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.
