As owners of businesses we know that there are a variety of options in how we can price our products.
Boutiques for example might pick a high or value priced model. Some business models demand a discount strategy. For some businesses, including many in manufacturing, it might be a commodity based demand pricing model that they follow.
Herman Holtz in his book Priced to Sell: A complete guide to more Profitable Pricing says that the best price is “the highest one that fits your business’s strategy.”
In other words you should be pricing your products to fit the model of your business which we described in the earlier chapter on strategy. Ideally you want to differentiate your products and services enough from your competitors that you can justify different prices.
Hopefully the pricing model that you pick is going to be one that will allow you to be profitable.
The problem with most entrepreneurs and business managers is that they only consider one model of pricing. Often we don’t consider that we may be able to sell the same product or service to a different market. This new market might be geographical, socioeconomic, or use based. When this happens we can often adapt our pricing to reflect the market conditions in the new opportunity.
Sometimes we can use opportunity pricing to increase our margins during higher times of demand.
Of course any time we consider changes in pricing we need to think about the effect that this will have on our customers.
However, if we are shortsighted and fail to consider these different opportunities, our business will lose the potential for this revenue over the long run and rob us of profits.
Let’s delve into the different pricing models.
There are a number of pricing models that can lead to success in your business. I am going to list some of them here with a short description.
Try out some of them in your business. See how they work.
I can tell you that I have used many of these as every business needs a number of pricing strategies to optimize profits and ensure that your customers receive value.
Let’s look at some different models of pricing that can increase your profitability.
Anchor pricing: Jewelers know that the best way to sell a $5,000 dollar diamond ring is to put it beside a $15,000 dollar comparative model. In this manner your customers of the $5,000 variety believe that they are getting great value.
Auction type pricing: Now made popular by Ebay, this model works for some sellers in some markets. The key to this type of selling is to have your desired profit margin built into your minimum selling price
Branding pricing: This is a pricing model that works well for many successful business owners. Branding pricing essentially means that you have at least two and preferably three similar products in each category.
Bundle pricing: Encouraging your customers to buy more by putting products suited to your target market together in a package for sale can increase profit dollars.
Commodity pricing (sometimes called going rate pricing): Your focus to increase profitability is going to be to focus on differentiating your product or service offerings so that you can sell some additional products you can get more margin on or reduce your costs to increase your margins.
Discount pricing: In my eyes this is a rush to the bottom of the barrel and a quick way to go out of business.
Geographic pricing: The fact is that certain markets are willing to pay more for products.
High-low pricing: This is a pricing model that most people are familiar with. A business will have a regular high price but put products on sale to encourage customers to come in and buy more frequently
Premium pricing: You know if you walk into a boutique that you are probably going to be paying a higher price for a product than a similar product in a grocery store.
However you are also going to get better service and a higher quality product.
Sometimes the perception of quality is enough to demand premium pricing.
Price endings with nine: There is research to suggest that prices ending in nine will outsell prices ending in five by up to 24 per cent in some cases.
Seasonal pricing: Everyone knows that if you are selling flowers the price you can get for a bouquet of nice flowers is going to be different in November than it will be on Valentines or Mother’s Day.
Do you have products that are seasonal or in more demand at certain times? Can you figure out a way of getting more margin through your buying and pricing models?
Subscription pricing: Would you rather spend $1,000 per year or $83.33 per month?
Value pricing: Ikea is a prime example of this. They offer a fairly high quality product at a value to the consumers.
Remember every business is unique, pricing your products are important way to ensure that you are profitable. Without being profitable your business won’t be able to serve your customers, your community or your family for very much longer.