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Choosing A Pricing Model For Your Business

Alex Flitton
Jan 24, 2019 8:05:00 AM

If you purchased an iPhone recently, you were probably astounded at how much a brick of metal costs when it has an apple logo on the back of it. What’s fascinating about the transaction that you experienced, is you purchased something that is significantly more expensive than its comparable competitors. And why? It’s likely because of how having an iPhone makes you feel, not so much because purchasing it gets you any closer to having a decent retirement savings.

Your Pricing Model Depends On Your Goals

A common misconception that many new business owners have about setting price points is that lower costs will always attract more customers and drive higher sales. This may be true, but that doesn’t mean you will be profitable. The first step in making any pricing model decisions is to determine whether or not it helps to sustain your business in the long term.

Whether you choose to position yourself as the premier option, or the low cost one, you have to face the consequences that come with it. Being the premier security installer, for example, requires getting certified with expensive brands and selling to a smaller target market, but the returns will be much higher. Setting yourself as the low-cost option, however, may attract more customers, but you won’t be selling the highest-quality equipment, and you will have to install systems at a high rate in order to remain profitable.

Pricing For Bundle Packages

Bundle pricing is an incredibly popular model that is used by nearly every successful company. First off, it allows you to sell products that individuals wouldn’t normally buy alone. Because people see several products packaged into a limited offer, it creates an increased sense of value from the consumer perspective. This pricing model is excellent if you have a surplus of products that you need to get rid of, or if you know that bundling will get people to consider products or services that drive revenue for your business, but that would not normally be purchased alone.

Pricing For Premium Products and Services

In the recurring monthly revenue world, premium pricing functions best for a product at the beginning of its lifecycle and for businesses that offer unique services. In this particular pricing model, if you are selling the same products as your competitors, then your installation and customer service must be measurably better, and your consumer reviews will have to show it.

Pricing For Economy Buyers

Economy pricing is designed for money-conscious consumers, plain and simple. In this model, you are likely to sell generic-brand products which reduce costs for you and keep your sale price low. It is important to note, that with this particular pricing model, you have to increase your sales volume more than you would with the premium pricing model. This is a strategy that companies like Wal-Mart use and succeed with, and that is because they attract a large consumer base to support it.

Pricing For Market Penetration

Market penetration pricing uses the low-cost strategy of the economy pricing model, but only does so within a limited window of time. Setting prices low while selling a high-quality product and service is not sustainable. Many businesses will use this pricing model to gain market penetration and increase the company’s awareness in order to raise prices later. This is a risky model because it results in profit losses during its initial stages, however, the return takes the form of a fast-growing customer base.

Pricing For Hype

If you have a new product that just hit the market, you can take advantage of the consumer excitement by setting your price according to the demand and availability of that product. This is an excellent method to use if you need to recoup the costs of introducing a new product to the market, and it will allow you to create a greater range for the price to fluctuate as demand for that same product changes over time.

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