5 Types of Pricing Strategies & Best Ways to Promote Them

Pricing strategy is extremely crucial in running a profitable business. Setting up a price too low may damage the profit margin, while having it too high may lead to rejection. However, the challenges in pricing don’t stop there. 

As you might have experienced, telling the numbers to a potential buyer and selling them in the competitive market also requires a proper marketing approach. Without the right persuasion, 99% of the time people will say “It’s not worth it” or “It’s too expensive”. 

This is why you can’t be indeliberate in deciding and marketing your pricing. It’s important to understand the strategy in setting product pricing and the better marketing approaches that can get you to generate sales continuously.

What is a Pricing Strategy?

As the name tells, a pricing strategy is the method a business uses to determine the prices of its products or services. From a marketing standpoint, a pricing strategy is a crucial aspect that determines how a brand or product is perceived compared to competitors. 

When it’s done correctly to a greater extent, pricing can often create a distinctive positioning. Take a look at Lamborghini or Porsche as examples, two brands that are widely known to produce luxury, high-class cars. The exorbitant prices of cars that can only be purchased by millionaires (and lottery winners) make their brands exceptional in the competitive automotive market. 

If you observe popular and big brands around the world, you can conclude that a well-defined pricing strategy helps businesses attract the right customers and open up as much revenue potential as possible.

Factors in Determining a Pricing Strategy

Although it can feel like simple math, the truth is that determining the right pricing is quite difficult. A McKinsey study showed that 80-90% of companies across the globe price their new products too low which causes them to lose a notable amount of revenue.

When accidentally setting bad pricing, it’s clear that you will either struggle to make a sale or generate merely thin profits. But if we look further from the marketing perspective, bad pricing —whether it’s overly cheap or expensive— will ultimately harm your branding.

This is why several key factors should be taken into account when determining pricing strategies:

• Target Market

Identifying the ideal consumer demographics, as well as analysing their problems and needs. 

• Competition

Evaluating competitors’ pricing gives you a broader view of the market, which can help you decide to compete on price or emphasise quality. 

• Value Propositions

The product’s unique qualities and how they may solve customer problems are valuable factors that can also affect pricing. 

• Product Features

Having distinctive or high-quality features that can bring benefits to customers is a big factor in setting up a reasonable price for a product.

Types of Pricing Strategies

Many companies have used these factors to determine the most lucrative pricing strategies and even to shape a unique positioning in the industry, and this is no different for you. In a nutshell, after analysing all the factors, there are 5 types of positioning based on multiple pricing strategies that you can apply to your brand.

1. Premium Pricing

As elaborated briefly above, this strategy allows you to set higher prices to reflect exclusivity and superior quality. Luxury brands like Rolex and Apple use this strategy to create a perception of high value. 

2. Penetration Pricing

Many new businesses (or well-established companies that launch a new line of products) usually pick this strategy. They sell at lower prices or through discounts to attract customers and gain market share.

3. Value-Based Pricing

This one is the trickier strategy as you can freely decide prices based on the added values that the product can provide rather than on costs. Brands that offer unique benefits or solve specific problems often utilise this strategy.

4. Dynamic Pricing

This strategy requires you to be adaptive and sensitive to changes, as you must always adjust prices based on real-time demand, competition, or other factors in the market. The perfect example of this is airlines that frequently change prices based on demand and booking timing.

5. Competition-Based Pricing

Last but not least, you can also set prices based on competitors’ pricing strategies. Many big retailers use this approach to make sure their offers and prices are in response to competitor promotions.

Best Marketing Approaches for Each Pricing Strategy

Choosing the ideal pricing strategy is one thing. But effectively communicating the price and making sales, that’s a totally different conversation.

Although the pricing may be intriguing, without proper marketing communication, target customers won’t see the reasons and benefits of purchasing your product aside from the amount of money they should spend.

This is why each price positioning requires a different marketing approach to guarantee a winning scenario:

1. Premium Pricing

Keep highlighting distinctive features, craftsmanship, or brand heritage in every single part of your marketing campaign to justify the high price.

2. Penetration Pricing

Actively and strongly introduce your brand, product, and pricing through various marketing channels to gain awareness and encourage trials among target audiences.

3. Value-Based Pricing

Be relentless in educating customers about the values and benefits of the product. This can be effectively delivered through testimonials and case studies.

4. Dynamic Pricing

Always enable data analytics to inform pricing changes and constantly communicate urgency and scarcity to encourage immediate purchases.

5. Competition-Based Pricing

Monitor competitor pricing closely and highlight the uniqueness that differentiates your brand or products in every marketing campaign.

To Wrap Up

Price is undoubtedly an integral part of the business. It is literally one of the components in the famous classic 4Ps Framework (now 7Ps) of marketing.

This is why it takes great care and consideration to set the best pricing strategy. Determining the right prices isn’t just crucial to making the business profitable, more importantly, it can also shape the identity and uniqueness of a brand. 

With effective marketing activities, a brand’s price positioning in the market will be conveyed and amplified on the course, creating a powerful brand that can always sell products to the right customers.

After getting a solid grasp on this tricky but interesting aspect, do you feel that your business is still facing struggles and obstacles in communicating the values and benefits behind your pricing?

Then you may need assistance from experienced marketers who know the ins and outs of the Australian market. Feel free to talk to our professional marketers so we can help elevate your marketing outcomes and returns.