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.

Outlines

00:00

🔑 Introduction to Pricing Strategies

This paragraph introduces the topic of pricing products and services, highlighting the challenges faced by business executives and marketing managers. It emphasizes the importance of setting the right prices to balance sales and revenue. The speaker outlines 10 common pricing strategies, including competition-based, cost-plus, freemium, dynamic, skimming, penetration, economy, premium, bundle, and psychological pricing. Each strategy will be discussed with real-world examples, advantages, and disadvantages.

05:02

💼 Competition-Based and Cost-Plus Pricing Strategies

The first two pricing strategies discussed are competition-based and cost-plus. Competition-based pricing focuses on market rates and competitor prices, ignoring cost and consumer demand. It's simple to implement and low risk but may be unsustainable long-term and doesn't account for unique product value. Cost-plus pricing, also known as markup pricing, is based on the cost of production plus a desired profit margin. It's reliable, easy to explain, and requires little research but may not reflect customer value and can reduce efficiency.

10:02

🆓 Freemium and Dynamic Pricing Strategies

Freemium pricing offers a free version of a product with basic functions, hoping users will upgrade to access more features. It's common in software companies and helps build trust and attract customers. However, it can burn cash flow and result in sunk costs if conversion rates are low. Dynamic pricing, also known as surge or demand pricing, fluctuates prices based on market demand and customer willingness to pay. It's used by hotels, airlines, and ride-sharing services like Uber. Advantages include staying competitive, understanding customer behavior, and maximizing profits, but it can provoke customer reliance and increase competition.

15:03

📉 Skimming and Penetration Pricing Strategies

Skimming pricing involves setting high initial prices for new products and lowering them as popularity declines. It's used for technology products and can increase return on investment, maintain brand image, segment the market, and utilize early adopters for product testing. However, it may not fit crowded markets, can attract competitors, and anger early adopters if prices drop too soon. Penetration pricing offers lower initial prices to attract customers and build market share, with the hope of retaining them as prices rise. It's exemplified by Netflix's subscription model and can lead to high adoption, marketplace dominance, economies of scale, and high inventory turnover. Disadvantages include creating low price expectations, low customer loyalty, and potential damage to brand image.

20:04

💰 Economy and Premium Pricing Strategies

Economy pricing keeps product prices low with minimal margins, aiming to increase sales volume. It's used by companies with low overhead costs and is suitable for commodity goods. Advantages include increased market share, survival during recessions, and covering fixed costs. However, it can lead to less brand exposure, poor quality, high risk, and fierce competition. Premium pricing, or prestige pricing, sets high prices to convey luxury or high value. It's common in fashion and high-tech industries and can result in high profit margins and strong customer loyalty. Challenges include maintaining the premium brand image, vulnerability to the boomerang effect, and limited growth potential.

25:05

🎁 Bundle and Psychological Pricing Strategies

Bundle pricing groups multiple products or services into a single package price, simplifying the buying experience and increasing sales of low-volume products. It's prevalent in restaurants and service providers like cable companies. However, it may not suit customers who prefer individual items or don't need the entire bundle, potentially increasing cognitive load. Psychological pricing uses tactics to influence customer behavior, such as pricing items at $9.99 instead of $10. It can boost attention, simplify decision-making, and offer high returns on investment. However, it can be seen as deceptive, damage brand reputation, and doesn't guarantee long-term sales.

Keywords

💡Pricing Strategies

Pricing strategies are methods used by businesses to set the prices of their products or services. In the video, various strategies are discussed to help companies understand how to set the right prices for their audience and revenue goals. These strategies are crucial for business success as they can influence customer behavior, market share, and ultimately, profitability.

💡Competition-Based Pricing

Competition-based pricing, also known as competitive pricing, involves setting prices based on the market rates and competitors' prices. It's mentioned in the video as a strategy where businesses use their competitors' pricing as a benchmark. An example given is the pricing competition between Pepsi and Coca-Cola, where their prices remain similar, with Pepsi being slightly cheaper on average.

