How to pick prices (Hint: It's not what you think!)

PRICING STRATEGIES 💵 We all struggle with setting prices, but did you know there are actual broad “strategies” to pricing that go beyond just picking a number?

When it comes to introducing a new product or service, there are 2 main pricing strategies:

1️⃣ PRICE SKIMMING: Charging the HIGHEST price possible that buyers who want the product will pay. This is generally used for luxury items, and it’s often used to generate revenue to offset the cost of research and development.

2️⃣ PENETRATION PRICING: A LOW PRICE designed to help a product enter a market and gain market share rapidly. It’s less flexible and difficult to raise a penetration price than to lower a skimming price. It’s usually used when it is suspected that competitors will enter the market shortly after.

For products that are already on the market, there are several more. These can also be used in combination!

🔹PSYCHOLOGICAL PRICING: Encourages purchasing based on emotional rather than rational responses to price. Think of those $9.99 versus $10.00 price tags. Another version is symbolic/prestige pricing, which is the idea that high prices MUST connote high quality (right?).

🔸REFERENCE PRICING: a lower priced item is compared to a more expensive item in the hope that consumers will use the higher price as a comparison point.

🔻PRICE DISCOUNTING: Temporary price reductions used to boost sales. Examples are quantity, seasonal, and promotional discounts.

Have you used any of these successfully (or unsuccessfully) before? Let me know!