When running a business, determining the price comes as one of the main keys. Despite the importance of pricing, many companies are still not putting much thought into it. Apart from accurate budget calculations using accounting applications, taking the time to optimize your pricing strategy can also act as a powerful growth lever. In the process of deciding the best pricing strategy, knowing your company’s financial position is important. You can get accurate and timely reports of your company’s finances with the help of comprehensive accounting software.
Many businesses focus on acquirement to expand their business, but studies show that minor changes in pricing can significantly affect revenue by 20-50 percent. Setting the proper pricing to get more profit and managing the company’s finances will allow you to see rapid growth with little effort. As most businesses spend less than 10 hours each year thinking about pricing, optimizing what you charge has a lot of untapped potentials. Get the most out of your business by implementing the best accounting system.
What is Pricing Strategy?
Firstly, pricing is the amount of money you charge for the products you sell. It is relatively simple in definition, but it requires much more than that definition in reality. Your pricing is the indicator that shows potential customers how much you value your brand, products, and customers. In other words, pricing is one of the first things that can make a customer decide whether to pull away or buy your products. As a result, you should pay attention to calculating your pricing.
What is the pricing strategy? Simply put, pricing strategy determines the amount of price you will charge for a product. To elaborate, pricing strategies are a series of processes that businesses use to determine the prices for their goods and services. There are various pricing strategies, and you can choose one that suits best for your business. Even though pricing strategy is often overlooked in industries, it is more impactful than customer acquisition.
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The Importance of Nailing Your Pricing Strategy
Pricing is a crucial element of a business. Building effective strategies may help you in many aspects. For instance, having a proper pricing strategy strengthens your position by establishing trust in your customers while meeting your business objectives. If you set your prices too high, customers may find your products too expensive. On the other hand, putting your costs too low will affect your profits. Thus, pricing your product and services may be tricky and hard to do.
However, achieving the best pricing strategy for your business is highly possible. Especially with the help of integrated finance software that allows you to get a complete overview of your financial reports, making decisions to settle the suitable price for your products will be much easier.
5 Best Pricing Strategies
Once you determine your objectives and calculate your costs, the next step is to choose the best pricing strategy that applies to your business. There are various ways to select your product prices, and some may be better for you than others. Below are some of the best pricing strategy examples that you can adopt to attract more customers.
Cost-plus pricing
This method is the simplest pricing strategy. In short, you just need to take the production cost and add your desired profit margin to it. For this strategy, a business adds a markup to the product’s original charge to determine the final selling price. However, this method is not suitable for anything other than physical products, mainly because this strategy bases your pricing on the operational costs alone.
Premium pricing
This pricing strategy is suitable for businesses that focus on creating high-quality products for high-income markets. As the name implies, premium pricing’s key process is to develop a high-quality product that has high value for the customers. You need to build a luxurious or grand branding strategy to appeal to the right target market if you want to use this strategy.
Value-based pricing
The value-based model focuses on how much the customer believes the product is worth, like premium pricing. In other words, the value of a product in the customer’s eyes. Therefore, this strategy is best for businesses that offer unique products. To determine customers’ perception of your product’s value, you can conduct research and ask for customer feedback during product development.
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Price skimming
Skimming is the practice of initially charging a high price for a product and then gradually lowering the cost as market conditions change. This type of pricing is excellent for businesses entering new markets. It allows companies to maximize on early adopters and then undercut future competitors as they enter an already-developed market. A successful skimming strategy heavily depends on the market you want to join.
Penetration pricing
It can be difficult for new businesses to establish themselves in highly competitive markets. Some companies try to push new products by offering significantly lower prices than the competition. This is how penetration pricing works. When you have a solid customer base, you can raise your prices. Many factors go into deciding on this strategy, such as your company’s ability to take losses upfront to establish a firm footing in a market. It is also critical to cultivate a loyal customer base, which may necessitate additional marketing and branding strategies.
Pricing Strategy Key Concepts & Steps
Determining the prices of your products or services may be tricky, as it involves your relationship with customers. Setting your price higher may cause customers to find a cheaper alternative, but putting it lower will also affect your profit. Nonetheless, you can still choose the best pricing strategy for your business among all of the available choices. Moreover, building a solid and loyal customer base is also achievable with the correct branding. In other words, the pricing strategy in marketing fields is highly important.
Strong businesses create a strong emotional connection with their customers. Use branding strategy to understand buyer psychology, measure your brand’s impact with modern tools, and develop messaging that inspires your market. Communicating with your target audience is highly essential to building a strong relationship with customers, leading to a higher customer retention rate. Furthermore, the following steps can help you decide the pricing of your products.
- Calculate your costs
- Determine your objectives
- Take legislation and regulations into consideration
- Research (market testing, competitor research, level of demand, etc.)
- Determine your pricing strategy
Related article: 4 Reasons Why Branding is Important for Your Business
How to Create A Winning Pricing Strategy
Maximizing pricing strategies brings many benefits to the company’s finances. Furthermore, it also adds value to your relationship with customers. Therefore, determining the right pricing strategy is undeniably vital for businesses. There are a few steps to establishing a winning price strategy.
- Convinces customers to buy
A higher price may convey value, but it will not matter if that price is more than how much a customer is willing to pay. A low price may seem cheap and get your products passed over. Therefore, you need to set a price that convinces customers to choose your products over the other similar products from your competitors.
- Portrays value
Cheap does not always mean good. It may indicate lower price or poor quality. There’s a reason why people associate low-cost goods with poor quality. The assumption that a product is of higher value is built into its higher price.
- Gives customers confidence in your product
If higher-priced products convey value and exclusivity, the inverse follows. Prices that are too low will give the impression that your product is poorly made.
Conclusion
As a critical factor in every business, the company’s finance consists of various aspects. Calculating costs and determining the price for your products is a crucial step that significantly impacts the company’s finances. Therefore, you have to pay more attention to how to play out your pricing strategy. An effective pricing strategy delivers more profit and brand value for your business.
You can see how your company’s selling price profits through comprehensive financial software. This software allows you to get a complete report and timely data to help you make accurate decisions. HashMicro’s Accounting System has robust features to manage your finance, such as cash flow, journal entries, and many more. Additionally, HashMicro also provides integration with many more suitable features for your dynamic business. You can download the pricing scheme calculations beforehand if you want to learn more about HashMicro’s Accounting System and get free demo now!