💡Cost-Plus Pricing

Cost-plus pricing, also known as markup pricing, is a strategy where businesses set their prices by adding a markup to the cost of goods sold (COGS). The video explains this strategy as focusing solely on the cost of production and the desired profit margin. It's typically used by retailers selling physical products and is exemplified by adding a fixed amount or percentage to the overall unit cost.

💡Freemium Pricing

Freemium pricing involves offering a basic version of a product for free while charging for additional features or premium services. The video describes this strategy as common among software companies, using Dropbox as an example, where a basic free tier is offered alongside paid plans for more storage.

💡Dynamic Pricing

Dynamic pricing, also known as surge or demand pricing, is a flexible strategy where prices change based on market conditions and customer demand. The video uses Uber's pricing algorithm as an example, where fares adjust based on time, distance, traffic, and rider-to-driver demand.

💡Skimming Pricing

Skimming pricing involves setting high initial prices for new products and then reducing them over time as the product becomes less popular. The video mentions technology products like smartphones as typical examples, using the Samsung Galaxy S20's price drop after the release of the S21 as an illustration.

💡Penetration Pricing

Penetration pricing is a strategy where a lower price is offered for a new product to attract customers and gain market share. The video cites Netflix as an example, where the company offers a one-month free subscription to entice new customers.

💡Economy Pricing

Economy pricing is a strategy where companies keep their prices low with minimal margins to attract price-sensitive customers. The video discusses how this strategy is used by companies with low overhead costs, such as supermarket store brands and budget airlines.

💡Premium Pricing

Premium pricing, also known as prestige or luxury pricing, is where products are priced high to reflect their perceived value, exclusivity, or luxury status. The video explains that this strategy is often used by fashion and high-tech companies, with examples including luxury cars and tech giants like Apple and Dyson.

💡Bundle Pricing

Bundle pricing involves grouping multiple products or services together and selling them at a single price. The video describes how this strategy is used in restaurants to create meal bundles and by internet and cable companies to offer packages of channels.

💡Psychological Pricing

Psychological pricing uses pricing tactics to influence customers' perceptions and spending habits. The video discusses techniques such as the 'nine-ending' effect (e.g., $9.99) and 'buy one, get one free' deals to make prices seem more attractive and encourage purchases.

Highlights

Introduction to 10 common pricing strategies for businesses.

Competition-based pricing focuses on market rate and competitors' prices.

Cost-plus pricing strategy is based on the cost of production plus desired profit.

Freemium pricing offers basic product features for free with options to upgrade.

Dynamic pricing fluctuates prices based on market demand and customer behavior.

Skimming pricing sets high initial prices for new products and lowers them over time.

Penetration pricing uses lower prices to attract customers and build market share.

Economy pricing keeps product prices low to attract price-sensitive consumers.

Premium pricing positions products as high-value or luxury items with higher prices.

Bundle pricing groups multiple products or services together at a single price.

Psychological pricing influences customers' perceptions and spending habits.

Advantages of competition-based pricing include simplicity and low risk.

Disadvantages of cost-plus pricing may include not correlating to customer value.

Freemium pricing can burn out cash flow and result in sunk costs.

Dynamic pricing can alert businesses to competition and better understand customer behaviors.

Skimming pricing can increase ROI and maintain brand image but may attract competitors.

Penetration pricing can lead to high adoption and marketplace dominance.

Economy pricing helps companies cover fixed costs and survive economic recessions.

Premium pricing offers high profit margins and creates high entry barriers for competitors.

Bundle pricing simplifies the buying experience and increases sales of low-volume products.

Psychological pricing can boost attention and simplify consumers' decision-making process.

Final thoughts on the importance of choosing the right pricing strategy for business success.

