Doing away with fancy showrooms, Ikea offers a warehouse environment where customers pick their own flatpack furniture to assemble at home. Pricing strategy example: Ikea’s launch in 1943 came with an economy pricing strategy that transformed the previously costly home furniture market. It’s a popular tactic with discount retailers such as Poundland and low-cost supermarkets such as Aldi and Lidl. It relies on paring back manufacturing, distribution, and marketing costs opens in new window to the minimum to keep pricing as low as possible. Pricing strategies such as this target price-sensitive consumers in search of a bargain. Pros: It’s an effective way to grow market share, achieve dominance and then increase prices when there is less competition, reaping more profit in the longer term.Ĭons: Many businesses make a loss in the early years of trading while they establish a market presence. After establishing market share, the introductory price is abandoned for a more expensive retail price. New products – from cleaning products to ready meals – can debut with a low ‘introductory’ price designed to woo shoppers and find a place in shopping baskets. Pricing strategy example: Supermarkets opens in new window regularly feature price penetration, either for their own-brand products in a bid to take on established brands or as the platform for new product launches. Many technology-based businesses adopt penetration pricing, forcing less agile competitors out of business. It works by initially offering low prices that undercut competitors to win business, then gradually increasing prices as market share grows. This approach is designed to quickly establish your business in an existing market, win customers and gain market share opens in new window. Many startups adopt a penetration pricing strategy. There are a number of pricing strategies to explore when choosing a price that works for your business. You can get a price advantage over competitors with more efficient cost control. Variable costs directly relate to the number of customers you have or sales you make, such as postage and packaging costs opens in new window. Variable and fixed costs – Fixed cost are the costs your business will incur opens in new window even if you don’t make or sell anything. Undercutting competitors with lower pricing can win market share. Targeting bargain-seeking customers with expensive products is likely to fail, whereas targeting affluent customers with luxury items can be a route to success.Ĭompetition – Competitors are a good barometer for the level of pricing customers are likely to respond to. Target customer and willingness to pay – The most important factor, this boils down to how much your target customer opens in new window is willing to pay for your product or service. Some directly impact price, such as the cost of manufacturing, while others are more nebulous such as how much customers are willing to pay. Setting the right price opens in new window involves juggling a number of factors. It’s full of tips on energy efficiency, dealing with late payments, and accessing finance guidance to support your business, whatever the future holds. To help make things a little easier we’ve created the Start Up Loans Guide to Business Resilience. We know it’s a tough time to be running a business or starting a new one. That’s why it’s a good idea for your business to investigate different pricing strategies. Instead, it’s the result of a mix of marketing opens in new window, brand opens in new window, promotion and desirability – with customers often making an emotional decision about what to buy, rather than a logical decision based purely on price. Pricing isn’t just a number that you put on a product or service. Yet, iPhones outsell rival models by huge margins, which has helped propel Apple to become the world’s first $1tn business in 2018. Apple’s latest iPhone 14 Pro Max costs £1199, while the Xiaomi Poco X3 NFC with a similar specification sells for just £189. It’s hard to fathom why some products and services command a premium despite seeming similar to cheaper versions.Ī good example is the smartphone market. Understanding different pricing strategies can help you set realistic prices, create a robust business plan opens in new window and win customers while generating sufficient profits. Choosing from different pricing strategies for your business is a fraught process: too low and you won’t generate enough profit too high and potential customers will look elsewhere for cheaper alternatives.
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