Price is the first thing that customers check when buying products. It must fit in their budget a
... nd offer value for money to become worth buying. T...
Price is the first thing that customers check when buying products. It must fit in their budget and offer value for money to become worth buying. Thus, business owners must pay attention to their product pricing strategy, which can make or break their business. If the price is too low, the business will not be able to generate revenue. Alternatively, customers will shy away from buying the product if the price is too high.
Therefore, finding the optimum product price needs a planned approach that steers the business clear of losses and customer churning. Here is the process of mastering product pricing strategy in the United Kingdom to attract and retain customers. These tips can help aspiring entrepreneurs enter the market with the right price tags and capture a considerable share for continued success.
How to Determine Product Pricing?
Price is one of the most significant aspects of a product, and determining it can be challenging because of the harsh consequences of making a mistake. Pricing cannot be the same throughout the product lifecycle. The business owner has to adjust the amount according to its stage in the product lifecycle. For example, when the product is launched in the market, it must be priced affordably for customer acquisition.
When it generates desirable sales, the prices can be hiked to earn profits. However, the business owner must add value to the product to make the buyers pay more. Also, they must consider competitive products in the market that can offer better value at a lower price. Thus, many internal and external factors (inflation and economy) can affect the pricing decision. There are various product pricing strategies that can be utilised by entrepreneurs looking for business opportunities in the United Kingdom to meet their goals.
Different Types of Pricing Strategies
Entrepreneurs who want to ascertain their pricing strategy must know their cost of goods sold, the margin they need to earn after subtracting the costs from the income and the extra amount (mark-up) they need to charge customers to earn the margin. The next step is to choose the right strategy from the various types mentioned below.
1. Cost-Plus Pricing Strategy
It is a common strategy that adds mark-up to the cost of goods sold to price the product. Entrepreneurs who purchase a business for sale in the United Kingdom or launch an entity must determine the mark-up cost for this strategy. They usually add a fixed percentage to the cost of production, distribution and marketing without considering the demand. It can work for retailers who have competitors with similar pricing strategies.
2. Competitive Pricing Strategy
The competitor-based pricing is characterised by pricing the product at trending prices for similar products in the market. It neglects the cost of goods sold and customer demand. It is needed by entrepreneurs operating in highly cluttered spaces where product price decides the sales volume. For example, if the competitors have priced their products between £10 and £12, you need to price it in the same range or maybe lower to attract more buyers.
3. Skimming Pricing Strategy
The skimming pricing strategy is best for entrepreneurs launching innovative products in the market. They introduce an innovative and technologically advanced product in the market at a higher price to attract technology-conscious customers who want to buy anything that is path-breaking. They lower the prices after a year or so to grab price-sensitive buyers. Most electronics and mobile phone businesses follow this pricing strategy after segmenting customers to identify their target buyers.
4. Value-Based Pricing Strategy
The value-based pricing strategy involves pricing the products according to the amount the customers are willing to pay for them. It is based on the perceived value of the products in the eyes of the customers. It is usually determined by the amount customers are paying for similar competitive products without any issues. Identify the strengths of your offering that make it better than the competitor’s products and then price it accordingly. The customers should feel that the product is worthy of the amount being charged by the company.
5. Penetration Pricing Strategy
In this pricing strategy, the business owner prices the products low to grab more buyers than competitors. It aims to expand the customer base quickly by offering reasonable unit prices when there are many similar products in the market. They can generate the desired profits through huge volumes of sales and even reduce the cost of the goods sold. For example, a Netflix subscription starts at £4.99 per month, whereas Amazon Prime Video starts at £8.99 per month. Entrepreneurs who purchase businesses for sale in the United Kingdom can take advantage of this strategy to boost sales and revenue.
How to Choose the Right Pricing Strategy?
When entrepreneurs purchase a business for sale in the United Kingdom, they have an established customer base and set pricing model. However, it is not fixed. Pricing must change with innovations in the company, improvements in products, expansion into new markets, acquisition of new customers, etc. Entrepreneurs must make decisions based on their short-term objectives and long-term business goals. If the company is struggling, it will have to focus on increasing sales.
In addition, they need to consider the cost of goods sold and the prices of competitor’s products. It will ultimately boil down to the needs of the business. If the company needs to expand its customer base, it will have to follow the penetration pricing strategy, and if it wants to stay ahead of competitors, it will have to adopt the competitive pricing strategy. Besides the strategy, there are some pricing models used by business owners, such as premium, freemium and bundle pricing. Thus, the business owner needs to choose wisely to generate the best return on investment.
Wrapping Up
Most new entrepreneurs who purchase businesses for sale in the United Kingdom are not aware of the different pricing strategies. They often find it challenging to set the right prices, and it affects their profit share and customer acquisition numbers. Therefore, they must be aware of all the pricing strategies and choose the right price according to their goals.
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