Pricing strategies: how to achieve the best results?

<h1>Setting the Right Price: Pricing Strategies for Your Business</h1> Setting the price of a product or service is a complex exercise that must consider many variables. Although different pricing strategies exist, choosing the one that sustains your business requires analyzing different points. Business owners often opt to define the price of their products based on a relatively simple logic: considering all production costs plus the expected profit. This is one of the most common pricing strategies. The issue is that often, considering only this may not be the most efficient technique. This is because it requires having an existing customer base or, at least, dealing with a product or service that is easily accepted. But what if the brand is new to a competitive market? Or if the product you want to sell is completely new, with no equivalent, and therefore <a href=”https://protagnst.com/geracao-de-leads/”>potential customers</a> have no idea how much it’s actually worth? To address these questions, various strategies have been created over the past decades. They consider pricing from different angles. One of them starts with competitor analysis. After all, if there is an average price for similar products, it means it has good public acceptance and can be sufficient for the seller. There are also strategies that aim for maximum profit at the beginning and then gradually reduce it over time. Another model focuses not on the price you want, but on the value the customer seems willing to pay. In this article, we’ll present the most common pricing strategies and how they are applied in practice. <img class=”aligncenter size-full wp-image-3905″ src=”https://protagnst.com/wp-content/uploads/2021/07/estrategias-de-preco-1.jpg” alt=”pricing strategies” width=”1000″ height=”667″ /> <h2>How to Define Prices?</h2> Before we present the different ways to define the price of a product or service – and before you choose which pricing strategy best suits you – we need to consider an important point: how do you define a price? It may seem redundant, but knowing how to define prices isn’t that simple. After all, before defining a strategy to sell more, you need to consider the minimum you need for the entire operation to work. In marketing and sales, a good guide to arriving at an appropriate price involves what has become known as the “5 Cs of Pricing”. They are based on the words company objectives, customers, costs, competition, and channel members. <h3>Company Objectives</h3> This pricing definition is based on your overall business objective. In other words: think about how you want your company to operate or be recognized. For example, you might want a rapid increase in sales – and then price reduction can be a good strategy. Or, conversely, your company may aim to be recognized for innovation or exclusivity. In this case, a higher price may be necessary. At other times, whether due to seasonality or market repositioning, you can set the price with a reduced or increased profit margin. In short, in this type of strategy, you prioritize the company’s needs. <h3>Customers</h3> The old adage that the customer is always right is the key to this pricing strategy. Here you need to consider how much <a href=”https://protagnst.com/o-que-e-persona/”>your persona</a> is willing to pay for your product or service. This point can be important for both lowering and raising the price. Suppose you’ve defined that the company’s goal is to sell more, and as such, you’ve decided to lower prices. This usually works if the product is for everyday use and has good added value. For example, your company sells pots and pans – whether in a B2B or B2C environment – you have a reasonable amount in stock and decide to lower the price by 30%. Your pricing strategy is likely to succeed. Now, if you sell salt – which is already notoriously cheap – this may not make much of a difference. Lowering prices may also not be a suitable strategy from the customer’s point of view if you work with something exclusive or that signifies status. <h3>Costs</h3> The cost of production is obviously a factor to always consider when setting prices. But not in isolation. First, you need to consider that your company needs to make a profit. Otherwise, it won’t last long. On the other hand, if you seek profit in absolutely everything you produce, you may become uncompetitive and lose ground to the competition. So, you need to find a balance. A good way to set prices based on costs is to look at your business globally. This way, you can decrease the profit margin on one product and increase it considerably on another. A classic example that is often given is that of pizzerias. Notice how pizzas often have the same price – a cheese pizza costs the same as a pepperoni pizza, which in turn costs the same as a chocolate pizza. Certainly, the production cost of the three is not the same, but by decreasing the profit margin on one and increasing it on the others, the pizzeria owner manages to maintain their business. <h3>Competition</h3> Looking at what the competition is doing is also very important when setting the price of something – and later on, we’ll dedicate a specific topic to competitive pricing strategies. When it comes to a monopoly, this doesn’t need to be taken into account. After all, there is little room for price variation. And a good example is the fuel you use to fill up your car: even though there are gas stations from different brands, the gasoline or diesel comes from the same oil company and is subject to the same taxes. Therefore, the variation between one station and another will be minimal. Now, if you operate with a product or service with a wide range of offerings, considering how much your competitor is charging is essential. <h3>Channel Members</h3> Finally, another point to consider when defining pricing strategies is the value chain. In this case, you need to consider everything involved in the product or service