Have you considered the best pricing strategy for your brand and products? Do you know the different strategies? Are you using the best pricing model for your business? We give you an overview of the strategies available to you.
February 7, 2022
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Pricing your product is the most strategic aspect of running your business. There are several strategies to review before deciding what works best for you. Identifying the correct one for your business may at times be an endeavour of trial and error. It may be prudent to try two different strategies for two similar, not identical, products to test which would be most effective for your brand.

Driving sales isn’t offering a product at the lowest possible price point. Understanding the basics of tried-and-true pricing strategies, as well as the ins and outs of providing meaningful value to your consumers, is the cornerstone to creating a successful business model for your online store.

Pricing Strategies

1. Cost Plus Pricing

First, understand your unit cost:

  • Materials
  • Labour
  • Shipping
  • Marketing
  • Overheads 
  • Sellers fees

Once you have determined this, you can add on your margin. This method is known as cost-plus pricing.

2. Keystone pricing

Simply put, you are doubling the wholesale price of a product. This strategy provides a generous profit margin and a quick and easy way to price your products.
This method, however, does not factor in demand. Increasing your margin for a unique product with high shipping or handling fees or a slow turnover may be better. However, if you have a product with a high degree of competition and is easily attainable elsewhere, this is hard to justify.

3. Manufacturers Suggested Retail Price

To standardize prices, manufacturers may indicate a suggested retail price, from which you can only have a slight deviation. This strategy saves time for you but doesn’t factor in shipping, demand, competition.

4. Multi Pricing

This strategy is best for products sold in a bundle for a single price. An example would be 1 product for £7 and 2 for £10.
The intention is to create value for money but is most likely cut into profit margins. The hope is that the increased volume will balance out the cut in profit margin. If you still offer the products at individual prices and in a multi-buy, the risk is somewhat mitigated as the customer can choose to buy it individually or as part of a bundle

5. Discount and Penetration Pricing

All consumers love discounts, sales, and voucher codes. It is a favourite pricing strategy for all businesses and, when used strategically, can be very effective at driving traffic and sales. It can help sell previous season stock, overstock, as well as your usual high-quality goods.

However, bear in mind that overusing sales can provide the image of a bargain brand, whether or not that is true. 

Penetration pricing reflects a new brand entering the market and offering introductory prices to gain a foothold—a compromise between profits and brand awareness.

6. Loss lead pricing

This strategy relies on a heavily discounted item to draw in customers, then upsell complementary products to create a multi sale/bundle.

e.g. offering earrings at a heavily discounted price, often leading to a loss in profit, but with the suggested upsell of necklace, bangles and clutch bag, compensate and even exceed total profits. 

This strategy is reasonable for many retailers or brands where relevant related products can be realistically upsold. But used too often, it can lead to the bargain brand feeling of the discount pricing strategy.

7. Psychological pricing

Studies have shown that ending a product price with a 5, 7 or 9 can increase the chances of a purchase. This psychology is to do with how the brain reacts to numbers and, in this case, prices. It can trigger impulse buying.

Again used too often can dissolve trust in a brand, so apply it tactically.


8. Competitive pricing

This strategy uses your competitors’ prices as a baseline then sets your price accordingly. Depending on your unit price and sales volume, this can affect your profit. It is beneficial for high volume products; this can lead to the price wars we have often heard about, but whereas it can lead to an increase in sales and overall profits, keep your bottom line in mind to ensure you don’t undercut your competition and effectively your own profits.

9. Premium Pricing

Contrastingly to competitive pricing, this strategy provides the perception of luxury, exclusivity and prestige. It is effective if you have marketed your brand as high end. The importance is in justifying your pricing. Detailing the higher level of quality, attention to detail, top-range, cutting edge or eco-friendly materials in your product description combined with a premium branding strategy can provide profitable returns. Understanding your target customer is essential and will make or break this strategy.

10. Anchor Pricing

Essentially, listing the original price of a product next to the sale price, creating an anchor point from which the customer can establish the savings, value and whether or not this product is a potential purchase.

A slight twist on this is to place a higher priced item next to a lower-priced similar product to create the same effect.

This pricing method can influence your potential customer to purchase a discounted or cheaper item. Provide too extreme of a disparity between them, and you will lose the customers’ trust and the customer themselves.

11. Price Skimming

When a product is scarcely available and high in demand, then your brand can charge its highest product price. Then as time goes by, more competition enters your market, or the demand decreases, you attract more price-conscious customers by lowering the price stage by stage.

This strategy is excellent for innovative products, brands with high customer loyalty, or products with little or no competition. It provides a perception of quality and exclusivity. 

This strategy is risky in crowded markets unless you have features that propel your product above the rest. If you start price skimming too soon, you run the risk of upsetting your loyal, early customers.

12. Economy Pricing

This pricing strategy is ideal for low production or unit costs and a high sales volume.

The high volume of sales accrues and give you a healthy profit. This practice is commonplace for everyday goods but does rely on a constant high volume of sales which also means a steady influx of new customers. Products here are not generally considered high-end and are generally more affordable. It is comparable to a Primark vs Gucci.

Now You Decide

You have been shopping for years, so you know what value feels like. You know your product and need to be honest with where your product sits, and after considering the above strategies, you will have an idea of which is best for your brand and products. You have gone from being the consumer to the supplier. What would you pay for your product?

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Managing Director at DesiCity.com - the UK's first and only marketplace for South Asian businesses and products.

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