10.4 Pricing Strategies

To find out how much to charge, what do you need to find out?

you need to find out the going rate of cupcakes

Where is the best place to check for this?

The best place to begin is to check out your competition.

In addition, who can you talk to to see how much people would pay or if they have paid in the past?

talk to your friends and family to see how much they would pay or have paid for cupcakes in the past, and ask them to share their experiences of online cupcake companies if they have used them before. You could even send out a survey to all your contacts asking them what price they would be willing to pay for a single delicious cupcake or box of premium cupcakes.

What is the next step?

think about your customers. What can they afford to pay?

What is the key to sustaining a new business?

The key to sustaining a new business is to create consistent revenue streams.

Once you have acquired new customers, what is your goal?

your goal is to hear from them again and again.

In addition, it is helpful to compare yourselves to who?

it is helpful to compare yourself to others in the field.

Do you have the right credentials to run an online cupcake business? What experience do you have in the bakery business? What sort of business experience do you have to operate as an online cupcake company? If you have less experience than others, then you might want to consider charging lower prices to win new clients and gain real experience. However, if you have a background in bakery and catering, already have a solid customer base, and have business qualifications to match, then you could feasibly charge higher rates.

Once you have a better idea of your competition, your target market, and how your qualifications measure up against others, it is time to plan what?

your pricing strategy

There is no right way to determine your pricing strategy, nor is there such thing as long-term fixed pricing. True or false?

true

As your business evolves, your prices will adjust according to what?

demand

What is the best way to set a price?

The best way to set a price is to base it on the information you have already gathered.

What affects how much your product sells for?

positioning, brand

what is very important when defining your business?

understanding your brand

How to start defining your brand?

by choosing a name, logo, and design for your website and social media.

What is a useful exercise to define your brand?

think of three to five words to describe your business that set it apart from other competitors

As you are promoting your cupcakes as a luxury product, you need to aim for a price that isn’t…

too low because a low price on a luxury product can cause customers to doubt the quality of the item being sold

Pricing Strategies

1. competition-led pricing

2. customer-led pricing

3. loss leader pricing

4. introductory offer

5. skimming pricing

6. psychological pricing

7. fair pricing

8. bundled pricing

Competition-Led Pricing

you copy the prices suggested by other businesses selling the same or very similar products and services.

However, matching a price is not generally enough to encourage customers to buy from you, especially if you’re not an established brand. True or false?

Customer-Led Pricing

you ask customers how much they are willing to pay and then offer your product at that price.

Example of Customer-Led Pricing

For example, Garmentory, a web-based curated marketplace selling merchandise from contemporary designers and boutiques, allows customers to interact directly with designers and shop owners to negotiate the final sale price

What is the technique used in the example called?

This “name your own price technique” is a useful way of attracting people to your company, building relationships and selling products at a price that feels comfortable for both parties while still giving the seller a measure of control over their own pricing.

Loss Leader

the practice of offering a product or service at a below-cost price in an attempt to attract more customers.

what does this involve?

discounts and reducing prices

Loss leaders can be an effective way of competing with…

an established brand offering similar products and services

Examples of Loss Leaders

Walmart, Costco, and Amazon are examples of major companies that adopt the loss leader pricing strategy to compete in the marketplace.

What is important to know for a loss leader pricing strategy?

Therefore, it is important to know how long the lower price can be sustained and to know when to readjust pricing before the business begins to lose money.

Introductory Offer

to encourage people to try your new product by offering it for free or at a heavily discounted price for a certain number of days or to the first 100 customers.

What is the introductory offer pricing strategy used for?

generally used for new products or services on the market.

Example of Introductory Offer

For example, when you sign up for a gym membership, you may get the first 2 months for free. Streaming services like Sling TV offer 50% off the first month’s subscription.

Skimming

a form of high pricing, generally used for new products or services that face very little or even no competition.

If your product is first on the market, then…

you can sell it at a higher price and retain the maximum value upfront, until you are forced to gradually reduce your prices when competitors launch rival products.

Examples of Skimming

Innovative products like the iPad and Sony PlayStation 3, which were originally priced high when they were launched, are good examples of price skimming.

what is also important to the sale?

customers perceptions

Psychological Pricing

intended to encourage customers to buy based on their belief that the product or service is cheaper than it really is.

Examples of Psychological Pricing

Flash sales, “buy one get one free,” and bundled products are all methods of psychological pricing. In addition, specific prices, such as those ending in $0.99, are popular with customers, as $19.99 is a more appealing figure to most than $20.

What companies use psychological pricing?

McDonald’s, Chili’s, KFC

Fair Pricing

the degree to which both businesses and customers believe that the pricing is reasonable

Regardless of how much benefit to the customer or how valuable you think your offering is, there are some customers who are simply unwilling to pay the asking price for items or services if they do not perceive it to be fair.

This is where market testing can help to define what people perceive as a fair maximum price versus an unfair price.

Bundled Pricing

packaging a set of goods or services together; they are then sold for a lower price than if they were to be sold separately. The customers feel they are getting a bargain, and the increased sales generate more profit for the company.

Bundled pricing is a form of…

psychological pricing

What are common examples of bundled pricing?

fast-food value meals, prix fixe meals at restaurants, snack food combos at movie theaters, cell phone packages, and cable TV packages.