The pricing strategy that a business uses to place tags on their products will determine if it will generate sales and achieve the expected profits. Most of the traditional pricing concepts such as the basic markup, cost plus, and pricing matrix are ineffective in helping a business achieve its long-term goals. It is, therefore, important for an entrepreneur and the management team to come up with strategic ways of pricing their products and services to achieve the set business goals and objectives.
One of the guaranteed ways of doing this is by using fixed and variable price concepts. The fixed pricing strategy involves setting a particular price point and maintaining it for an extended period. On the other hand, the variable pricing means that the price tag on a particular product can change over time due to various economic factors such as inflation and market demand.
Advantages of Fixed Pricing
The main advantage of using this pricing model is that it attracts more clients as it offers assurances. For instance, if you are offering a home improvement service, the client will know the exact amount of money they will pay for the service before signing the agreement. More importantly, customers get used to the pricing, as it is consistent. It is important to point out that fluctuating prices always chase away customers and ruin the business reputation. Estimating profits and sales is also easy if the price is intended to remain constant during a particular period.
Advantages of Valuable Pricing
This is a strategy also referred to as discriminatory pricing because it gives an entrepreneur an opportunity to maximize profits from each sale made. An excellent example of the application of this strategy is in the event promotion industry. Event managers can decide to sell off some of the tickets if the initial demand is low to generate maximum revenue. This concept also makes it possible to adjust the prices accordingly based on the costs involved, the need for the commodity in the market, and time. For example, most seafood distributors change their prices depending on the inventory supply and the season.
How to Benefit from Variable Pricing Concept
Price Products Based on Time
This strategy refers to pricing your products based on the time of the year or the season. For instance, if you specialize in selling sweatshirts that are ideal for the summer weather conditions, you can decide to lower the prices to attract more customers and generate more sales. You need to come up with a solid plan to ensure that your prices fluctuate based on time. Travel booking sites, software developers, and airlines use this strategy all the time to generate more sales and stay afloat.
Pricing Based on Groups
You will need to carry out an intensive market research to know your target audience and their expectations. Once you have this information, you can use the various algorithms to set different prices for different groups of customers. For instance, you can increase the price of a lawn mower if you plan to sell it to customers who are more likely to pay a high price based on its type or model. Other factors that you can consider when pricing your products using this strategy include location, demographic information, financial capability, and age group. Meaning, you have to quantify your target customers’ personas and align your product and pricing to suit them.
Offer Discounts and Coupons
Discounts and coupon offers can have a negative impact on your sales and brand in future; but they are very effective in dynamic or variable pricing. If you are selling common products, you will need to put in place measures of ensuring that the coupon does not spill over to the unintended customers.
Use a Proper Value Metric
It is not easy to use this method as a form of price differentiation if you are selling a retail product such as a TV because you will be charging the client for a physical item. However, if you are selling software, you can set the prices based on the number of users, storage space, number of views and any other metrics that relate to the software. Customers will be paying based on their preferred packages and the specifications or features of the software.
How to Benefit from Fixed Pricing Concept
Standardize the Prices
Set a fixed price for a particular service or product to reduce customer uncertainty. Most of the postal service companies have put in places efficient operation mechanisms that enable them to lower their prices and cushion themselves from the risks of shipping cost fluctuations. Doing this helps them to establish long-term relationships and generate more revenue from each customer.
Make the Bills more Predictable
Competition is very high in the energy and fuel industry. The most successful businesses have embraced fixed price strategies to get a superior cutting-edge in the market. Such an approach makes it easy for the customers to predict their monthly bills and establish a solid financial plan. You can decide to set a fixed price for a service until a specified date, or a customer exceeds a certain limit.
Offer Downside Protection
Unexpected changes in markets force customers to spend more money on a product or service. You can decide to provide downside protection at an affordable fee to cushion the customers from such market changes. That is, if the market price increases, the customer will still enjoy the same service but at a lower price.
Let Customers Pay Based on the Software Specifications
The operating costs of a software development company would be affected either negatively or positively if the customers decide to change the specifications. To avoid this, you can come up with a fixed price strategy whereby the customer pays a fixed price for an agreed set of specifications. You can also have an hourly wage for any additional changes that are requested after the agreement.
Indeed, fixed and variable pricing concepts can help small business grow to their full potential. The two strategies should be implemented correctly and monitored regularly to know if they are working or need to be tweaked.