Choosing the right business pricing strategy is a key part of driving growth for any business, especially when it comes to profitability and staying ahead of the competition. The prices you set for products and services can significantly impact your business’ success, which is why it’s important to get it right. You don’t want to price things too high and drive customers away, but you don’t want to price things too low and miss out on valuable profits. With so many different pricing strategies out there, it can be challenging to know which one is the best fit for your business. Below, we’ve taken a look at your options.
4 Types of Business Pricing Strategy
There are four types of business pricing strategy for you to choose from, and they’re all slightly different. Knowing the ins and outs of each is key if you want to position your business for success.
- Expanding Margins – If you’re in an industry where there’s a lot of competition, you need to have a pricing strategy that works for your margins, but you can’t rush into things and price products too high. The expanding margins pricing strategy tends to be used by businesses in competitive markets, as a way to gradually increase profitability without causing significant disruption to customer expectations. Rather than putting large price hikes into place – which could send customers elsewhere looking for a cheaper deal, right into the pockets of your competitors – businesses take small steps to boost margins.
- Disrupting Prices – This business pricing strategy is all about being bold, even somewhat unconventional, in how you approach pricing. It involves making significant changes that can shake up market dynamics and customer expectations, in a way that people are likely to notice and pay attention to. Unlike regular, small price increases that aim to boost margins without scaring customers away, the price disrupting strategy aims to grab customers’ attention by changing your pricing structure in a significant way. This could mean making large price cuts to undercut competitors, introducing subscription pricing, or by dramatically increasing prices for a more premium service or product. The aim of disruption is to stand out and it can be successful, but there are also risks. New, higher prices won’t work for all customers’ budgets and they could take their business elsewhere.
- Driving Revenue – The driving revenue corporate pricing strategy is focused on using pricing as a way to boost sales, attract new customers and solidify relationships with existing customers. Instead of only focusing on profit margins, this approach aims to expand your customer base and generate more business in the long run. This is usually done using introductory offers, which offer lower prices initially and entice customers, hoping that they’ll stick around when the promotion is over. It can also be done by creating a subscription model to build recurring revenue, and there’s safety in knowing that a set number of customers are ‘locked in’ to paying each month. Bundling products or services together at a discounted rate is another approach to driving revenue, as it increases the average spend of customers. Another approach is to offer a basic version or a product or service for free, and then charge customers for premium features or content.
- Balancing Large Scale Growth and Increasing Margins – This business pricing strategy focuses on achieving significant sales growth and making big margin improvements at the same time, and it requires a completely new approach to pricing. If you’re going to use this strategy, you need to look for new business opportunities by introducing innovative services or business models that tap into previously unexplored areas, areas that bring some sort of value to customers. It’s unlikely to work if you don’t have something new and exciting to offer. This pricing strategy is often linked to technological innovations – such as apps, cloud computing or tablets – which can change the business landscape. To benefit from this pricing strategy, you need to constantly balance your goals of increasing sales, with also maintaining healthy margins. As so much of this strategy is centred on innovation, you need to be ready to adjust your strategy as needed.
How to Choose the Right Corporate Pricing Strategy for Your Business
With four main business pricing strategies to choose from, you need to know which one is best suited to your business. Here are the key things to consider:
- Know Your Customers – Pricing strategies should align with how likely your target customer is to pay different prices, and how much they perceive what you’re offering to be worth. Carry out customer research to understand their preferences and price sensitivity. For example, budget-conscious customers may respond well to strategies that reduce the price of goods, but less well to major price increases. But, customers seeking high value and quality might prefer premium pricing, and having to pay more could actually encourage them to make a purchase.
- Think About Your Business Goals – The first thing you need to do is think about your business goals, as this will determine the type of corporate pricing strategy that’s most likely to work for you. Consider if you’re wanting to increase your sales, maximise your profit margins, expand your market share or breakthrough into a completely new market. If you’re aiming for speedy business growth, a competitive pricing strategy may be the most suitable, but a premium pricing model might work better if your goal is to position your brand as a high quality option.
- Analyse Your Market and Competition – Research your industry, market and your competitors’ pricing strategies. Understanding the competitive landscape and others’ pricing will help you to decide whether to set your prices lower, higher or in line with your competitors. If you’re in a highly competitive market, lowering your prices could help you to attract customers. However, if your product is unique, premium pricing may give you an edge and grab customers’ attention.
- Decide if You Want Short Term or Long Term Results – You can approach business pricing strategies with a short-term or long-term perspective. Some pricing strategies are ideal for short-term gains, while others are focused on long-term growth. For example, a promotion might help you to quickly build up your market share, but it’s unlikely to be something that you can continue to offer on a long-term basis. On the other hand, bundling works over a longer period of time, continuing to generate stable revenue and boost customer retention.
- Adapt to Market Conditions – Flexibility is key in pricing strategy, as your market can change without warning. Markets fluctuate and you may need to adjust your approach over time. For example, during an economic downturn, lowering prices or offering discounts might help you to retain customers. But, when there’s a big demand for your product or service, you might get away with raising prices to match this.
- Consider Costs and Profit Margins – When you’re choosing a corporate pricing strategy, you need to make sure that your pricing covers all of your costs, at the same time as allowing you to make profit. You don’t want to change your prices, only to realise you haven’t factored everything in, and are in fact losing money. Look at the cost of production, distribution and all of your operational expenses, and calculate your desired margin. From there, you can determine the right price.
At Profici, we understand the importance of making a profit and having a strong revenue stream, but neither of these are easy to achieve. In fact, with the wrong corporate pricing strategy in place, you could really struggle to bring in the sales you need to succeed. Thankfully, we are here to help. As business growth experts, we’re on hand to help you navigate the complexities of growing a profitable business.
Whether you’re a small startup looking to breakthrough into the market for the first time, or you’re an established business and ready for the next stage in your journey, our experts are ready to offer their experience, knowledge and business experience. Get in touch today to find out more.
No Blogs