The attention of the owners of commercial projects and e-stores when developing a marketing plan, is directed to the product pricing strategy which is one of the basic matters in the process of developing and defining the deliberate strategy in marketing their products. This strategy works to achieve the greatest amount of profits when selling products and goods, in addition to being the basis for the success or failure of emerging projects, as it influences customers' perception of products and their purchase decision making.
The pricing policy is based on several factors, including production and distribution costs, defining markets, the target audience and the offers made by competitors. Therefore, the pricing strategies for products and services that business owners and e-stores adopt to reach their goal of developing sales which brings them high profits.
In this article we will highlight the most popular strategies for pricing products and services.
The most important product pricing strategies:
Owners of commercial projects and e-stores follow several strategies for product pricing, which are:
- High Pricing Strategy:
The online stores and start-ups work to put the price of the product higher than the prices set by competitors, as this strategy is especially effective in the early stages of the product life cycle. It gives customers the impression about the quality of the products, so they deserve a higher price. For this reason, those e-stores and commercial projects that follow this strategy in product pricing must work hard to create this perception of the product value in the minds of consumers, so the method of product packaging and marketing should support the high pricing policy.
- Psychological Pricing Strategy:
This strategy is depending on tactics that marketers use to attract customers and push them to buy products, so that the psychological factor of customers is affected by adjusting prices to encourage them to purchase the products. For example, a product is sold at $190 instead of $200 where the customers are preferring the lower price than the other number, although the difference is very small, but they feel that they got the product at a lower price.
Market penetration and rapid penetration strategy:
Owners of e-stores and commercial projects use this strategy to reach the target audience and to expand their mass base, by providing products and services at lower prices for a certain period of time so that they can enter the market and obtain a significant share.
It must be noted that this strategy results in a loss of profits at the beginning until it is able to attract customers to it and penetrate the markets, then it gradually raise its prices to maintain its customers and consolidate its presence among competitors in those markets.
- Low Pricing Strategy:
This strategy is based on reducing production and marketing costs to reduce the price of the product. This strategy is often used by companies specialized in the field of food and retailers to attract the attention of customers.
The low pricing strategy is suitable for large companies because it replaces the low price with large production, while it is dangerous for emerging and small companies because their sales volume is small, unlike large companies, so their profit is insufficient and the price of their products is low.
- Production cost pricing strategy:
This strategy is carried out at calculating the costs of the product and adding a fixed profit margin. The specialists believe that the added percentage to the product cost is inversely proportional, as the cost of unit production is lower, the higher the percentage must be added and vice versa. Also, the Value-added tax (VAT) is inversely proportional to the sales volume, as the number of product sales is higher, the (VAT) is lower. The fewer sales, the (VAT) is higher. For example, the (VAT) of the cost of newspapers is high, while it is low in devices such as television or refrigerator.
- Optional product pricing strategy:
Some commercial companies rely on this type of pricing strategy, as it offers low prices for services and products, then offer other products attached to the main product so that the price of the product is increased. It is of an optional nature for the customer, for example, the customer may want to buy a car that is free of options, the price of certain cars is low compared to other cars, but the customer may want to get a car equipped with air condition, and thus its price increases because it is equipped with a certain service, therefore the customer has paid the cost of these services in addition to the price of the original product.
- Package pricing strategy:
This strategy is an effective tool to get rid of stagnant or accumulated products, as commercial companies or e-stores - when following the package pricing strategy – are selling several products together at a price lower than the selling each of product separately. For example, there is a large amount of food in the warehouse that has not been sold, the owner of the company collects several items together and sells them at a lower price than if each item were sold separately.
The small companies consider that profits from high-priced products offset losses from selling low-priced products.
Competitive pricing strategy:
The commercial companies and online stores study and analyze competitors’ prices when they have a similar product. Based on this study, they either set a price similar to competitors’ prices, or put a price higher than their prices on the pretext that the product includes additional features that are not present in competitors` one, or set a below-market price to attract the customers, increasing profits through sales growth.
- Price-skimming strategy:
The price-skimming strategy aims to achieve the greatest amount of profits in the early stages of selling the product. It is a good strategy for the small companies to create a mental image with customers about the quality of products when they are first introduced. This strategy is based on offering the new product at a high price, then gradually decreases with the emergence of new products of competitors in the market.
The strategy of price skimming depends on income and the elasticity of demand for the commodity, as this commodity is directed to customers who want to obtain the product at any price.
- Promotional pricing strategy:
It is one of the most widely used pricing strategies at the present time for its great ability to attract customers and encourage them to buy due to its reliance on selling products at lower prices such as discount offers, or the getting gifts and coupons accompanying a specific product, or obtaining a product for free when purchasing certain products - which are used in a period of time – such as holidays or certain periods.
This strategy enables sales to grow significantly, as customers prefer to get free services in exchange for buying a specific product.
- Pricing strategy by geographic location:
It consists in adjusting prices according to the geographical location of customers, taking into account the shipping costs when transporting to different place, as the conditions and location of each country differ from another which should be taken into account when developing a pricing strategy and can be based on following one of these strategies:
- Base point pricing: It used to select certain cities as basis points, and all products shipped from one of these cities are at the same cost.
- Pricing based on freight charges: It sued by the business owner who bears the transportation costs or part of it and is often used as a method of discounting and promoting products.
- Uniform delivery price: That all customers pay the same freight costs.
- Pricing by region: The prices of products increase with the distance to the shipping.
The pricing strategies for products and services adopted by the owners of commercial activities and e-stores vary to reach their goal of developing sales, which achieves high profits.