How to Create a Pricing Strategy

How to Create a Pricing Strategy

To be successful in a venture, you must know how to pay for your business. Without a correct pricing method, even if your product or service is the best in its field, it will not guarantee success. Incorrect product pricing can put your company in situations it cannot handle. There are multiple strategies for product pricing. It is impossible to write a formula that can be applied to every business, product, or market. To develop a successful strategy, you need to know your target customers, their spending areas, the market’s competitive situation, and the price-quality balance. Long story short, here’s how to create a pricing strategy.

Create a Pricing Strategy

To create a pricing strategy you need to be aware of the aspects that constitute a good pricing strategy. Before going any further, make sure you understand what we have listed down below.

Purpose in Pricing

Pricing can have more than one purpose rather than a single purpose. The manager can choose one or more of them together. However, the price to be determined may be at the average market price level, above or below this in the competitive market. It is possible to specify that the basic pricing objective is to

  • maximize sales,
  • realize a certain market share,
  • maximize profit,
  • ensure the target return or maximization of the investment,
  • maximize cash flow,
  • prevent competition,
  • ensure price stability or tradition,
  • support the goods-brand image
maximizing sales

Maximizing Sales

The main goal of all for-profit businesses is to get the highest return. Therefore, they try to exist in the market with prices to get the highest return, considering the demand for their products and their costs. Maximizing sales does not always mean maximizing profits. A company that makes a discount at the end of the season also aims to maximize sales. Then again, the company that charges a new product with high demand also aims at the same goal.

Maximizing Profit

It is the highest price level that the business can choose for its products and services to target the highest return per unit time. The concept of unit time is at the preference of the business. In this case, the company determines the price policy by considering the competitors and demands in the market. At this point, the prices determined are between the lowest and highest price limits. While following a low price strategy to attract customers, new entrants to the market can increase the prices to or above the market average after obtaining the desired sales amount.

Ensuring Target Return or Maximization of Investment

The most important issue that businesses consider when investing is the rate of return on investment. The aim is to meet the investment costs as soon as possible and bring profit to the business after this stage. The business determines the payback period of the investment to be made before investing. Accordingly, it is decided whether the investment is made or not.

Maximizing Cash Flow

Cash flow is an important element that enables a business or firm to carry out its activities without disruption. If there are interruptions or irregularities in the cash flow, there will be a danger that the company operations will be interrupted. The way to prevent this will depend on the cash inflow that the business can generate, namely the sales volume and then the hot money. As a result, the business has to reach the consumer at the pricing point with the most profitable and highest selling price.

maximizing sales

Avoiding Competition

Price is one of the important weapons to make a difference in competition. Although businesses mostly try to compete in the market with low prices, this does not always give the same result. On the other hand, a low price does not yield good results in the long run. Price has an important role in the consumer’s perception of product quality. For example, Chinese goods are usually cheap and of poor quality in the market. High pricing is an important tool in addition to the low price strategy.

Ensuring Price Stability or Tradition

Price is one of the important tools used in positioning the product and brand in the consumer’s mind. A very high-priced product can convey the message of very high quality or luxury consumer goods. On the other hand, a low-priced product may be poor in quality as well as reasonable. However, once a product or brand is positioned in the consumer’s mind, it isn’t easy to position it at a different point again.

Businesses should choose a positioning strategy in line with their mission and vision and then apply the correct pricing policies. On the other hand, one of the basic principles of creating consumer loyalty is that consumers do not encounter negative surprises about the product and the brand. When the product, which is positioned in a certain price range in the consumer’s mind, falls outside that range, question marks may arise in the mind of the consumer. For this reason, the pricing policies of companies must be stable.

Supporting the Product-Brand Image

 Price is one of the important tools for consumers to perceive the product. When pricing, businesses take into account the prices of similar and substitute products in the market. They decide where they want to position their products based on these prices. Of course, it should be noted that price alone is never a factor affecting product perception. According to other products in the market; The quality of the product, the benefit it provides, the value it offers, etc., are also important.

Getting Rid of Property

Getting rid of the goods in hand is a method used by businesses whose products change periodically. The discounts made at the end of the season in the textile sector, in the car companies generally in December. In the food businesses, when the product is approaching the expiration date can be given as examples. The main purpose is to extract costs if possible, if not, to prevent the products from being retained with the least damage. A similar method is used by companies that leave their current markets to change business.

pricing stages

Pricing Stages

Here are the steps that help you create a pricing strategy. The price determination stage is a process carried out by taking into account the business’s internal and external factors. It basically consists of seven stages. These:

  • Selection of pricing purpose
  • Examination of the request
  • Examination of costs
  • Selection of pricing method
  • Examination of competitors’ price offers
  • Determination of the final price
  • Adjustments in final price

Pricing Policies

Pricing policies are methods that businesses use to support their pricing strategies. There are six main pricing policies. These:

  • Single price and negotiated price
  • Pre-determined and suggested price
  • Guaranteed price
  • Psychological price
  • Reduced price 
  • Geographical price

FAQ About Creating a Pricing Strategy

What is cart pricing?

Bundle (basket) pricing consists of more than one product and offers more advantageous prices than individual sales. Reference pricing occurs depending on past prices, current prices, and purchasing status.

What is psychological pricing?

It is a pricing and marketing strategy based on the fact that some products’ pricing creates a greater psychological perception in consumers.

What is competitive pricing?

The prices of competitors determine this pricing method. Competitive pricing, also known as market-oriented pricing, involves basing prices on a competitor’s prices rather than considering consumer demand and one’s own costs.

What is pricing via quantity discount?

This method is to reduce the amount by keeping the price constant instead of increasing the price.

What is dynamic pricing?

It is a pricing strategy where prices vary according to real-time supply and demand.

Conclusion on Pricing Strategies

In short to create a pricing strategy decide how much your products are worth and then how much you will value your products in competition with your competitors. Apply your pricing strategies in the most accurate way. Once you complete all these processes the next step is to come up with a branding strategy if you already don’t have one. But that topic requires more than just a single mention. Therefore, make sure you read our article on the subject.

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Ralph

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After working for so many years in the screenwriting business, Ralph decided that he needed to be more involved with the digital world. Therefore he became a content writer by putting his skills into practice after learning about subjects he's interested in, mostly social media.

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