Chron explain how price is the only element in the marketing mix that produces revenue; all other represent costs. Choosing the right price for your product helps send the correct price-quality signal. Price-signalling occurs when the cost of something reflects the product’s perceived quality. Whether or not your product is the best quality for the best price, your pricing strategy aims to convince the buyer that is the case.
Pricing strategy revolves around cost, profit objectives, consumer demand and competition. Pricing is either cost-based, demand-based or competition-based. In cost-based pricing, you set prices based purely on production costs and the desired profit without considering the demand. Demand-based pricing, consumer research helps to ascertain the acceptable price range, then you can determine profit and cost requirements within that range. Competition-based pricing, you set your prices based on your competitors. Depending on customer loyalty, or brand differences, you might be selling at, above or below market price.
There are numerous types of pricing and each provide different results in attracting your customer base, most effective pricing strategies include:
- Premium pricing
- Penetration pricing
- Skimming pricing
- Psychological pricing
- Product orientated pricing