Sales Pricing Techniques
Product or service pricing is an important component of your overall sales
and business strategy.
Pricing policies accompanied by effective marketing strategies can
substantially raise your business profit and help you avoid lost opportunities
in the marketplace.
Effective Pricing Management
In the highly competitive online market, your pricing strategy depends upon
the following three criteria:
- market niche
- demand
- competition.
In other words, you must understand who your customer is, have an accurate
estimate of your intended monthly sales, and know the exact prices of your
closest competitors’ products or services.
A thorough market analysis of potential customers and competitors should be
completed before establishing prices for your product or services.
Overhead costs should also be considered carefully. The total running
expenditures for the product or service should be calculated prior to setting a
price for the product or services. The price for the product or service should
be at least twice as high as your break-even price. If your total fixed costs
are $100 for the product and you estimate your monthly sales at 20, then your
price should be at least $5 per item in order to break even. To realize a
profit, your product should be priced no less than $10. To maximize your profit
potential, your price should reflect the value of the product, not your costs.
Keep in mind the psychology of the consumer. Prices ending in $.95, $.97, or
$.99 are more favorably accepted by customers than prices with round numbers.
Effective Pricing Techniques
The following types of pricing strategies can help you maximize profits:
1. Cream Skimming
“Skimming the Cream” involves placing a high price on a newly invented
and promoted product. Because the market for the product is fresh and the
product itself is innovative and “hot,” a high price can be placed on the
item.
This pricing strategy is most effective from 3 months to 1 year.
2. Long-Term Market Penetration
The majority of start-up e-businesses prefer the market penetration strategy,
whose main components are gradual growth, establishment of business credibility,
and a long-term perspective. This strategy involves a price level that is either
the same or lower than those prices already on the market.
3. Price Decrease
Many marketers understand that decreasing the price of the product for a
limited time offer is an effective tool for generating sales.
4. Price Discount
With the strategy of discounts, a seller can generate in the customer a
feeling of emergency and the suggestion of increased value to the product.
However, a substantial price drop may be perceived by the consumer as reflecting
an inferior product that needs to be discontinued.
5. Price Diversification
This is an effective strategy for reaching consumers with different financial
capabilities.
The “core” or standard version of the product may be offered for the
lowest possible price. “Extended” or high-priced versions can be offered to
those customers who prefer more colorful packaging.
Whether you utilize Cream Skimming, Long-Term Market Penetration, Price
Decreases, Price Discount, or Price Diversification, you will find the strategy
or combination of pricing techniques that works best for your business. Make
sure you understand who your customer is, what your estimated sales will be, the
overhead costs of production, and the prices of your competition.
Author: James A. (Jim) Baker
James A. Baker is the Chairman and Founder of Baker
Communications. Baker is a sales training and
development company specializing in helping client
companies increase their sales and profits. He can
be reached at 713-627-7700 or
jim.baker@bakercommunications.com.
