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How to define a true pricing strategy for your business

pricing strategy, brown and white paper bag
One of the most difficult strategies to define in a company, especially in a medium or small company that normally does not have methodologies to study markets, is the pricing strategy

Main variables of the pricing strategy

There are five variables on the basis of which the unit prices of each product are defined, depending on the game that is played with these variables, the appropriate pricing strategy emerges

The variables are

– Fixed and variable costs of the company or business unit. Evidently they are the basis of many of the final pricing strategies

– Competition in the market. It sets the right numbers and allows us to play in the market

– Company objectives. At the corporate level, especially in companies whose financial focus sets objectives, there are important company or group objectives to achieve, the good definition and execution of the objectives marks many key points, such as the cost of talent in the company, experience has allowed me to see that this is a point that not many companies have clear and this makes them look for talent or poorly paid talent that is soon demotivated, or very good talent that is tied up

– Company positioning strategies. The positioning strategy has a direct impact on the pricing strategy since, depending on what we want to do, we will have to look for the appropriate media, supports or channels to reach our target

– Target and real possibilities to pay. Obviously the definition of the target is absolutely necessary in the definition of the business, and depending on that target the pricing strategy will be defined in one way or another. The payment possibilities that customers may have, as well as their ability to pay, are obviously key to define our most appropriate pricing strategy

Combining variables to achieve the best pricing strategy

The pricing strategy that can be used based on the result of the analysis of the previous variables can be:

Penetration Strategy: Based exclusively on price, the objective of this pricing strategy is to get a significant number of potential customers that will allow you once you have achieved a significant number to start raising prices and get a good ROI from this penetration strategy

It is very powerful when you use it with high value-added products or services, since customers are attracted to you by a promotion or similar, and once they become users and like your product, you can make it profitable and the added value you provide means that they do not leave or stop using your product. It is very effective in falling markets

Inflate and deflate strategy: This pricing strategy is mainly used when we want initial customers to enter with a high price that allows us to subsequently attract a very broad target audience through a progressive lowering of the price in which new customers pay for a perception of status on many occasions, since they buy the product or use the service because there are a number of recognized or high status people who are already using it. In growth markets this is an effective pricing strategy

Pricing strategy according to the analysis of the competition: It is a relatively simple way to analyze that is based on defining your market price according to the prices of the competition, and depending on the objectives you have defined, work in the low, medium or high ranges of the pricing strategy

Pricing strategy by product lines: In this strategy, you can make a compatibilization of the three previous ones, and depending on dates, market, customer, etc., you can play with the prices of the different business lines

Pricing strategy based on product costs: In which a price is included on the price of the product cost, a price that is normally fixed and that allows you to work in volume with a margin that can be reduced depending on the volume of purchase that a customer makes. This pricing strategy is very good for use in volatile markets

– Module-based pricing strategy: The objective of this pricing strategy is to create a product at a good price and then offer higher-priced options to customers based on purchases of new modules that the customer may need, This strategy you can organize very well on Freemium type business model or by charging for services

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