Pricing is an underrated (yet critical) aspect of business strategy. It is critical because it also affects the impression people have about your brand. For example, if you charge too much for your product/service, you risk losing customers. Meanwhile, if you charge too little, you may erode your business’s profitability. There’s a balance you can put to pricing according to the economic trends or seasonal demands, and many businesses are struggling to find it.  

In this post, we’ll explore five proven pricing strategies used by successful companies worldwide, along with practical insights on how to implement them effectively to improve revenue for your business.  

1. Cost-Plus Pricing (aka Markup Pricing):  

Cost-plus pricing is simple to explain, and implement. In this strategy, the total cost of producing a product or service is first calculated, then a fixed profit margin (markup) is added to it to make the selling price. For example, if a product costs ₦1,000 to make, a 20% markup would price it at ₦1,200.  

Although it sounds simple, this strategy has its downside. It does not consider market demand, seasonal sales, and competitor pricing, which can lead to missed opportunities for better revenue. The best way to use Cost-plus pricing for better revenue optimization is to use it as a baseline but make it adjustable based on other factors like perceived value, and competition.  

2. Value-Based Pricing:

Also known as perception pricing, value-based pricing focuses on what customers are willing to pay rather than production costs. This strategy is common in industries where brand reputation, quality, or exclusivity influence buying decisions. A very good example is Apple. Apple prices its iPhones, iPad tablets, and MacBooks significantly higher than many competitors because customers perceive them as premium products. 

Before you decide to implement this pricing strategy, it is advisable to:

• Conduct customer surveys
• Analyze competitor positioning, 
• Test different price points to find the balance between demand and profitability.  

3. Dynamic (real-time) Pricing:  

What have you noticed about the pricing on ride-hailing apps like Bolt, Indrive, and Uber? It is that the prices change depending on the time of day, traffic congestion, and other factors. Dynamic pricing means that you get to automatically change prices based on market conditions or demand fluctuations. Similar to the ride apps, Airlines also use this model.   

To successfully implement this strategy means investing in data analytics tools that will track demand, and automate price adjustments. Just know that whatever you do, be transparent to your customers about the reason why prices spike or decrease each time. 

4. Psychological Pricing: 

Psychological pricing aims to leverage human behavior to make prices more appealing to a target audience. Common tactics include:  

• Charm pricing: Popularly used by e-commerce businesses, this creates a perception of a better deal in the audience’s mind. E.g. offering $99 instead of $100 for a product.
• Tiered pricing: This means giving your audience a perceived range e.g (lite, pro, pro max) to encourage customers to choose the high or mid-tier products.  
• Anchoring: This one shows a higher “original” price next to a discounted one to enhance the perceived value. For example, saying “was $100, now $90”.  

This strategy works because customers don’t always make purely rational purchasing decisions. Adding strategic pricing cues can nudge them to make a purchase.  

5. Competitive Pricing:  

Competitive pricing involves setting prices, using your competitors’ as a benchmark. This is common in fast-moving consumer goods.  

The downside is this: blindly following competitors can lead to price wars. Added value can give you an edge over your competition who offer similar prices. Especially if you are a small business retailer.  

Regardless of whether you choose a pricing strategy or not, you may still end up making mistakes. Find below a few mistakes you can do well to avoid.

COMMON PRICING MISTAKES TO AVOID 

1. Too much reliance on discounts: If you run discount pricing too frequently, it could lead to your audience only waiting for your sales season before they make a purchase.

2. Ignoring fluctuations: Not paying attention to rising or diminishing costs means you may begin to run at a loss when you do not adjust your prices to fit your running costs. 

3. Guesswork pricing: Avoid this. It is safest and best to make data-driven decisions 

CONCLUSION

Across the strategies we’ve covered, there is one common thread: aligning costs, market demand, brand perception, and profitability. Still, there’s no one-size-fits-all solution and you must always be ready to iterate: what works today may need adjustment tomorrow after close monitoring. 

At Biz Vital Signs, we help you navigate pricing with confidence. Our one-on-one business advisory services will give you the clarity you need to choose and fine-tune the right pricing strategies. 

Want to schedule a call where you talk to us about your pricing strategies? Click here to begin!