Pricing Primer

Pricing products is a tricky task. When running a business, you want to make a profit, but you don’t want to price yourself out of the market. There are numerous formulas listed on the Internet you can try. Before diving into formulas for pricing, consider your pricing strategy and how this will align with your marketing.

Strategy #1 – Premium Pricing

This attempts to take the maximum amount of money from the fewest customers. It’s a luxury brand strategy.

• Branding, photos, descriptions are critical
• Focus on brand building
• Takes time to build, therefore sales are slow in the beginning
• High profits, but very few customers

Things to be aware of:

• Do not use sales and gimmicks
• Do not have price wars

A marketing strategy used by luxury retailers is to use a price decoy. A luxury retailer sells an item for $2,000, but has a price decoy item for $300. The rich will take the $2,000 item, which others will envy. The moderate shoppers may purchase the $300 item to have a chance to own something by the luxury brand, usually for status.

Strategy #2 – Neutral Pricing

This attempts to keep your prices similar to your competitors – not too high, not too low.

• Branding, photos, descriptions lead to a loyal following
• Focus on ways to get customers beyond pricing
• Less opportunity to gain high profits per transaction or very high sales volume
• Moderate profits, moderate transactions

Things to be aware of:

• This is a safe zone
• Do not have price wars

Since this is a safe zone where most companies price similarly, you will have to get creative with how you will attract and keep customers.

Some things you can try are:

• Loyalty rewards
• A unique experience
• Top-notch customer service
• Giveaways and free samples

Strategy #3 – Penetration Pricing

This attempts to keep your prices as low as possible and bases sales on a high volume of transactions.  This might seem like a good idea, but you may not be able to compete