Pricing Strategies in Marketing
You've heard of the different ways designers price their design services. Here are several additional strategies from across the business spectrum that you can use to evaluate and incorporate in the pricing of your design products and services.
Price is an often overlooked marketing strategy, as many tend to focus on promotions or advertising. Pricing strategies, however, can have a large impact on sales and (more importantly) profit. The price is what your client pays for a product or service. Your optimal pricing strategy will depend on more than your costs. Forces within your business environment such as your competitors, your suppliers, the availability of substitute products, and your clients come into play as well. Positioning (how you want to be perceived by your target audience) is also a consideration.
There are a variety of pricing strategies in existence. Each strategy is used in a different set of circumstances. Some of the things to consider when choosing the best strategy for your situation are your costs; both short term and long term sales and profit goals; competitors' activities; and client lifetime value. While there are others, a few of the more popular pricing strategies available to you are:
Cost Plus Mark-up
Here, you decide the profit you want to make before setting the price. Figure out your costs and your selling price is simply your costs plus your pre-determined profit number. This approach helps keep your profitability top-of-mind, but may also result in prices that are out-of-line with client expectations and competitor pricing.
When competitive pricing, you look at the prices your competitors are charging and use those prices as a benchmark when pricing your own products and services. You and your competitors' positioning strategies will determine whether you price at par, slightly below, or slightly above the competition.
This technique is used when you offer a unique or scarce product or service with few or no substitutes. The price is set high, resulting in high margins. Your clients are those that are willing to pay the price because of the service's prestige or uniqueness. In the case of a scarce but necessary service, clients pay the price because they have no choice. Often, price skimming is a short-term strategy as competitors enter with their own products, bringing prices down. In the case of scarce services, the need passes or is temporary. Before considering this technique, be aware that if your clients feel you have taken advantage of them, you could be building "bad will" for your business.
This is the opposite of price skimming. Prices are set low in an effort to gain large market share. Because the penetration price does not cover costs, this is also a temporary strategy. For this strategy to be profitable, clients must be willing to pay your normal, higher price in the long run.
Here, you price one or more products or services below cost to attract customers. You hope that those customers will purchase other profitable services from you. This strategy is often implemented as part of a short-term promotion.
This is a tactical move to clear slow-moving or excess products out of inventory. You sell inventory at a steep discount to avoid storing or discarding the product. End-of season merchandise, furnishing or accessories for design firms that also feture retail sales divisions are examples of eligible closeout items.
Membership or Trade Discounting
Here, some clients (those that you know are heavy or frequent purchasers) are given an elite status, which gives them the privilege of a price discount on their serviceses. This elite status can be based on occupation, membership in an organization or some other criteria.
With a variable pricing strategy, different customers pay different prices. Often, this strategy is used for project work. Each project has unique characteristics so is priced by the job. In other cases, the price is negotiated with each client.
Combined, smart use of the available pricing strategies can help boost your company's bottom line.
By Bobette Kyle
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Bobette Kyle draws upon 12+ years of Marketing/Executive experience, Marketing MBA, and online marketing research in her writing. Bobette is proprietor of the Web Site Marketing Plan Network -- http://www.WebSiteMarketingPlan.com -- and author of the marketing plan and Web promotion book "How Much For Just the Spider? Strategic Website Marketing For Small Budget Business": http://www.HowMuchForSpider.com