Transcripts

hello everyone welcome to business

school 101 pricing products and services

can be tough for most business

executives and marketing managers if

they set prices too high they might miss

out on valuable sales however if they

set prices too low they might enable to

increase revenue thankfully pricing

doesn't have to be a sacrifice or a shot

in the dark there are many well

established and real world proven

pricing strategies that can help

companies better understand how to set

the right prices for their audience and

revenue goals in this video i will

introduce the 10 most common pricing

strategies to you these strategies are

competition based pricing strategy cost

plus pricing strategy free mayan pricing

strategy dynamic pricing strategy

skimming pricing strategy penetration

pricing strategy economy pricing

strategy premium pricing strategy bundle

pricing strategy and psychological

pricing strategy

within each strategy i will provide its

real-world examples advantages and

disadvantages respectively

one

competition-based pricing strategy

competition-based pricing is also known

as competitive pricing or competitor

based pricing this pricing strategy

focuses on the existing market rate for

a company's product or service it uses

the competitors prices as a benchmark

and doesn't take into account the cost

of its product or consumer demand

companies who compete in a highly

saturated industry may choose this

strategy since a slight price difference

may be the deciding factor for customers

a classic example of a competitor-based

pricing strategy is between pepsi and

coca-cola

both brands compete against each other

over pricing quality and features and

their prices remain similar although

pepsi is slightly cheaper than coke on

average

advantages number one

competitor-based pricing model is very

simple to implement as it requires basic

research and insight into who your

competitors are and what they're doing

with products and prices

number two

low risk since your competitors are

well-known players in the market and

have been around for quite some time the

chances are slim that your pricing

strategy might go wrong if you base it

according to them

disadvantages

number one unsustainable in the long

term this is a model attributed to

short-term goals and you'll be casketing

your profits in the long run if you

follow the same because as you scale you

need to evolve your pricing strategy

based on your product and not based on

what someone has to offer

number two can't see the wood for the

trees when you're implementing a

competitor-based pricing model you'll be

missing out on details that your

competitors might have because if they

went wrong you go wrong as well this

might take a hit on your profits and

revenues in the future number three one

amongst a herd since the

competition-based pricing strategy is

implemented solely based on your

co-market players you will not be seen

as different and will be a part of a

huge hurt offering the same products and

services this will not help your brand

stand out and neither can you explain to

your customers why your product is

priced in this particular way

two cost plus pricing strategy a cost

plus pricing strategy focuses solely on

the cost of producing the product or

service or your cogs it's also known as

markup pricing since businesses who use

this strategy markup their products

based on how much they'd like to profit

cost plus pricing is typically used by

retailers who sell physical products

however this strategy isn't a best fit

for service based companies as services

typically offer far greater value than

the tangible cost to create them to

apply the cost plus method a company

normally adds a fixed amount or

percentage to its overall unit cost for

example let's say you sold toys the toy

cost ten dollars for manufacturing and

another ten dollars for packaging

transporting and marketing so your

overall unit cost is twenty dollars now

you want to make a ten dollar profit on

each sale therefore you'd set a price at

thirty dollars per unit which is a

markup of fifty percent

advantages

number one reliable with the cost plus

method you can ensure you're covering

all your costs and generating your

desired returns for example a contractor

who uses cost plus pricing on agreements

with clients can guarantee they receive

payment for their services and achieve

their profit margin expectations this

eliminates the risk of loss and ensures

that no matter what happens throughout

the contract customer payment meets the

seller's minimum expectations

number two easy to explain another

benefit to cost plus pricing is that it

can be simple for customers to

understand and accept because there are

relatively few components involved

explaining how you arrived at your price

to customers rarely requires a

complicated explanation

number three require little research

cost plus pricing can be helpful if you

have limited information surrounding

customer expectations competitor pricing

or market demand the only data needed

for cost plus pricing are your own costs

and desired profit margins

disadvantages

number one

not always correlate to customers value

one potential drawback to the cost plus

method is that customers don't always

equate the cost to value often customers

are most willing to spend when they

perceive a product or service to be

worth their investment if something is

costly to produce but offers little

value to the customer they may be

reluctant to spend money on the offer

number two reduce efficiency another

potential challenge to cost plus pricing

is its potential to interfere with the

