The pricing strategies in marketing vary based on the desired outcome of the marketing effort. Marketing is a very important aspect of every company that produces goods or services as it ensures greater brand, product, or service awareness aimed at driving up sales and consequently, increasing business profit. Little wonder it is often stated that in the world of marketing, “content is king and marketing is queen“. Some of the pricing strategies in marketing include bundle, discount, economy, and psychological pricing strategies. We shall discuss these and some other pricing strategies in marketing.
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What is a pricing strategy in marketing?
Pricing strategy in marketing is a method of determining the optimum price for a particular product or service such that the producer gets the best outcome from their marketing efforts for such a product or service. An effective pricing strategy in marketing accounts for the 4p’s of marketing which are: product, place, price, and promotion.
Additional criteria that are factored in when pricing a product or service include market demand, consumer behavior, product characteristics, business goals, economic patterns, competition, and desired sales and profit margins. Choosing the right pricing strategy or strategies is very important in achieving the specified marketing goals of a company because it aids in conveying value to customers and attracting customers, inspiring trust and confidence in the brand, and ultimately, improving patronage and boosting revenue.
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Pricing strategies in marketing
- Bundle pricing strategy
- Discount pricing strategy
- Economy pricing strategy
- Freemium pricing strategy
- Geographic pricing strategy
- Penetration pricing strategy
- Premium pricing strategy
- Psychological pricing strategy
Bundle pricing strategy
Bundle pricing is one of the most common pricing strategies in marketing. This involves selling two or more products or services at a lesser amount when compared to purchasing them individually. Bundle pricing is mostly used by producers when a particular product is nearing the end of its lifecycle when a product or service is not selling as expected, or as a means of introducing customers to a new product or service. Consumers on the other hand believe they are getting more products or services for a lesser amount, hence the bundle pricing strategy is an effective marketing tool.
For instance, when a toothpaste manufacturing company starts producing toothbrushes, they could use the bundle pricing strategy as a means of introducing customers to their new product. Instead of charging $10 for toothpaste and $2 for toothbrushes, the company can charge the same $10 or $11 for both the toothpaste and brush. By utilizing bundle pricing as a marketing technique, the company is better able to introduce consumers to its new product at a reduced cost.
Discount pricing strategy
This is another pricing strategy in marketing that is utilized by companies to encourage patronage and also increase revenue. Discount pricing involves granting customers a price reduction based on a certain amount or percentage. It is often aimed at clearing out unsold inventory, increasing demand for the product or service, and increasing sales. A common example of the discount pricing strategy in marketing is the Black Friday sales that occur in November where many retailers offer discounts ranging from 10% to as high as 90% on some products.
Another tactic used with discount pricing strategy in marketing is the use of coupons or vouchers. This involves companies rewarding their loyal customers by providing them with coupons that provide a specified reduction in price when customers make a purchase. Online retailers such as Jumia often reward customers with a discount voucher for subsequent purchases. The discount pricing strategy works in marketing because consumers are drawn to the price reductions which enable them to purchase products that may have been previously above what they could afford.
Economy pricing strategy
Economy pricing is another pricing strategy in marketing. Economy pricing is made possible when the cost of goods sold and marketing is cheap, thus the products are also priced cheaply. Companies that use this pricing strategy in marketing do so to have a high volume of sales. When sales are high, it can augment the cheap pricing of the product and still bring a reasonable profit to the company. A lot of companies that are into mass production of goods often use this pricing strategy to bolster their marketing effort. This particular pricing strategy in marketing is targeted at customers that want to save as much money as possible whenever they make a purchase.
Furthermore, a company that offers economy pricing may charge additional fees for other services. For instance, a car hire service could offer cars for hire at the cheap rate of $24 per day but charge additional fees if you want the car to be washed or the tank filled. In this way, they can have a very low base price which increases based on customer preferences.
Freemium pricing strategy
This is one of the pricing strategies in marketing that combines free and premium pricing when allocating prices to products. It is mostly used by companies that offer software as a service (SaaS) such as Grammarly, MailChimp, and Blogger. Most companies use the free trial to pique people’s interest in their product and encourage patronage from individuals who may not be willing to try out a new product if it is priced. Once individuals have tried the product and discovered its usefulness to them, they are more likely to pay for such a product.
A company may utilize this type of pricing by offering an unlimited free version but with limited functionality or offering a limited free trial that has all functions available. In the case of the former, individuals that have enjoyed a free version of the software may want to upgrade to the premium version to have access to more functionality. While in the latter case, they may not want to lose access to the software so they will upgrade to the premium version once their free trial period elapses.
