Pricing Strategy & Pricing Tactics to Be Used for Your Product

Pricing Strategy & Pricing Tactics to Be Used for Your Product

The pricing strategy your company adopts, whether it is to sell a high volume at a low price, to sell a low volume at a high price or to fall somewhere in the middle, will likely employ certain pricing tactics. Using pricing tactics can make your product seem less expensive and therefore a greater value or can establish your company’s products as a luxury item.

Charm Pricing

One of the most common pricing tactics that companies use is to price their products just a few pennies lower so that the first number of the price is lower. For example, if you were using charm pricing, you would sell your products for $19.99 instead of $20 because $19.99 seems like it is less. It pushes your product into the $10-$19.99 price bracket so it appears to cost much less than $20.

Bumps

In the example above, setting the price to $19.99 made it seem lower for two reasons. For one, it did not end with “.00” so it seems smaller. However, there is a larger reason – price bumps. In this example, $20 can be a price bump. The concept of price bumps is commonly applied to real estate and vehicles; the price you set puts your product in a different category, just like when someone shops for a home and limits his search to homes within the $150,000 to $175,000 price range. However, with price bumps come certain expectations that you have to manage. You would expect a vehicle priced at more than $20,000 to have certain features; if you fail to provide those expected features, it could make your product less desirable. Of course, providing features that you would not expect at a certain price bump, such as paying less than $20,000 for a new four-wheel-drive vehicle, can demonstrate value.

Anchoring

Price bumps may also serve as “anchors,” that is, prices that set a benchmark. For instance, when Apple set the price for its iPod Shuffle at under $50, it opened up the market to a whole range of people who would not think that something priced under $50 was expensive, making them more likely to purchase the Shuffle, be it as a first MP3 player or as an extra one. Conversely, a company may opt to price an item over a threshold to develop its stance as a luxury brand, such as when a restaurant charges more than $5 for a drink.

Considerations

No matter which pricing tactic you use or purposely do not use, you are establishing your basis or competition to your customer. She has to see the relative value of your product, and the price has to match her expectations for that value. Within this, you still have to make sure that you are charging enough for your company to operate. For example, a small retailer will never be able to compete with a big-box discounter on price, so it has to establish value: either prestige value, the mechanism by which a retailer like Rolex can charge as much for a watch as some cars cost, or relative value, establishing that a consumer should come to your store for his widgets because even though they cost a bit more than those at Target, yours come with a lifetime warranty or are offered in a greater range of sizes and colors.