company's efficiency often companies aim

to lower their operating costs and

expenses so they're able to increase

their profitability with cost plus

pricing however suppliers fix their

margins and guarantee return rates so

they may be less motivated to reduce

costs

number three not taking into account the

competition cost plus considers only

internal factors and so it can sometimes

ignore important external factors like

competitor offerings this can create a

challenge because if a company prices

its product too low it can sacrifice

potential profits if they price it too

high customers may purchase a

competitor's offering instead

three freemium pricing strategy a

combination of the words free and

premium freemium pricing is when

companies offer a free version of their

product with basic functions and hope

their users will eventually pay to

upgrade or access more features unlike

cost plus freemium is a pricing strategy

commonly used by software companies they

choose this strategy because free trials

and limited memberships offer a peek

into a software's full functionality and

also build trust with a potential

customer before purchase dropbox is a

file hosting service company that offers

cloud storage file synchronization

personal cloud and client software it

provides a basic free tier and then two

upgraded plans that include more storage

and users since its freemium model is

not offered as a tier it's strategically

positioned to entice customers who may

block at the price while minimizing any

anchoring effect

advantages

number one no barrier the consumer

market has become competitive many

software companies target customers and

want them to try out their products it's

important to keep in mind that the term

free attracts the attention of customers

that's why nowadays a lot of software

companies and app developers offer

freemium services while launching their

products

number two build database if you're a

startup company and you want customers

to try out your product and then further

improve your product and service then

you should start with freemium this

strategy would help you to attract a

large number of customers even if you

are nobody in the industry the large

database of free users could help you

better understand your customers real

needs

disadvantages

number one

burn out cash flow when companies start

offering products or services for free

to a large number of customers it would

keep burning out cash reserves in

extreme cases it puts their business in

great financial jeopardy

number two

sunk cost helping out and supporting the

free users don't guarantee that it would

increase the conversion rate sometimes

the money spent on free users is higher

than the income companies earn from paid

users

4. dynamic pricing strategy dynamic

pricing is also known as surge pricing

demand pricing or time-based pricing

it's a flexible pricing strategy where

prices fluctuate based on market and

customer demand hotels airlines event

venues and utility companies use dynamic

pricing by applying algorithms that

consider competitor pricing demand and

other factors these algorithms allow

companies to shift prices to match when

and what the customer is willing to pay

at the exact moment they're ready to

make a purchase for example in 2020 as

one of the largest ride sharing service

providers uber has more than 90 million

active users around the world uber's

dynamic pricing algorithm adjusts the

ride fares based on three major

variables time and distance of your

route traffic and peak hours and current

rider to driver demand despite the

criticism of unfair price surges uber

stands by their algorithm and claims

that it helps the system manage supply

and demand issues and provides drivers

with incentives to work in difficult

circumstances

advantages

number one alert to the competition when

you decide to implement a dynamic

pricing strategy by default you need to

start thinking about your competitors

who are they what prices do they use how

often they are changing them and why the

more patterns you're able to spot the

better this tactic will allow you to be

on top of all key market trends

number two better understand customer

behaviors dynamic pricing can help

companies to become more aware of who

their customers are and how they

purchase with it the demand curve for

each customer becomes easier to

calculate this curve shows the minimum

and the maximum price that a customer is

willing to pay for a product or service

understanding the relationship between

the price and demanded quantity is the

first and foremost step in building a

model of consumer behavior

number three boost sales and maximize

profits when a company has a better

understanding of its customer behavior

it can better analyze consumers shopping

patterns accordingly they can charge

different prices for different consumers

to maximize sales and profits

disadvantages

number one provoke customer reliance no

one likes to feel like they've been

cheated on however that's exactly what

happens when the customers find out that

someone else is selling the product that

they've already bought at a lower price

dynamic pricing was good in terms of

profit however companies do run the risk

of alienating their customers if they

find out that there was a more favorable

option on the market customers could

become dissatisfied and they tend to

leave bad reviews

number two increase competition building

a customer's trust can take very long

but it also can be destroyed in a matter

of seconds no matter how much they love

your brand if they feel that they've

been tricked you'll see them turning

their back to you when this happens it's

