Pricing Strategies: 8 Pricing Strategies to Grow Your Business

Pricing strategies are one of the most powerful tools in your business toolkit. Unfortunately, many entrepreneurs, especially those in an environment like Ilorin, either overlook or misuse it, leading to missed opportunities and poor positioning in the marketplace.

In one of our articles, we wrote on Competitive Pricing, where we defined what it means and the factors to consider when setting one for your business.

In this article, we’ll look at proven pricing strategies you can adopt to attract the right audience, position your brand effectively, and stay profitable in a competitive market.

Types of Pricing Strategies

1. Penetration Pricing

This is a popular pricing strategy to use if you are just starting in the marketplace. It’s great for visibility. It allows for businesses to initially set a low price with the aim of gaining and attracting a large market share.
With time, as the product or service begins to appeal to consumers, the price increases as well to meet the actual market price.

It does not, however, mean that you should do that at the expense of not making a profit. Therefore, you have to ensure that whatever price you set still allows you to make a profit.

2. Skimming Pricing

Skimming, as one of the pricing strategies can be described as the exact opposite of the penetration strategy. With this pricing strategy, you initially start high by setting prices to maximise profits from early adopters.

Over time, you begin to reduce prices as competitors enter the market or the product becomes more widely adopted. You can use this pricing strategy if you are the main supplier of the product or service.
This is particularly useful for tech-based products or services that have a “newness” appeal in the beginning.

3. Value-Based Pricing

This is charging based on the value you deliver. If you are confident that your product or service is of high value, you can set your price accordingly. It also focuses on setting a price based on how much the customers are willing to pay based on the perceived value they have of the product or service.

What this does for you is that it helps attract customers who can afford your offer and filters out low-budget buyers. This kind of pricing strategy works well for experts, consultants, and service-based businesses who understand the worth of their expertise.

More so, it is popular in industries where the said products directly influence the consumer’s self-image, like fashion, automobiles, technology, etc.

4. Psychological Pricing

This pricing strategy plays on customer perception. For instance, A Nigerian customer will most likely go for a product that is being sold for ₦999 instead of ₦1000, even though the difference is just ₦1.

The Nigerian market is particularly sensitive to this technique as discounts, price drops, and even flash sales are strong psychological triggers that influence buying decisions.
It could also mean positioning an expensive product next to the product you want to sell, making it appear more affordable.

5. Cost-Plus Pricing

This is one of the most straightforward pricing strategies. It is also known as markup pricing, it allows you to calculate all your production or service delivery costs (including material costs, labour costs, shipping costs, marketing, and overhead costs) and then add a profit margin.

For instance, if it costs you ₦3,000 to produce a product and you want a 30% profit, you sell it for ₦3,900. By implication, you’re the one to decide the profit margin you want based on your production or service costs.

While this guarantees your costs are covered, it doesn’t always account for competitive pricing or customer perception. That’s why it should be used with caution.

6. Bundle Pricing

Bundle pricing involves offering two or more products or services together at a single price. This strategy increases perceived value and helps you sell more at once.

For example, a hair vendor might sell wigs with care kits included, or a digital marketer might offer a content calendar, audit, and strategy session in one package. It encourages upselling and is a smart way to move slow-selling items.

7. Dynamic Pricing

Unlike other pricing strategies, dynamic pricing is a flexible pricing strategy where prices change based on demand, season, customer type, or other market conditions.

Airlines and e-commerce platforms like Jumia use this approach often. It’s not for every business, but if you operate in a space where demand fluctuates or you’re dealing with different types of clients, this could help you maximise profits.

Bringing it down to the Nigerian context, the market people know just how to use this pricing strategy where most goods, especially foodstuff prices increase because households will want to buy them.

8. Freemium Pricing

This pricing strategy is popular among tech startups and SaaS businesses. It involves offering a basic version of your product or service for free while charging for advanced features.

This model helps you build trust and onboard customers quickly. Once users experience the value, many will be willing to upgrade to the paid version.

Mistakes to Avoid When Choosing a Pricing Strategy

1. Pricing too low to appear honest

Like in the story of Niola, the product designer, (read here). This can make you seem inexperienced or incapable for the ideal customer or client as the case may be.

2. Copying competitors blindly

Copying competitors blindly without understanding their value proposition or cost structure. You need to understand the logic behind their pricing strategies before you adopt them.

3. Ignoring customer perception.

Your price must align with what your target audience is willing to pay for perceived value. And that is why it is pertinent you understand your target audience and their spending habits.

4. Not adjusting your price.

Economic conditions, business goals, and market shifts should inform regular price reviews. You need to constantly review your pricing strategies as there is no one-size-fits-all for setting prices.

Conclusion

Bringing it to a close, there is no one-size-fits-all when it comes to pricing. The right strategy depends on your business goals, target audience, cost structure, and market positioning.
Additionally, understanding how pricing influences perception and decision-making will put you miles ahead in business.

Related Post: Competitive Pricing: How One Mistake Cost Niola a Business Deal