Price strategies: what is it and how to use it in your business?

Price has always been an important part of the marketing mix. Pricing a product can be an expertise on its own. The traditional approach to pricing is based on company costs, but price strategies are even more important before pricing your products. Shortly, price strategies are a set of rules that determine what to charge for your products or services. There will be more need for well-formed and active price strategies in the future, as we will experience more mistaken pricing strategies.

Table of contents:

• What are price strategies?
• How can price strategies increase your market share? 
• Price strategies in times of crisis
• Why you should create price strategies and how?

What are price strategies?

A price strategy is an approach to price your products. More precisely it can be few guidelines that indicate how your pricing should be. 

Pricing is not just about setting a price. It requires a thorough analysis of the industry, consumer segments, and consumer price profiles to optimize the price, so it’s attractive and competitive. Pricing correctly is the core to your business making a profit. 

Working actively with price strategies is not only for larger companies with price strategies as a definite policy, but it’s also valuable for SMEs, where the business type influences the approach to pricing like, e.g., between B2C and B2B. Also, there can be a difference in price strategies used in respectively China and Denmark. However, across different industries, there is a tendency for mainstream pricing strategies. The three most common in use today are cost-based, competitive, and value-based pricing. 

Often, many price strategies are created based on gut feelings or outdated price models such as cost-plus pricing. With these approaches and methods, it isn’t easy to achieve optimal prices - where one makes full use of customers’ willingness to pay and their changing consumer behavior. 

Moreover, pricing strategies are only effective after a long period of time, where you have worked out some solid experience.

Remember: price strategies are the key to success in your business.

Automatize your price strategies

Working with pricing strategies can be a tedious task, and it often takes a lot of time to do it right. However, setting up pricing rules for several products at once or various product categories is possible with PriceShape. Here, you will be able to easily create different price rules based on your price strategy. If you are a beginner in price strategies, PriceShape is also a great tool for creating your first pricing strategies effectively and simply.

How can price strategies increase market share?

If you look at Amazon’s price war, which is already well on its way into the Nordic market, it's a good example of that pricing is not only about lowering prices to increase market share, but on the other hand, about setting competitive prices on selected products, as this is how customers form their impression in terms of whether companies are competitive or not. 

Amazon has recently introduced a music-streaming service worldwide, aiming at potential customers from different segments with different prices for the same service. They have 6 different price levels adapted to different kinds of customer needs. Thus they have already reached 55 million customers worldwide and are right on the heels of Apple and Spotify’s music services. Working with different pricing strategies at once is a clear benefit for both customers and businesses. 

With the data insights on competitors' prices provide, it will no longer be aggressive price wars that are crucial to gaining market share but far more sophisticated price strategies that open up new opportunities to increase market share.

Apple is the "king" of price strategies, and it's quite interesting to follow their price strategies for electronics. In 2019, sales of Apple's iPhone were not as expected because of the price, which was "a factor" relating to the declining sales they had on their iPhone, according to Tim Cook. The reason was that the price was set too high in certain markets outside the US following the exchange rate of dollars, which gave some very disproportionate prices. Apple handled this quickly by quitting the exchange rate and no longer used the dollar price as their starting point but instead set prices based on the individual markets. Their price strategies were quickly adapted to the market and consumer buying behavior.

Seen in retrospect on one's sales and prices, you can optimize your pricing strategies to always meet the changes that occur in the market. This is simply possible by using PriceShape, where you have a clear overview of your pricing data.

Price strategies in times of crisis

As a result of the corona crisis, many companies have had to reconsider their pricing strategies.

A clear example has been the airlines Ryanair and Alaska Air, testing new price strategies to boost demand, which otherwise was very low during the corona crisis. The new price strategy was an offer on two-for-one airline tickets. The aim was to attract customers and revive the air traffic, so more people would feel safe again about flying. Many airlines adopted this kind of price strategy as they prefer to sell their tickets cheaper instead of not selling any.

The above example highlights that you need to be adaptive when working with price strategies in a constantly changing market. Though you don't need to be part of a bad discount spiral, instead, you can become a competitive player in the market that customers will buy from. Working actively with one's price strategy while waiting for demand to recover from the corona crisis will provide both short-term and long-term benefits to your competitive situation. It’s about thinking out of the box and finding the opportunities that appeal to different customer groups and match their needs - just as you know it from different product variants adapted to the individual needs.

If you are already working with pricing strategies but would like to optimize them even more, then take a look at these examples of psychological price strategies that you can take advantage of. Read more about two of the most common pricing strategies.

Why you should create price strategies and how?

There are almost as many types of customers as there are people. And therefore, it’s also extremely diverse things that make a customer buy your product or service.

When you create new price strategies, you look at several factors that influence which strategy you set for one or more product categories. There are external factors that influence, such as geography, price discrimination, and price sensitivity. There may also be trends in pricing strategies that focus on knowledge-based optimization through cost price, reducing supply chain inefficiencies, reducing trade surcharges, increasing responsiveness to changes in the market situation, greater price flexibility, and reducing price differences across different channels. These factors, of course, influence one's decision about which price strategies to choose.

Companies that know how to utilize the dynamics underlying prices and use that knowledge for an effective competitive advantage will, ultimately, achieve a significantly higher turnover.

If your e-commerce or brand doesn't already use a software program for pricing, many benefits can be gained. In PriceShape, you can set up different price strategies quickly and efficiently. Simply fill in the requirements and variables you want your prices adjusted to, and our price robots will do the rest. In addition, you can always adapt your price strategies in PriceShape according to your needs and insights about your competitors.

When you set up a price strategy, keep in mind these 5 tips for getting the best effect:

1. It’s necessary to know your competitors well, how they set their prices and operate in the market. Therefore, make a thorough analysis of the competitors' prices in the market.
2. You need to know what are your costs and go for optimizing the various elements of your price, without compromising on quality.
3. If the product or service is not profitable, you should not optimize the price unless it’s for strategic reasons (e.g. if it opens doors for other products that are more profitable or that are complimentary). 
4. Define your business goals - the considerations that underlie your business goals create a good foundation for your pricing strategy.
5. Examine your target audience - how do they use your products or services? Your target audience uses your products according to their needs.

Now that you know how price strategies work and why they are important, you will probably start working on them straight away (or we hope so). :-)

Tell us which price strategies you use in your company, or maybe you want to save time on this tedious task and get to know a price monitoring software like PriceShape? Get started and request a demo using some of your products.