always followed by increased competition

in the whole industry more companies

than tend to take your place and

eventually take over the unsatisfied

customers

five skimming pricing strategy a

skimming pricing strategy is when

companies charge the highest possible

price for a new product and then lower

the price over time as the product

becomes less and less popular technology

products such as flat screen tvs video

game consoles and smartphones are

typically priced using this strategy as

they become less relevant over time for

example when samsung first released its

2020 flagship smartphone galaxy s20 the

price was 999

however one year later after the release

of the galaxy s 21 the price of the

galaxy s 20 significantly dropped to

around six hundred dollars

advantages

number one increase return on investment

charging the maximum initial price of

the introduction of a new product

particularly in high-tech industries

might assist your company in recouping

rnd and advertising costs

number two maintain the brand image

price skimming can also give the

impression that a product is a high

quality must-have for buyers who can't

live without the latest technology

higher costs at the start of a product's

life cycle allow the company to develop

a prestigious brand image that attracts

status aware consumers

number three divide the market into

segments the advantages of price

skimming as previously noted is an

excellent strategy to segment your

consumer base potentially allowing you

to collect the most possible profits

from different categories of customers

as you lower the price

number four early adopters help in the

testing of new products one advantage of

early adopter customers is that they

serve as test subjects for new items

those status conscious customers who buy

your new product first can provide vital

feedback and assist you in ironing out

the wrinkles before the next update and

hopefully a larger user base

disadvantages

number one

not fit the crowded market one of the

disadvantages of price skimming is that

it's not a realistic approach in an

industry that has so much crowd so

unless your product has incredible new

features that no one can match it may be

best to avoid skimming if you want to

preserve a competitive advantage

number two not effective if the demand

curve is elastic another price skimming

disadvantage is that it's only effective

if your demand curve is inelastic if

your product demand curve is usually

elastic which means that price

adjustment has a stronger effect on

product demand then starting with high

prices could substantially hinder your

sales

number three attracts competitors the

success of high prices at the start of a

new products life cycle will entice

competitors to enter the market skimming

pricing might also delay the rate of

adoption by your potential clients

allowing your competitors more time to

mimic and improve on your product before

you capitalize on the demand for the

innovation

number four anger the early adopters the

final disadvantage of price skimming is

that it may anger your early adopters if

prices drop too drastically or too soon

after the first product introduction

companies early users will feel cheated

6 penetration pricing strategy

penetration pricing is a pricing

strategy used by companies to attract

customers to a new product or service by

offering a lower price during its

initial offering the lower price helps a

new product or service penetrate the

market and attract customers away from

competitors the goal of a price

penetration strategy is to entice

customers to try a new product and build

market share with the hope of keeping

the new customers once prices rise back

to normal levels penetration pricing

examples include an online news website

offering one month free for a

subscription based service or a bank

offering a free checking account for six

months

netflix is the perfect real world

example of penetration pricing done

right we have often heard people

complaining about their netflix

subscription prices going up or their

one month of free subscription ending

nevertheless despite occasional

grumbling people are completely fine

with paying the higher subscriptions for

the unending flow of good media content

advantages

number one

high adoption and diffusion penetration

pricing enables a company to get its

product or service quickly accepted and

adopted by customers

number two marketplace dominance

competitors are typically caught off

guard by a penetration pricing strategy

and are afforded little time to react

the company can utilize the opportunity

to switch over as many customers as

possible

number three economies of scale the

pricing strategy generates a high sales

quantity that enables a firm to realize

economies of scale and lower its

marginal cost

number four high inventory turnover

penetration pricing results in an

increased inventory turnover rate making

vertical supply chain partners such as

retailers and distributors happy

disadvantages

number one low price expectation when a

firm uses a penetration pricing strategy

customers often expect permanently low

prices if prices gradually increase

customers may become dissatisfied and

may stop purchasing the product or

service

number two low customer loyalty

penetration pricing typically attracts

bargain hunters or those with low

customer loyalty said customers are

likely to switch to competitors if they

find a better deal price cutting while

effective for making some immediate

sales rarely engenders customer loyalty

number three damage brand image low

prices may affect the brand image

causing customers to perceive the brand

