price. Studies show that we human beings are all lazy and tend to rely on the first information we get, which is why marketers show an unreasonably high price scratched out next to a comparatively lower price(although it is still unreasonably high) towards the left. But what is the reason for positioning the lower prices to the left? We have learnt numbers from the range of 0-9 in increasing order from left to right, where the lower numbers always come to the left of the bigger numbers( 1 is to the left of 5), since we conceptualize smaller numbers to the left we often tend to do the same with prices.

Removing insignificant details such as a comma might sometimes play a significant role in sales of a product. By removing a comma, one reduces the phonic length of the price, Rs.1999(nineteen ninety-nine) looks smaller in value than Rs.1,999( one thousand nine hundred and ninety-nine).

Our mind judges everything around us based on its size. It does something similar with numbers too! When prices are displayed in smaller fonts consumers are sometimes tricked to perceive the value to be small (Rs.19999 looks cheaper than Rs.19,999.00 though it’s the same value).

Freemiums

Freemium is a combination of two words, Free and Premium. This sales model is used by numerous startups and well established companies. It’s a way to attract customers by giving them free services for a limited time or for limited features, which eventually leads the customers to realize what they are missing out on without a premium account. For example, Spotify ads on free Spotify interrupts you with ads of having no ads on premium expecting people to shift to the premium version.

Skimming pricing

Products that are newly introduced in the markets, under skimming price strategy, are initially sold at a high price, however, as the product gets older, the prices are dropped and it's made available to everyone. When unique and revolutionary products arrive in the market, the goal of the producers is to gather as much money as possible before they encounter competition from rival companies, which is why their product is charged the highest initial price customers are willing to pay and later skimmed to lower prices as time passes. For example, Apple products are priced unreasonably high when the product is newly introduced to people, the ones who can afford it have it and the ones who can't, wait for the prices to come down.

Penetration pricing

This strategy is just the opposite of the Skimming price strategy. Companies, oftentimes new ones, offer their products at a lower price during its initial offering, expecting to attract customers and initiate word of mouth. Prices are gradually increased once the company is well rooted.

Businesses choose the strategies which are most beneficial to them.