Furthermore, most companies that use the freemium pricing strategy in marketing often begin the pricing of their product at an affordable rate to encourage individuals to upgrade to the paid versions. Oftentimes, different packages are made available such that each upgrade offers more features and functionality.
Geographic pricing strategy
An additional pricing strategy in marketing is geographic pricing. In this instance, the selling price of a good or service will differ based on the location where the product is sold or the service is provided. This pricing strategy in marketing works due to differences in purchasing power, cost of raw materials, shipping costs, taxes, currency, scarcity of products, etc.
For example, apples may cost $1 within a particular geographical location where they are readily available whereas they may cost $2 in a geographical location where they are not readily available. Furthermore, products such as alcohol may be cheaper in countries where the taxes and raw materials for its production are readily available but the same product will be expensive in a country that has high taxes for alcohol and unavailability of raw materials.
These price differences are due to the differences in production costs, hence, for companies to have a good pricing strategy for their marketing, they have to adopt prices that reflect the realities of the geographic location where a product is made or where it is shipped to.
Penetration pricing strategy
This is one of the pricing strategies in marketing that is adopted by startups when they are trying to break into an already saturated market or by already established companies when they want to introduce a new product to the market. Penetrative pricing keeps the price of goods or services at the minimum level possible to encourage patronage. This pricing tactic is especially potent for consumers that are very price sensitive and are willing to try out new products especially when they are cheaper than other available options.
For example, if the price of a pack of cereal is $20, a new producer of cereals may price their product at $17. This lower price makes the new product stand out from the already crowded market and further encourages price-sensitive consumers to try out the new product. The penetrative pricing strategy in marketing is used as a tool for building a considerable consumer base over time especially when the product meets consumer expectations. Additionally, when there is a high volume of sales within a shorter time frame, it increases the company’s cash flow and may also increase its profits.
Premium pricing strategy
Companies that charge a high price for their products or services do so because they are providing a product or service that has already been established in the market as a luxury or prestigious brand. This high pricing is known as a premium pricing strategy in marketing. In this instance, the price of the product is often extremely high and only an elite group of individuals may be able to afford such products or services. This gives a sense of exclusivity and makes a lot of individuals willing to pay an exorbitant price to acquire such an exclusive product.
Common examples of brands that use the premium pricing strategy are those in the production of luxury goods such as wristwatches, diamonds, yachts, cars, clothes, mansions, shoes, etc. Luxury services include exotic car hires, member-only clubs, protection services, etc. Some known luxury brands include Chanel, Cartier, Porsche, Rolex, Dior, MVMH, and Hermes.
The outstanding feature of the premium pricing strategy in marketing is that while other pricing strategies are more focused on increasing sales to drive up profit, this pricing strategy is more focused on charging the highest price possible to appeal to a particular demographic in their marketing and increase profit.
Psychological pricing strategy
The psychological pricing strategy in marketing seeks to appeal to a consumer’s psyche by making them purchase a product or service that they consider a “great deal”. One of the tactics used is pricing that includes cents instead of just dollars. For instance, instead of pricing a bottle of milk at $7, this marketing technique will price it at $6.99 thereby making the consumer view the product as cheaper.
Another technique is to give a Buy One, Get One (BOGO) approach. Here, the company may offer the customer a gift of a different product when they buy a particular product or offer them two of the products for the price of one. For example, the deal may be that you get a free Soda when you make a purchase of French fries or it could be that you get an additional burger for free when you buy 3 burgers. This offer incentivizes buying a particular product by gifting consumers another product for free. Hence, it appeals to most consumers and results in increased sales for the company.
An additional technique of the psychological pricing strategy in marketing is using the phrase, “But wait there’s more” in the marketing infomercial. For instance, a car dealership may advertise their cars at the price of $20,000 and use the catchphrase, but wait, there’s more to inform customers that the car comes with a full tank of fuel at no extra cost if they buy within a stipulated time. This time constraint adds a sense of urgency to the deal and psychologically appeals to consumers to take advantage of the mouth-watering offer before it elapses.
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The pricing strategies in marketing which we have discussed here can be applied singly or as a combination of two or more. This is dependent on the desired outcome that a company wants to achieve with its marketing effort. A company that is focused on providing the least possible price to break the market may use penetrative pricing while a company that wishes to increase its sales and gain more customers may use discount pricing. Before choosing a particular pricing strategy in marketing, it is important to consider your target market, cost of production, location, and customer preferences.Last Updated on July 12, 2023 by Blessing Peter Titus