A good pricing strategy is a key to your firm success.
There are different methods to calculate your prices for your new startup business based on multiple factors such as market demand, competitive prices, and costs expenses.
These are the most often used pricing strategies for small business with recommendations for which methods fit different types of businesses. To manage your product pricing and profit calculations I recommend Quickbooks Online as the best accounting systems for small business
Also, consider using a combination of these strategies for your perfect custom tailored program. Such as Market Penetration pricing at the onset of launch startup, then switching to Bundle Pricing and finally setting on Psychology Pricing as your main pricing strategy.
This method is when you purposing price your product higher than your competitors. This technique is often used at product launch to create a high-value perception in your customer’s minds. If you have unique goods, you are first to market, have a strong advantage, high-demand this strategy can work well for your products. In addition to high-value perception, this higher price can generate more profit in the early launch startup phase.
Right for: Fashion designer collections, luxury goods, unique handmade items and innovative technology devices.
This is the flip side of the premium pricing discussed above. Major retailers such as Walmart use this technique to lure shoppers into their stores with drastically discounted items. Once you enter the store to buy the loss leader, product so cheap they lose money, you buy other higher priced products in which they recoup the loses and make additional profits.
This strategy is for the bargain-minded market segment that highly prices sensitive. Also, it tends to perform best for commodity type products, which consumers price compare before purchasing. Be careful not to slash your prices so low that you cannot recoup your losses with upsells and cross-sells. Otherwise, you will put yourself out of business before you even got started.
Be smart and use economy pricing to your advantage by instead of offering it to everyone, select certain high-volume or high-repeat customers for selective discounts to ensure their long-term patronage.
Best for: Commodity-type products, standard office supplies, distributors of known brands and types of items such as groceries, personal food care, and stationery goods.
Market Penetration Pricing
This concept is to gain buyers by offering the lowest prices on goods and services to enter a crowded marketplace. It is common for entrepreneurs to use this technique initially. If not planned and executed carefully this is the most dangerous type of pricing strategy for your bottom line and business survival.
If you are seriously considering this pricing structure ask yourself if your business is really viable. Because if the only reason someone would buy from your new company is the cheap price you do not have a sustainable business idea. Only giant corporations such as Walmart and Target can “make up the difference in volume” the rest of the companies fail.
Additionally, when you inevitably increase prices after you gain market penetration your initial customers will not be pleased, and you could lose them to your competitors.
The only smart way to use this method is to offer “introductory pricing” for a short period as a sale or launch promotion. This erects boundaries of time and quantity that prevent you from making lots of sales of products that losing money, so you just put yourself out of business faster!
Best for: Launch promotions, limited sales, introductory offers, free trials of software and other monthly subscription services (you could offer a free month as a bonus)
Price Skimming Strategy
This method is an evolution of the premium pricing discussed earlier in this article. It works by businesses setting prices high during the launch of their new product line then lowering prices as other companies enter the market at lower price points.
The upside is that you get high profits at your company startup, when you need the cash the most, and create a perception of high quality and exclusiveness in your industry at launch.
Best for companies who instituted Premium pricing at launch.
By utilizing the power of people’s emotions to buy is the key to success with this pricing strategy. Many consumers consider the price of a particular item a major purchasing factor. Use this to your advantage by reducing your price a little and changing your buyer’s minds a lot. You have all seen the $199 specials, which are only $1 less than two hundred but seem to be a better bargain. An Example of psychological pricing technique at work. People quickly read prices and see it starts with a 1 instead of a 2 and think it is much lower priced. By using this psychology you are increasing the demand for your product by creating the sense of great value for your customer.
Best for new industries, disruptive products and new technology for early adopters
Companies who bundle, put multiple items together as one item and price the set as lower know the value of this pricing strategy. You both sell more items in each sale, but also make your customers feel that they are getting much more value for their dollar. You can even promote your bundle as some items are free bonuses for buying the other items in the bundle.
Bundling works well for firms that sell items that complement each other such as cosmetics, food, and restaurants. Many successful establishments offer a free dessert or drink with the purchase of the main dish on certain days. This is an example of bundling in the restaurant industry.
If you own a hair salon you could bundle a haircut and “free” deep conditioning treatment as a special promotion. Services firms can also do bundling by giving away a bonus service such as an IT professional offering free malware removal with every anti-virus software installation and update. Be creative and think about what you could bundle.
Many home maintenance professionals such as HVAC contractors give a “free” service call contract with every system purchase. The “contract” simply states that they will come fix your system within 24 hours of your call. Coincidentally they would do that anyway, but by “giving” this contract the customer feels compensated and will be less likely to call a competitor company for future service calls.
Alternatively, consider unbundling as a pricing strategy. If you sell office supplies and cases of paper are your standard pack size, consider unbundling that case of paper and sell it in small ream size packs. You may find that your customers want to buy a small amount of paper more often. Also, you may even increase your profits by selling those reams at a higher price than the full case pack without any customer price resistance.
Good for restaurants, hair salons, product lines of complimentary items and food
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.