What is pricing strategy? 12 popular pricing strategies in business

Pricing strategy is not simply setting a price for a product, but also a way to reach, attract and maintain relationships with customers. In this article, 1C Vietnam will help businesses better understand pricing strategies and introduce the 12 most popular pricing strategies in business, helping businesses optimize profits and create sustainable competitive advantages in the world. market.

1. What is pricing strategy?

Pricing Strategy is how businesses determine product prices to achieve marketing goals such as increasing market share, profits, revenue and brand value.

For example, TH True Milk's pricing strategy is to set product prices higher than competitors, combined with building the brand "real milk". This strategy helps TH True Milk create trust in customers, proving they are willing to pay more for good quality products. Thanks to its smart pricing strategy, TH True Milk increasingly strengthens its position in the Vietnamese dairy market.

2. The role of pricing strategies in Marketing

In Marketing 4P, price is one of four basic factors that businesses use to influence the target market, helping to enhance their position compared to competitors. Here are some important benefits of pricing strategies:

• Increase conversion rates: Consumers are often sensitive to price and tend to consider this factor first when shopping. Therefore, a reasonable pricing strategy helps businesses attract potential customers and convince them to convert into real customers.
• Create competitive advantage: In a fiercely competitive market, reasonable pricing strategies help businesses overcome difficulties from consumers and competitors. Although it may reduce initial profits, lower prices can increase market share, providing long-term profits as the business expands.
• Reflect brand value: Price must reflect the quality of the product or service. Prices that are too low can cause doubts about quality, while prices that are too high and inadequate quality will not attract customers. The right price helps express the true brand value.
• Positioning the brand in the minds of customers: Pricing strategy helps the brand have a clear position in customer awareness. For example, TH True Milk prices its products higher than its competitors, combined with the "real milk" brand, creating trust in customers and affirming its position in the market.

3. 12 popular effective pricing strategies today

Each business will choose marketing pricing strategies appropriate to each business stage. However, to provide readers with a more general overview, 1C Vietnam has compiled the 12 most popular pricing strategies along with specific application cases of each strategy.

3.1 Market penetration pricing strategy

Market penetration strategies are often used when launching new products. Businesses reduce product prices to the lowest level to attract consumers, put pressure on competitors and gain market share. Once this goal is achieved, product prices will be readjusted to return capital and increase profits.

This strategy is suitable for fast-moving consumer goods (FMCG), which have a long product life cycle and high demand growth in the future.

For example: In 1960, when it first appeared in Vietnam, Coca Cola used a low price strategy to compete with Pepsi to attract customers and expand market share.

3.2 Price skimming strategy

Price skimming strategy refers to businesses launching new products at high prices to assert quality and increase competition. To implement this strategy, businesses need to invest in quality, packaging and appropriate marketing strategies.

The goal of the strategy is to sell to few customers but with high profits per unit of product, making profits quickly in the beginning. This strategy is especially suitable for technology products with short life cycles.

For example: Apple always launches new products at high prices, then gradually reduces prices to prepare for the next version.

3.3 Pricing strategy by product line

To provide more choices for customers, some businesses design products or services into different versions. All of these versions are collectively referred to as the product line. According to the increasing value of each version, businesses will set prices accordingly.

For example: When launching a new product, Apple introduces iPhone with different capacity versions such as 64GB, 128GB, 256GB and 516GB, helping users easily choose according to their needs.

3.4 Psychological pricing strategy

Psychological pricing strategies are widely applied in business in many different forms. This strategy targets customer emotions instead of normal consumer behavior.

For example: The product price is often listed as 99,000 VND instead of 100,000 VND to create the feeling of a cheaper price. Or brands raise prices higher than actual prices to exploit the "you get what you pay for" mentality, making customers confident and willing to spend more.

3.5 Combo pricing strategy

The combo strategy can help businesses sell more products at the same time by combining products that are similar or can be used together at a cheaper price than when purchased separately.

For example: When buying Combo of popcorn + water + movie ticket at the theater, there will be a discount compared to buying retail. This activity aims to stimulate product consumption and increase value per order.

3.6 Promotional pricing strategy

Applying promotions is a popular strategy that most businesses use. Businesses or individual sellers often reduce product prices on special occasions such as grand openings, Tet holidays, birthdays, or Black Friday to boost sales.

For example: On Black Friday, many fashion stores offer discounts of up to 50% on all products or electronics supermarkets offer strong discounts on electronic products to attract a large number of customers and increase sales during the period. short time.

