10 Most Practical Pricing Strategies (with real world examples) | From A Business Professor

Summary

This video from Business School 101 delves into the complexities of product and service pricing, outlining 10 key strategies. It explores competition-based, cost-plus, freemium, dynamic, skimming, penetration, economy, premium, bundle, and psychological pricing. Each strategy is dissected with real-world examples, highlighting their advantages and potential pitfalls. The video serves as a comprehensive guide for executives and marketers seeking to optimize pricing for revenue growth.

Takeaways

• 📈 **Competition-Based Pricing**: Setting prices based on market rates and competitors' prices, useful in saturated markets but may not consider product cost or consumer demand.
• 💲 **Cost-Plus Pricing**: Pricing based on the cost of production plus a desired profit margin, commonly used by retailers but may not reflect customer perceived value.
• 🆓 **Freemium Pricing**: Offering basic product features for free and charging for advanced features, popular in software industry to attract users and convert them into paying customers.
• 📉 **Dynamic Pricing**: Prices that fluctuate based on supply and demand, used by airlines and hotels, but can lead to customer dissatisfaction if perceived as unfair.
• 💎 **Skimming Pricing**: High initial prices for new products that decrease over time, beneficial for recovering R&D costs quickly but may attract competition.
• 📉 **Penetration Pricing**: Low initial prices to gain market share quickly, effective for customer acquisition but may lead to low customer loyalty and brand image issues.
• 💼 **Economy Pricing**: Keeping prices low with minimal margins to attract price-sensitive customers, suitable for companies with low overheads but can lead to intense competition.
• 🏆 **Premium Pricing**: High prices to reflect luxury or high value, used by luxury brands to maintain a prestigious image but requires consistent quality to sustain.
• 🎁 **Bundle Pricing**: Selling multiple products as a single package at a discounted price, encourages purchase of multiple items but may not appeal to customers who only want individual items.
• 🧠 **Psychological Pricing**: Pricing strategies that influence customer behavior, like using $9.99 instead of $10, to create a perception of value or savings but can be seen as deceptive if overused.

Q & A

What are the 10 common pricing strategies introduced in the video?

The video introduces 10 common pricing strategies: competition-based pricing, cost-plus pricing, freemium pricing, dynamic pricing, skimming pricing, penetration pricing, economy pricing, premium pricing, bundle pricing, and psychological pricing.

How does competition-based pricing work?

Competition-based pricing focuses on the existing market rate for a product or service, using competitors' prices as a benchmark without considering the cost of the product or consumer demand.

What is the main advantage of using cost-plus pricing strategy?

The main advantage of cost-plus pricing is that it ensures coverage of all costs and generates desired returns, eliminating the risk of loss and ensuring customer payments meet the seller's minimum expectations.

Why is freemium pricing popular among software companies?

Freemium pricing is popular among software companies because it allows them to offer basic functionality for free, attracting users and building trust before they decide to upgrade to paid versions with more features.

How does dynamic pricing differ from other pricing strategies?

Dynamic pricing fluctuates prices based on market and customer demand, using algorithms that consider factors like competitor pricing, demand, and other variables to match what customers are willing to pay at a given time.

What is the primary goal of skimming pricing strategy?

The primary goal of skimming pricing strategy is to charge the highest possible price for a new product initially and then lower the price over time as the product becomes less popular.

How does penetration pricing help in building market share?

Penetration pricing helps in building market share by offering a lower price during the initial offering of a product or service, attracting customers away from competitors and encouraging them to try the new offering.

What are the benefits of economy pricing for companies with low overhead costs?

Economy pricing allows companies with low overhead costs to sell products at a very low price with a minimum margin, which can increase sales volume and help cover fixed costs without the need for high marketing expenses.

How does premium pricing strategy reflect the perceived value of a product?

Premium pricing strategy presents products as high value, luxury, or premium by setting high prices, focusing on the perceived value rather than the actual production cost, which is often used by fashion and high-tech companies to convey exclusivity and status.

What is the purpose of bundle pricing strategy in the context of restaurants?

In restaurants, bundle pricing groups several food items into a single price, often creating meal deals that complement each other, encouraging customers to purchase an entire meal rather than individual items.

How does psychological pricing influence customer behavior?

Psychological pricing uses tactics like pricing ending in .99, discounts, or BOGO offers to appeal to customers' psychological needs for savings or value, influencing their spending habits and making higher value sales.