you offer: your suppliers, whether transportation is done by yourself or by a logistics company, whether the period is more conducive to targeting the end consumer or a large retailer, and so on. Now that you understand how to define prices, it will be easier to understand the strategies we will present next. Having trouble defining your pricing? Need help with pricing strategies? Count on Protagnst’s <a href=”https://protagnst.com/pt/”>sales consulting</a> focused on results. <h2>Examples of Different Pricing Strategies (or Pricing Types)</h2> You’ve probably already considered that it’s worth it to buy the combo that includes the burger, fries, and soda at that fast-food chain, rather than buying just one of the products individually, right? Or, when you go to the movies, it makes much more sense to pay $15 for the popcorn bucket and a large soda than to pay $11 for the smallest package with the smallest cup, doesn’t it? Both cases are classic examples of <a href=”https://protagnst.com/23-formas-de-fazer-up-sell-e-cross-sell-sem-enrolacao/”>upselling and cross-selling strategies</a>, and they help define the logic of pricing. Even though the owner of the burger franchise will make less profit selling the combo than if they sold the products individually, and the owner of the movie theater concession stand will proportionally profit less selling the larger combo, in both cases, they will profit from the sale. More than that: as the customer’s perception is that the combo is “cheap,” the chance of both selling thousands of combos every month is higher. Thus, the final revenue will be large. Some businesses don’t even mind losing money on some products because they know the operation as a whole will be profitable. This product diversification has to do with the application of different pricing strategies. A company might want, at the same time, good and cheap products. For that, it’s worth losing on one side to gain a lot on the other. They practice pricing from a competitive perspective, with market penetration, and that plays with our brain’s perception. Next, we’ll show these and other pricing strategies that are commonly employed. <h3>Competitive Pricing</h3> Among pricing strategies, this is probably the one that comes closest to what every conscious consumer also does: price research. The model is simple and practical. It’s based on researching and analyzing competitors’ prices, and then establishing a lower or slightly higher price. The lower cost for the customer, of course, is based on the strategy of being able to buy more with less; a higher price allows positioning the product or service above the competition, or as an <a href=”https://protagnst.com/como-calcular-lucro/”>attempt to increase profit margin</a>. Despite being simple and presenting few risks, since it’s based on the average that has proven effective in the market, competitive pricing can eventually bring problems. Often, competitors’ prices are established based on a greater productive potential associated with a smaller profit margin. Not all companies can use the same strategy. Another potential disadvantage of this pricing strategy is missing out on good opportunities. Often, the customer is willing to pay more for your product, as long as they are convinced it’s worth it. Those who work with consultative selling know this. Ideally, competitive pricing should not simply be a model to adopt, but rather be part of a pricing strategy. Researching the market to find out what prices are being practiced can be the first step, and from there, combine competition with another way of setting prices. <h3>Price Skimming</h3> If you’re into gaming or are tech-savvy and always want the latest cell phones, you’ve probably come across this strategy. Imagine that coveted smartphone line, and the announcement that the latest model will be launched by the end of next month. You’re already preparing to buy, and sometimes you don’t waste time and join the pre-sale lists. Your desire for the product is so great that you don’t mind the launch price, usually higher than what you paid for the previous model a year or two earlier – even knowing that the price will drop after a few months. Well, this is the pricing strategy known as price skimming, very common in technology companies or established brands. This strategy consists of setting the price of launches or innovative products very high and gradually reducing it as time goes by and it becomes obsolete, loses ground to new technologies, or becomes too popular. Among pricing strategies, skimming has the advantage of generating a lot of revenue and profit for companies in the short term. It also works very well, especially in technology-driven companies, because it usually relies on a good base of loyal consumers. However, the skimming technique also has disadvantages. If not handled correctly, it can generate discontent among consumers who paid much more for a product that would soon lose value. <a href=”#form”>Want to increase sales and don’t know how? Protagnst specializes in B2B business and can help you. Contact us!</a> <img class=”aligncenter size-full wp-image-3906″ src=”https://protagnst.com/wp-content/uploads/2021/07/estrategias-de-preco-2.jpg” alt=”pricing strategies” width=”1000″ height=”667″ /> <h3>Free Trial</h3> This is one of the most used pricing strategies by companies that offer subscription services, such as news portals, video streaming websites – like Netflix or Amazon Prime – and on-demand services. The idea behind this model is quite simple: the company offers a free trial period and then starts charging for the exclusive service. The model is very well suited to companies whose product or service is provided over the internet. This is because it allows the potential customer to have a full demonstration of what is being offered – albeit for a short period, precisely to awaken that desire for “I want more.” And the strategy has proven effective. <a href=”https://protagnst.com/taxa-de-conversao-em-vendas/”>The