There are many factors that will influence your pricing strategy, and this can be one of the most important strategies you will ever put together. It affects not only the financial performance of your business, but the perception customers gain of your brand.
Consider how the pricing strategies of Gucci, John Lewis, Home Bargains influence your perception of their brands, and the likelihood of purchasing from them. What does their price point suggest about the quality of their products, customer service levels and desired exclusivity/inclusivity to purchase, for example?
There is not necessarily a right or a wrong answer when deciding how you will put together your pricing strategy. It is, however, important to consider the difficulties that would be brought should you look to change this at a late date.
Imagine a customer’s perception if Waitrose started charging ‘Aldi prices’, or Aldi started charging ‘Waitrose prices’. Then imagine an accountant’s perception if Waitrose started charging ‘Aldi prices’, or Aldi started charging ‘Waitrose prices’.
Plan carefully and get it right, first time.
There are four main pricing strategies that are typically used by small businesses:
Value-based – this is where a business charges what it believes to be the market value of their goods/services and works on the merit that customers will only pay the amount which they believe the item to be worth.
Competition-based – this is where prices are set in comparison to a business’ competitors. Those who offer a premium service or product may choose to set their prices higher than average.
(Whilst it is very common for new businesses to set their prices slightly lower than their competitors, this is not always advisable. Small businesses relying on a low-pricing strategy are particularly venerable to new competitors entering the market.)
Cost-plus – this is where a fixed percentage is added on top of the unit cost for each product/service. This is a simple strategy to implement and monitor, but can lead to a disconnect between the business and the customer.
Dynamic pricing – this is where a business creates a fluid pricing strategy, to allow itself to easily adapt to surges in supply and demand over time. A simple example of this is the price fluctuation of a hotel room over peak/off-peak seasons.
The BIPC Northamptonshire has many market research resources, such as IBIS World, Statista, and Local Data which can help you research your target market segment and customer. These databases look at sector trends that can help you decide which pricing strategy may be the most appropriate for your business.
You can find the full list of market research resources available through the BIPC Northamptonshire here.