as cheap or poor quality

7. economy pricing strategy economy

pricing is the way that the company

keeps its product selling price very low

with a minimum margin the company

believes that the lower product price

compared to a competitor will increase

its sales volume they can archive this

by decreasing overhead costs marketing

and advertising expense economy pricing

is used a lot in the commodity goods

market it's a great strategy for

companies that have low overhead costs

and the ability to sell a larger number

of products to customers regularly here

are a few real world examples first

supermarket store brands some grocery

stores have their own version of popular

brands companies like trader joe's aldi

and costco are excellent examples that

capitalize on economy pricing to drive

their growth

second generic drugs and medications

much like supermarket store brands there

are lots of different types of generic

over-the-counter medications available

through companies like cvs and rite aid

third budget airlines many airlines such

as southwest spirit and frontier

airlines try to keep their prices and

fares lower than competitors they

usually do this by not offering services

like free food and drink on a flight and

keeping fines from airports low by

keeping on time they also usually only

use one type of aircraft

advantages number one

increase market share if the company

decreases its marketing advertising

costs and reduces the overhead cost it

will still have a significant profit

this means economy pricing helps in

gaining profit regardless of the

investment costs

number two easy to survive during the

economic recession with the slowdown in

economic activity for a particular

period consumers try to save money as

much as they can during this time they

tend to choose the more affordable

products and services

number three help to cover the fixed

cost

many companies will confront huge sunk

costs before making a profit that is

primarily fixed cost so it is smarter to

deliver mass items of a low value to

cover some piece of the fixed cost

disadvantages

number one less brand exposure in

economy pricing companies cut down their

marketing and advertising costs without

proper marketing and advertising

products will not appear in front of the

right audience

number two poor quality in economy

pricing the company needs to reduce its

overhead costs when a company reduces

its costs it might go for low quality

equipment and higher staff that can

charge less so this might affect the

quality of the production

number three high risk companies that

choose economy pricing strategies

normally have a razor thin profit margin

if their costs of goods or services

increase they might suffer huge losses

or even run out of business

number four fierce competition economy

pricing also increases the competition

in the current market once new startups

see your company progressing they'll try

to copy you they might come up with an

identical product at a lower price to

attract your audience to their

development

eight premium pricing strategy also

known as prestige pricing and luxury

pricing a premium pricing strategy is

when companies price their products high

to present the image that their products

are high value luxury or premium it

focuses on the perceived value of a

product rather than the actual value or

production cost fashion and high-tech

companies often use this strategy

because they can be perceived as

luxurious exclusive and rare examples of

this strategy can be seen in the luxury

car and tech industries car companies

like mercedes or bmw can get away with

higher prices because they're offering

products that are more unique than

anything else on the market additionally

tech giants like apple and dyson can

sell their products at a premium price

compared to their competitors because of

their unique designs or functions

advantages

number one high profit margin companies

charge high prices because they add more

value to the product due to high margins

companies may not rely on large sales

volumes to cover operating costs and

turn a profit

number two high entry barrier usually

consumers tend to be loyal they find the

product satisfies their needs and wants

strong loyalty ultimately results in

high switching costs competitors need

massive investments to be competitive

they may find it difficult to offer

similar products at the same price point

because they have to effectively build

consumer perceptions

disadvantages

number one difficult to maintain

to implement the premium pricing

effectively the company must maintain

the relevance and consistency of its

premium brand image in unique selling

points it is a difficult task because

consumer tastes and competitive maps are

dynamic

number two more vulnerable strategies

are vulnerable to a boomerang effect

failure or damage of a few products can

damage the company's overall product

image in some cases the products quality

is not better it's just that the company

invests a lot in marketing which builds

a high quality image of the product once

consumers find out they won't rebuy it

number three less potential for growth

sales growth may be more moderate the

company sells limited products to give

the impression of exclusivity like some

luxury items the rarer they are the more

valuable they are as a result the

company had a hard time catching up with

aggressive sales growth

9. bundle pricing strategy bundle

pricing is a business strategy where

companies group several products into a

bundle and sell them at a single price

rather than attribute individual prices

to each item this means that a bundle is