conversion rate</a> among companies that adopt the model tends to be higher than those that choose exclusively to charge from the first access. This happens for a very simple reason: premium services that don’t allow the customer to sample what is offered tend to only convert for established brands that already have loyal customers. After all, what are the chances of paying for something you don’t know yet? This strategy, however, needs to be very well thought out. This is because, among the disadvantages, is the potential to attract cold leads that are not qualifiable – in other words, people who are not actually interested in closing a deal later. Even though this is fully anticipated and measurable, the strategy has to offer a minimum return that sustains the service. <h3>Penetration Pricing</h3> This is a pricing practice that is widely used for new brands in the market. The strategy consists of offering products and services at a price below – sometimes well below – what is normally practiced by the market. You can check the use of this strategy right now. Take your smartphone and search in the food delivery app for discounts on first purchases at certain restaurants. This example, by the way, helps to explain a common consequence of this strategy for those who sell: the chance of loss. When you offer something at a price well below what is practiced by the market – like, for example, a hamburger for $5 while the competition charges $15 – it’s because there’s a good chance that the costs aren’t being covered. The loss, however, is also part of the strategy. This is because the idea of offering an initial price below the competition allows for the creation of a robust customer base. If the product is good, these customers will become loyal and <a href=”https://protagnst.com/objecoes-de-vendas/”>won’t have any purchase objections</a> when the price returns to its appropriate level later on. But the model, of course, also has its disadvantages. The main one is precisely the chance that future profits will not support the initial losses. To prevent this from happening, you need to have a very well done prior market analysis and revenue forecasting work. <h3>Psychological Pricing</h3> You’ve probably made a purchase and regretted it shortly after. “I shouldn’t have spent that money” is a phrase that everyone has felt hammering in their head. And this happens because studies have already proven that spending money “hurts” – yes, the area of the brain activated when spending money is the same one responsible for pain. At the same time, however, researchers have already been able to prove that the use of subterfuge works as an anesthetic. For example, if you make the same purchase you regretted immediately afterward by paying with credit – that is, without having the feeling that the money you had at the time is gone –, the pain disappears. The logic also applies to pricing and sales techniques, such as <a href=”https://protagnst.com/gatilho-da-escassez/”>the use of mental triggers</a>. Among the most used pricing strategies worldwide, and which you see all the time, is using prices with odd values, often with values that make no difference at all. Meat at the butcher shop, for example, doesn’t cost $40, but $39.99. The package of pasta on the supermarket shelf doesn’t go for $5, but $4.99. Logically, unless you buy these products in really significant quantities, the reduction of one or ten cents will practically make no difference in the final bill. But for the brain, the change from the first number to a lower number does. The same strategy can be used in other ways, including <a href=”https://protagnst.com/o-que-e-b2b/”>for B2B negotiations</a>. Instead of reducing the price of the product, you can offer discounts on the purchase of a second one. This is what is done, for example, in upselling and cross-selling techniques. <h3>Cost-Plus Pricing or Markup</h3> Of all the pricing strategies, this is the most classic of them, certainly used since the world adopted a system of production, purchase, and sale. But, of course, today it’s done with clearer methods and measurements. The cost-plus strategy, also called markup, considers all the costs necessary for the production of the good or service, plus the profit that is expected to be obtained with it. Imagine, for example, that your company produces industrial refrigeration equipment, and your <a href=”https://protagnst.com/o-que-e-pre-venda/”>presales representative</a> prospects a customer who is interested in buying five of your machines. The budget area will define the cost to produce these five machines, but you know that it’s not limited to raw materials. You have costs with energy, rent or maintenance of the pavilion where your factory is installed, taxes, employee salaries, among others. So you already know exactly how much it will actually cost to produce the five pieces of equipment. For you to set the price for that potential customer, it remains now to define how much you intend to profit from this sale. This model works very well for physical products, whose production cost is more easily measurable. One of its advantages is the ability to more easily forecast revenue, as well as allowing you to change the profit margin when negotiating. <img class=”aligncenter size-full wp-image-3907″ src=”https://protagnst.com/wp-content/uploads/2021/07/estrategias-de-preco-3.jpg” alt=”pricing strategies” width=”1000″ height=”667″ /> <h3>Value-Based Pricing</h3> In this pricing strategy, the logic is somewhat reversed in relation to markup. Here, pricing is defined based on how much the customer would be willing to invest. The idea here is not for the customer to define how much they want to pay for a product, but rather to invest heavily in research to accurately establish the value that product brings to the customer. The model is well suited for innovative or unique products that don’t have any competition in the market. After all, there’s nowhere to look for a similar one. So you pay