Getting the fundamentals right can make or break a small business like yours. One of the most important building blocks for entrepreneurial success is choosing the right pricing strategy.
So what are the top pricing strategies to consider? In this post, we’ll cover the main options to help you decide which is right for you.
Economy Pricing Strategy: Though it’s not an ideal approach in most circumstances, many small businesses try their hand at this lowest common denominator style of pricing. The idea behind economy pricing is simple: offer the cheapest price on your products.
It’s a strategy that certainly gets customers through the door, but it’s not sustainable for most small businesses. Large retailers can afford to cut external costs to maintain their profit margins, but few small businesses have this luxury. We recommend that you avoid this type of competitive pricing, however tempting it may be, unless you have the connections and cost cutting capabilities to still make a healthy profit.
Premium Pricing Strategy: When done well, pricing your products according to this strategy can actually reap more profits. Premium pricing functions just the way it sounds – businesses who use this approach price higher than the competition in order to increase value perception in the eyes of their customers. This, in turn, can boost sales.
If you choose this approach, however, make sure your products and your shop or service offer quality to match your prices. Brand, market, and produce carefully and you could see big profits.
Discount Strategy: This strategy involves providing regular sales and discounts. It’s often a strong method for increasing sales, yet, if done poorly, it can cause more harm than good. If you choose to offer regular discounts, make sure you are making enough profit margin to stay in business! Be aware as well, that offering too many sales may cause customers to see your products or services as low value.
Value Pricing Strategy: Value based pricing requires a bit of research to implement, but is often a great approach in the long run. It is simply structured on the concept that price is based on your customers’ value determination.
In order to use this strategy correctly, you must first understand how much value your customers place on your product. For example, if you sell white t-shirts you could charge anywhere from a few dollars for a scratchy and poor quality piece to over a hundred dollars for a designer-made and organic Egyptian cotton example. This strategy depends upon nothing more than the perception of value, so if you choose to use it, make sure you’ve done your market research and your profit calculations.
It’s absolutely essential that small business owners and managers like you take the time to properly vet pricing options. If not, you risk the very survival of your business.
In addition to using the best pricing strategy for your business, it’s also essential to get payments right. Agile Payments offers payment system integration services including Electronic Bill Presentment & Payment Systems. Find out more today.