now an individual product businesses may

also apply this pricing strategy to a

variety of services in addition to items

and products bundle pricing is widely

applied in restaurants and fast food

chains because it allows them to create

bundles of food items that complement

each other which can encourage the

customer to purchase an entire meal

rather than a single item in addition

internet and cable companies such as at

t verizon and comcast can also benefit

from using a bundle pricing strategy

they offer their customers several

options for channel preferences all of

which have different price points and

values

advantages

number one

simplify the buying experience bundling

complementary products or services

typically encourages customers to

purchase your offering as the value you

provide increases further bundles

simplify the buying experience by

reducing the number of choices the

customer needs to make

number two

increases sales of low volume products

not every product you have will be a

best seller some may even underperform

in this situation bundle pricing can

help you boost low volume products by

bundling them with popular products

please keep in mind that the products

should be complementary and increase the

value of the bundle

disadvantages number one

customers may prefer individual products

over the whole bundle some customers

value their ability to choose what they

buy with bundle pricing you are taking

that freedom away which negatively

impacts their buying experience

number two customers may not need all

products in the bundle

the perfect bundle is measured by how

much value you add to the customer in

your business customers who do not need

or value certain products or services in

the bundle will feel like they are

overpaying and look for other options

number three increase the cognitive load

the amount of mental energy it takes to

complete a task or make a decision is

known as a cognitive load complex

bundles may increase a customer's

cognitive load to a point where they

have analysis paralysis making decisions

more difficult for example choosing a

single a t and t cable bundle can be an

honors task if you really want to do

your due diligence and review what

channels come with each

10 psychological pricing strategy

psychological pricing is a strategy that

uses pricing to influence customers

spending or shopping habits to make more

higher value sales the goal is to meet

customers psychological needs for

something whether that's saving money

investing in the highest quality item or

getting a good deal for example

according to the nine digit effect even

though a product that costs

9.99 is essentially 10

customers may see this as a good deal

simply because of the nine in the price

another way to use psychological pricing

would be to place a more expensive item

directly next to the one you're most

focused on selling or offer a buy one

get one free deal that makes customers

feel as though the circumstances are too

good to pass up on and lastly changing

the font size and color of the pricing

information on and around the products

has also been proven in various

instances to boost sales

advantages

number one boost attention who can

resist a fifty percent discount offer or

mark down items with before and after

prices like from one hundred dollars to

eighty nine dollars and ninety nine

cents having big red signs advertising

your product promotion will surely force

people to go and check what you're

selling

number two simplify consumers decision

making process most psychological

pricing strategies simplify the decision

making process for customers with the

discount or promotion laid out before

consumers they tend to spend less time

thinking about it because the offer is

clear this is good for retailers that

thrive off of one-time sales

number three high return

one-time sales can offer a high return

on investments especially during peak

volume seasons like holidays promotions

that attract the masses are likely to

get a higher return at the end of the

day

disadvantages

number one

deceptive many psychological pricing

strategies are based on the notion that

customers are buying on impulse rather

than well-researched thoughts customers

who thoroughly think before purchasing

will recognize manipulative pricing

schemes they will either control not to

buy or leave your store for good and

shop somewhere else number two

damage brand reputation if you set rock

bottom prices just to trick your

consumers into a quick deal they will

think your product is low quality and

expect the lowest price possible

number three no sales guarantee using

psychological pricing tactics is not a

long-term pricing solution well it may

increase your sales but only for a short

time some consumers will not mind paying

higher prices because they prefer a

different brand just because you lowered

your pricing does not mean you'll get

new customers

besides the above 10 most common

strategies there are also many other

strategies such as geographical pricing

strategy and hourly pricing strategy

they are either very straightforward or

only fit limited or specific scenarios

please always keep in mind that pricing

strategies are not one size fits all

finding the proper pricing strategy is

dependent on your industry as well as

your company's unique objectives

alright that's all for today's topic so

what do you think about the different

pricing strategies please leave your

thoughts in a comment below i hope that

you guys have enjoyed this video and if

you did make sure you give it a thumbs

up and subscribe to my channel thanks

for watching and i will see you next

time