Business is about our customers, which means we need to meet them where they are, not where we think they should be bringing about the aspect of pricing strategies. Product pricing strategies are a key aspect in business and it has become increasingly necessary to no longer look at it from the point of view of the company but that of the customer. Consumers will pay but only to products or services they see meet their utility range and satisfaction they desire.
Of course consideration of production processes has to be taken in to account such that the price set offsets neither the consumer nor the company. After all, number one goal of a business is profit. However, number one person key to a business is the consumer. ABC pricing strategy entails a look at anchors, bumps and charms.
Every established industry already has anchors in play that have set the price range for the particular product or service at hand. The art of pricing, though, is determining how you’ll use those anchors to set your price level. Should your product/service have significant value-adds or add-ons in its features, this allows you to use those anchors as baselines thereby giving you a gate pass for setting a price value higher than the anchor’s. Note that you cannot present a product with lower expected features compared to your anchor with the same price level and expect consumers to willingly pay for it. Design your product, vary it with that of your anchors then decide the price level.
If anchors set the baseline, bumps let people know what grade of product they’re getting. What often gets people to buy a higher grade of product or services is the benefit or features as well as the way the prospects view themselves (social status/perception). The other dynamic that increases purchases of higher-grade products is the fear of under-buying and having to buy either the higher grade or the same grade sooner. Many people will pay more to overbuy rather than have to replace something all over again in the near future incurring the same cost.
How are these bumps seen in pricing? A commodity costing Ksh 19.99 in comparison to its supplement costing Ksh 29.99 is not only viewed cheaper but also of lower grade than the latter.
A price that’s a little less than the round number is called a charm price. The rationale behind charm pricing is that it somehow gets us to perceive the value of the offer at the right amount while we at the same time view the cost as lower. Many people think that using charm pricing is somehow demeaning or tricky to prospects or that playing such games diminishes the seller’s credibility. Still others think that charm pricing doesn’t work on savvy, smart buyers. An example of this would be the mobile phone industry which prices phones a shilling below the round number e.g. a phone going at Ksh 7,999. This is meant to attract the consumer with consolation that it’s not Ksh 8,000 when clearly it still is.
Encompassing the ABC’s
Your goal while developing your pricing strategy is to make easy for your prospects to choose your product or service. A recommended pricing manner is by making your prices match their perceptions, economic reality and the satisfaction they will achieve from it. Care is needed to prevent yourself from blurring consumer perception of your product with the price. For example; If a car was going for Ksh 100,000, it would attract a large number of consumers however they will not be in it to purchase rather act like the Ripley’s believe or not crew. They will be looking for whether the car is actually a car, does it have a steering wheel, how many wheels are on it; you may even have to pop open the bonnet for them to see the engine or the boot for them to see whether it’s a hole or it exists to say the least.
Evaluate your price level; see where you stand and where you ought to be then fill in the gap. Is it as easy as abc? Unfortunately not, but is achievable.
Product pricing strategies are probably the most important decisions to any business. One has to be very careful while you quote the prices. Your pricing strategy will indicate the flow and growth of your customers. At the same time the price should benefit both customers as well as the company. Do not go for round figures, make it sound lesser to your customers. By using 699 instead of 700 will attract your customers much more. Conduct a survey before you price your products, this will definitely help you.