Choosing pricing strategy is more than a financial decision. The entrepreneur must be able to understand how the price can influence the customer’s decision in buying or selecting a subtitute product. There are a number of pricing strategies the business owner can consider when entering a market:
1. Market Penetration
Initially offering a low price to gain the attention of the marketplace and secure a foothold into market share. After an introduction period, price will have to increase to be profitable. Sometimes this escalating price strategy is referred to as snowballing. As long as the initial price discounting is calculated into the business plan and the customer realizes the prices are for introductory reasons, this idea can be effective.
2. Price Skimming
Entering the market with high end prices to see what the market will bear. This can work with technology and new ideas, however, it can backfire as it threatens your customer relations. Many fad products can be priced in this manner as the market life cycle is predicted to be short.
3. Price Lining
Simplifying pricing by grouping similar products at one price. Some of the group will attain higher than needed markup percentage, other lower, but the average will be the desired percentage. This makes the buying decision easier for the customers and less work for the entrepreneur.
4. Status Quo Pricing
Setting and maintaining prices at the competitive level. This is the dominant strategy in established markets.
5. Loss Leading
Usually a strategy used by larger businesses where prices of a certain percentageof products are sold at below actual cost in order to entice customers to the business with the hope of selling them other items at a full markup. This strategy is often seen at drugstores, supermarkets, and large outlets featuring many product lines. Not usually a good idea for smaller business.
Those are numerous strategies that can be used. Each company has same opportunity to make a right decision in pricing its product as long as the business owner or marketer are alert to the perceptions of the customer.