To be successful in a business, you need to know how to pay for your business. Without a correct pricing method, your product or service is not guaranteed to be successful, even if it is the best in its field. Incorrect product prices can put your company in situations it cannot handle. There are several strategies for product pricing. It’s impossible to write a formula that can be applied to any company, product, or market. To develop a successful strategy, you need to know your target customers, their spending areas, the competitive nature of the market and value for money. In short, here is how to create a pricing strategy.
Create a pricing strategy
To create a pricing strategy, you need to understand the aspects that make up a good pricing strategy. Before going any further, make sure you understand what we have listed below.
Purpose in pricing
Pricing can have more than one purpose than a single purpose. The manager can choose one or more of them together. The price to be determined can, however, be at the average market price level, which is above or below this on the competitive market. It can be stated that the basic price target is
- Maximize sales,
- realize a certain market share,
- Maximize profit,
- Ensuring the target return or maximizing the investment,
- Maximize cash flow,
- Prevent competition,
- Ensure price stability or tradition,
- support the brand image
The main goal of all for profit companies is to get the highest return on investment. Hence, they try to exist with prices in the market for the highest return, taking into account the demand for their products and their cost. Maximizing sales does not always mean maximizing profits. A company that offers a discount at the end of the season also aims to maximize sales. On the other hand, the company that invoices a new product with high demand has the same goal.
It is the highest price level the company can choose for its products and services for the highest return per unit of time. The company prefers the concept of the unit of time. In this case, the company determines the pricing policy taking into account the competitors and requirements in the market. At this point in time, the prices determined are between the lowest and the highest price limit. While new entrants pursue a low price strategy to attract customers, they can increase prices to or above the market average after reaching the desired sales amount.
Ensuring the target return or maximizing the investment
The most important issue companies consider when investing is return on investment. The aim is to cover the investment costs as quickly as possible and to make a profit for the company after this phase. The company determines the payback period of the investment, which should be made before the investment. Accordingly, it is decided whether or not to make the investment.
Maximize cash flow
Cash flow is an important element that enables a business or corporation to carry out its activities without interruption. In the event of interruptions or irregularities in the cash flow, there is a risk of the business being interrupted. How this can be prevented depends on the inflow of money that the company can generate, namely the sales volume and then the hot money. As a result, the company must reach the consumer at the price point with the most profitable and highest selling price.
Price is one of the most important weapons in improving competition. Although companies usually try to survive in the market with low prices, this does not always lead to the same result. On the other hand, a low price doesn’t produce good results in the long run. Price plays an important role in how the consumer perceives product quality. For example, Chinese goods are usually cheap and of poor quality in the market. In addition to the low price strategy, high prices are an important instrument.
Ensuring price stability or tradition
The price is one of the most important tools to position the product and the brand in the consumer’s mind. A very high priced product can convey the message of very high quality or luxury consumer goods. On the other hand, an inexpensive product can be both poor quality and reasonable. However, once a product or brand is positioned in the consumer’s mind, it is not easy to reposition it at another point.
Companies should choose a positioning strategy that fits their mission and vision, and then apply the correct pricing guidelines. On the other hand, one of the basic principles for creating customer loyalty is that consumers do not experience negative surprises about the product and the brand. If the product positioned for the consumer in a certain price range is outside of this range, question marks may arise for the consumer. For this reason, companies’ pricing policies must be stable.
Support the image of the product brand
The price is one of the most important tools for consumers to perceive the product. In pricing, companies consider the prices of similar products and substitutes in the market. Based on these prices, they decide where they want to position their products. Of course, it should be noted that price alone never has an impact on product perception. According to other products in the market; The quality of the product, utility, value, etc. are also important.
Get rid of property
Getting rid of the goods is a method used by companies whose products change regularly. The discounts granted at the end of the season in the textile sector, usually in December for automotive companies. In the food industry, an example can be given of when the product is approaching the expiration date. The main purpose is to extract the cost whenever possible, if not to prevent the products with the least damage from being withheld. A similar approach is used by companies leaving their current markets to change business.
You can use the following steps to create a pricing strategy. The pricing phase is a process that is carried out taking into account the company’s internal and external factors. It essentially consists of seven stages. These:
- Selection of the price purpose
- Examination of the application
- Cost review
- Selection of the pricing method
- Examination of the price offers of the competitors
- Determination of the final price
- Adjustments in the final price
Pricing guidelines are methods companies use to support their pricing strategies. There are six top prize guidelines. These:
- Unit price and negotiated price
- Pre-determined and recommended price
- Guaranteed price
- Psychological price
- Reduced price
- Geographic price
FAQ on creating a pricing strategy
Bundle (basket) prices consist of more than one product and offer lower prices than individual sales. The reference prices depend on previous prices, current prices and the purchase status.
It is a pricing and marketing strategy based on the fact that the pricing of some products creates greater psychological perception among consumers.
Competitor prices determine this pricing method. Competitive pricing, also known as market-based pricing, involves basing prices on a competitor’s prices rather than taking into account consumer demand and your own costs.
This method is to reduce the amount by keeping the price constant rather than increasing the price.
It is a pricing strategy where prices vary in real time based on supply and demand.
Conclusion on pricing strategies
In short, to create a pricing strategy, you decide how much your products are worth and how much you value your products in competition with your competitors. Apply your pricing strategies in the most accurate way possible. Once you’ve completed all of these processes, the next step is to develop a branding strategy if you don’t already have one. However, this topic requires more than a single mention. So be sure to read our article on the subject.