The way that each company sets a price for goods and services is as customized as their unique selling proposition. There are three basic pricing routes that brands pursue in open markets: high-end (skimming), competitive pricing, or low-end (penetration pricing).
Pricing structure for most products and services can be complicated by the following factors, which are part of the Market Opportunity Analysis for product and service pricing:
- High fixed costs
- Standardization of products or services (products such as commodities and utilities, and services like credit cards or cable providers where the basic service is standard)
- Number of competitors in the market
- Likelihood of customers to make the product or perform the service themselves
- Customer’s price sensitivity
- Targeted consumer segment, their ability or willingness to pay for goods and services
- The brand’s existing pricing strategies and brand equity
- Basic supply and demand fluctuation in markets
- The customer defined value matrix
The customer defined value matrix is basically a consumer segmentation tool. I like it because I believe that demographics are outdated and that a priori systems sensitive to the wants, needs, and perceptions of consumer groups are more equipped to handle today’s highly fragmented consumer driven marketplace.
The matrix helps you identify ways your customers interpret the value-price ratio. There are different strategies to appeal to different groups:
Value is low price:
- Odd-number pricing
- Penetration pricing
Value is everything I want in a product or service:
- Prestige pricing
Value is the quality I get for the price I pay:
- Value pricing
- Price/Quality as a cue
Value is all that I get for all that I give:
- Price framing
- Price bundling
- Complimentary pricing
There are methods of differentiating prices once established within each category, these are some of the basics:
- Unbundling prices
- Delayed quote price (B2B)
- Escalator clauses (introductory rates)
- Reduction of discounts
In general, all set prices fluctuate in markets in reaction to macroeconomic trends along with the progression of market stages for individual sectors. The art of pricing is never static, and these basic guidelines help identify key drivers in setting and maintaining the right price for products and services.
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