what you think it’s worth. The value-based pricing strategy has the potential to greatly maximize companies’ profits, but to do so it needs to be very well structured. It demands a lot of research and, above all, <a href=”https://protagnst.com/o-que-e-persona/”>defining a persona</a>. Knowing exactly the profile of the customer for whom the product is intended is the best way to know what price they are willing to pay. <h2>Using Strategies Together</h2> The different pricing strategies we’ve presented so far apply very well to a wide range of products, but they’re not always easily applicable to one category: software. At the same time, defining the price of services, such as consulting, also has its nuances. <h3>Software Pricing</h3> The price to charge for software is a particularly difficult task to establish. It possibly consumed hundreds or even thousands of hours of joint effort, highly skilled professionals, not to mention all the investment in computers and other supporting software. The point is, the customer isn’t interested in that: they will pay the price they think the software is worth for their company (i.e., value-based). If the cost is higher than the return, it won’t make any sense for them to acquire it. On the other hand, if you charge too low a price to gain more market penetration, you run the serious risk that the revenue won’t cover the costs. Not to mention that, in many cases, software requires training, maintenance services, and more. Thus, defining the price of software depends on criteria that are both objective and subjective. Objective because you need to cover costs, especially operational costs – delivering software rarely means the end of the work. And subjective because you need to consider the context. Therefore, knowing the market and the segment in which you operate is essential. <h3>Service Pricing</h3> Do you know how to price a service like consulting? Broadly speaking, there are two ways to define a price for this. One is based on hours – you can, for example, hire a consultant to work for a certain period and make the payment based on the hourly rate. The other way is to set a project value. In this case, the consultant defines the price they will charge for the service regardless of the number of hours dedicated to it. In both cases, they will first have to consider all their costs. Expenses with rent, any employees, travel, accommodation, among others. On top of these costs, they will have to think about their profit – which here we call the “contribution margin”. Calculating costs is relatively simple, but the contribution margin is relative. It needs to consider both the consultant’s desire and the prices practiced in the market. If on average other consultancies charge, for example, $5,000 for a service, it’s unlikely anyone will hire yours if the applied price is $10,000. Likewise, they will probably raise an eyebrow if the price charged is much lower than the average. Once again, knowing the competition well is essential. <img class=”aligncenter size-full wp-image-3909″ src=”https://protagnst.com/wp-content/uploads/2021/07/estrategias-de-preco-5.jpg” alt=”pricing strategies” width=”1000″ height=”667″ /> <h2>Remember: Price is Different from Value</h2> Now that you know the different pricing strategies, we need to remind you of something very important: although in everyday life we use these terms synonymously, price is different from value. As we have seen, price is what you charge for a certain product or service. This is what will make you cover production costs and make a profit in the end, regardless of which pricing method you choose. Value, in turn, goes beyond that. Imagine, for example, that you need to buy a pair of jeans. You go to a multi-brand store and find hundreds of them lined up, apparently with the same type of fabric or with some difference that you only feel by touch. But the price difference between one and the other is striking: you find one at the beginning of the rack for $50, and another in the middle of it for $500. It is very likely that the quality of the fabric of one is not 10 times inferior to the other, but you still opt for the more expensive one. Why? Because it was made by a brand you trust, or that’s in fashion, or that offers better after-sales service, with a loyalty club, and so on. Notice that, in this case, “value” was more important than “price”. So, also take this aspect into account when defining how much your product or service costs. Offer efficient after-sales service and show it in practice. In short, add value to your product. <h2>Final Considerations</h2> Knowing how to price products and services correctly is fundamental for any business. Companies’ profits depend directly on the equation that involves all their costs, whether production or operational, and the price charged for what they deliver. Although there are simple ways to set a price, nowadays it needs to consider many variables. Simply setting a value based on what you intend to profit is increasingly difficult, as competition is increasing – and the consumer market is increasingly demanding. As we have seen, there are different ways to set the price of a product or service. All of them are applicable in isolation, but the pricing strategies that have proven to be most efficient are those that are applied in conjunction with the market reality. <a href=”https://protagnst.com/estrategias-de-preco/”>https://protagnst.com/estrategias-de-preco/</a> <h2><a href=”https://protagnst.com/pt/”>Hire Sales Consulting</a></h2> Now that you know the different ways to define price, how about having our help to expand your sales? Protagnst specializes in lead generation and customer acquisition for business-to-business. <a href=”#form”>Fill out the form below</a> to build, together, the best strategy for your business.

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Pricing strategies: how to be assertive and get the best results?

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