As a small or medium-sized enterprise, (SME), effective pricing is key.
Determining the prices for your products and services is one crucial step to, ultimately, building a successful business.
Pricing has numerous implications for businesses. Asides the profits businesses stand to gain from appropriately pricing their products and services, SMEs can use pricing to compete, change market share and generally, create different revenue scenarios.
It is, therefore, important to understand how pricing affects your business model, as this will help you select a suitable and working pricing strategy.
Effects of pricing on businesses include the following:
Pricing can send a message and create a perceived value to consumers, about your business, product, or service.
This affects your brand, image, or position in the marketplace. For instance, selling at a higher price can influence customers to think that your products have higher quality than others.
Sales discounts and closeouts can send a message that you, either, cannot sell your products, or services at your regular price, or that buyers have a limited time opportunity to get a good bargain.
Pricing can dictate an increase or decrease in sales volume.
Increasing your prices might lower your sales volume slightly, but will help you make up for decreased volume, with higher total profits.
Lowering your prices can increase your profits, if your sales volume rises significantly, thus, decreasing your overhead expense per unit.
You should, as an SME, realise the impact of pricing technicalities on their business is key.
Pricing can make a business more, or less competitive in the marketplace. This invariably affects the share of the market’s volume.
Some businesses lower prices temporarily, to gain market share from competitors, who cannot respond to and meet the price decrease.
After consumers have had time to try the product and develop a brand preference, or loyalty, prices can rise again, to a level that will not cause them to leave.
The idea is to make your business more competitive, and to gain market share. Pricing could help businesses achieve these.
Effective Pricing Explained
With the many pricing methods to choose from, certain options are more effective than others for various businesses.
Effective pricing is not just one that brings in profits, but also, gives business positioning, sales volume, market competition and general business longevity.
Types of Effective Pricing Strategies for SMEs include:
This is when a low price is used, upon entry into the market, to gain customers and greater market share.
This is with the understanding that the price will go up later in the future.
Mortgage providers are often using this method. They get buyers to sign up to cheap interest rates at the beginning, which will, eventually, go up with time.
This is a strategy for selling multiple items together. The business sells one item at a heavy discount, with the intention of making more, from accompanying products.
For instance, most printers are sold at a low price, while the ink cartridges are sold for higher prices.
Because you cannot use the printer without ink, the manufacturer, or retailer, makes enough money on ink sales, to make up for the profit they did not get, from the printers.
Contrary to putting a higher price on your product, so as to differentiate it from cheaper options, as you would find in premium pricing, value pricing is said to be in place, when business aims to recover money, through low production costs and sales, at high volumes.
This is when a product or service is sold, at a high price. Over time, as competition increases, the price is dropped dramatically, to make it more suitable to the general population.
Both small, or medium-sized businesses play vital roles, in any country’s economy.
Regardless of whether your business is just getting started, or you are beginning to consider advertising to drive sales, it is important that you see the many roles that pricing can play.
With a firm understanding of the different pricing strategies, you can review and choose the best and effective one for your product, or service.
Featured Image: bsscommerce
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