Do you know that having a strong product pricing strategy can give your business a competitive advantage? How did Wal-Mart become the world largest retail chain? Why is Apple the most valuable technology company despite having highly priced products? The answer is that these companies have a well thought out product pricing strategy.
Regardless of whether you intend to offer your products at a low-price or high price, you must first understand your market and strategize according to its demand and income level. Learning how to create a competitive product pricing strategy in business is crucial, especially if the goal of your marketing plan is to increase market share and survive in a very competitive environment. To pave the way for a solid foundation, so that your business can survive and grow in the long term, you need to focus a good part of your energy on establishing a competitive pricing strategy.
Does your business have a strong pricing strategy on ground? If no, then do you want to learn how to create a competitive product pricing strategy. Well, here are some effective ideas to consider.
How to Create a Competitive Product Pricing Strategy in Business
Pricing strategies are in fact considered to be the main competitive strategy every business must exploit. This is so as most businesses, whether small, medium, or large in scale rely on reducing their prices just to stay competitive in their business niche. It is also the costliest among the strategies that businesses used, and it is very hard to reverse when needed. In some cases, using the pricing strategy to stay competitive can be very disruptive throughout markets; because once you have lowered the price of your products and services to have things going your way, restoring it can be next to impossible. So how do you go about creating a strong pricing strategy?
First Understand your market
Since price is an important component of the “4 Ps” of marketing, and a complex subject itself; then you must work your prices to reflect the value you are providing as opposed to your competitors. This will require you to consider carefully what your market can afford to pay for your product or services, thereby enabling you to zero in on your target market share objectives; while obtaining revenue at the same time. The best part of it all is having the ability to maximize your profits without necessarily affecting the environment around you.
Study the competition
Alternative and effective pricing strategies for starters call for matching (and in many cases exceeding) the strength that the competition displays. A good example would be focusing more on your service and quality advantages, product differentiation using new and existing differentiating features. It’s always a good idea to know your competition so you can challenge them at their weakest, thus putting yourself in good ground. This is where the need for a SWOT (Strengths, Weaknesses, Oppositions and Threats) analysis comes in.
Now that you have already identified their weaknesses, you have something concrete to work on. This would mean going after their unhappy customers (those who are not satisfied with the products and services that the competition had offered) and moving in to exploit competitors with their low brand awareness. You can also maneuver to focus on certain geographic locations where the competition is relatively weak, and where the opportunities to grab market share fast enough is possible.
What are your pricing objectives?
What are your pricing objectives? What do you aim to achieve with your pricing strategy and tactics? These are the questions you must answer before planning your business and marketing strategy. Below are some pricing objectives you may want to consider.
- To maximize profit
- To achieve or maintain market share
- To achieve target return on investment
- To meet or prevent competition
- To maintain stable prices
Determine your pricing methods and tactics
After understanding your own products, and your competitor’s strategy; it’s now time to create your own pricing plan, strategy and tactics.
Product Pricing Strategy: 3 Types of Pricing Methods and Tactics
- Cost Oriented Pricing
- Competition Oriented Pricing
- Demand Oriented Pricing
I will shed more light on the pricing tactics above in subsequent articles. Now while testing your pricing methods, you should also increase your advertising activities whenever possible and introduce new products and services that complement your current offerings to the market. The intended effects will not be complete without providing incentives or rebates just to capture the market’s attention.
In conclusion, it would be wise to avoid meeting head-on with your competition while implementing your tactics; so try and work your way around into areas that are less competitive. Agility and fast thinking really helps in this case. Start somewhere else comfortable so you can initiate changing the rules of the game to your favor. Learning how to create a competitive product pricing strategy will lead you to understand how to stay one-step ahead of the competition and working your way from there.