3.7 Pricing strategy with bundled products

Businesses often combine selling side products with main products to increase revenue and improve customer experience. There are two types of bundled products: mandatory and optional.

• Compulsory companion products are side products that must be used with the main product to be effective.

For example: When buying a printer, the store often sells ink and printing paper.

• Products that come with options are often offered by stores to increase competitiveness and handle inventory appropriately.

For example, technology stores often sell backup chargers with phones, priced at only 50% of the retail price.

3.8 Installment/pay later strategy

The strategy of paying in installments or paying later is becoming a popular trend, especially among young people. Many businesses apply this form to support customers in purchasing goods when they do not have enough financial capacity.

This strategy is considered "killing two birds with one stone" because it not only retains customers but also increases profits through calculating postpaid interest. This is an effective strategy for high-value and trending products such as phones, laptops, motorbikes...

3.9 Pricing strategy by customer segment

Businesses often apply different prices to each customer segment based on the same product type.

For example: Bus companies, amusement parks or movie theaters often apply preferential prices for children, the elderly, pupils and students.

3.10 Freemium pricing strategy

This is a strategy combining free and premium (Free - Premium), often used by technology and software businesses. Under this strategy, businesses offer apps for free or trial versions at no charge. Users can then pay to upgrade to the premium version to experience more advanced features.

For example, Canva - a free photo design and photo editing app. However, to use more beautiful and advanced designs, users need to pay for Pro packages.

3.11 Dynamic pricing strategy

Surge pricing strategy, also known as fluctuating pricing strategy based on customer and market demand. This strategy is often applied by hotels, event organizers, airlines and utility service businesses. In this strategy, prices can change over time, depending on the level of demand and demand from customers as well as market factors.

For example: Hotels and airlines often adjust prices based on the tourist season or special events such as festivals and work events.

3.12 Pricing strategy by brand

This is the pricing strategy that helps the brand stay in the minds of customers in the best way. This strategy has two main directions: high price strategy and low price strategy, suitable for each brand's characteristics.

Famous brands such as Chanel, iPhone and Gucci often apply high pricing strategies. This helps create a feeling of luxury, class and nobility for users of their products.

4. Factors affecting the pricing process

To determine the appropriate strategy for a product or service, businesses need to consider the following basic factors:

• Primary Marketing Objective: Could be to expand the market, increase profits, penetrate deeply into a specific market niche or similar goals.
• Target customers: Determine characteristics such as gender, age, ability to pay for the product.
• Financial resources: Assess the financial capacity of the business to decide on an appropriate price competition strategy, specifically the ability to bear losses for a certain period of time to reach more customers.
• Level of competition: Direct and potential competitors, level of price competition, market coverage and market share.
• Product positioning: Determine which segment the product belongs to in the market, whether it is a high-end or affordable product.
• Stage in the product cycle: Analyze the stage of market penetration, growth, saturation or decline of the product.

However, identifying the above issues only accounts for about 70% of choosing a successful pricing strategy . The remaining 30% will depend on external factors such as the natural environment, technology, culture - politics - society, and demographics.

5. Price planning process in businesses

To effectively plan prices in a business, it is necessary to go through a specific process and include the following main steps:

5.1 Set up a business expense table

To build effective pricing strategies, determining production costs is an indispensable step. Production costs play an important role in determining selling prices to ensure profits and competition in the market. Cost factors that businesses need to pay attention to include:

• Cost of raw materials
• Labor costs
• Machinery and equipment costs
• Costs of operating a factory or manufacturing facility, including energy costs, internal transportation, maintenance and repair of facilities, and other costs related to maintaining and operating the manufacturing facility .
• Management costs: includes costs related to general management of the business.
• Costs for Marketing campaigns such as advertising, PR, events,...

5.2 Assess market potential

Analyzing market potential is an important step in the process of building a pricing strategy, helping businesses forecast the number of products they can sell and better understand the market size, trends and growth rate. Experts often use the ED (elasticity of demand) index for analysis.

This index indicates the sensitivity of demand to price changes. The formula to calculate ED is:

ED = (% change in product quantity demanded)/(% change in product price)

• When ED > 1, product demand is highly elastic, meaning price has a strong influence on consumer purchasing needs.
• When ED = 1, product demand is unit elastic, meaning price has a normal influence on purchase demand.
• When ED < 1, product demand is less elastic, meaning price has almost no effect on consumer purchasing needs.

5.3 Determine the ideal price range and good competitive price

In the process of building a pricing strategy, the next step is to determine the ideal price range and competitive price. Businesses need to consider the following factors to make decisions:

• Breakeven price of the business.
• Current lowest price on the market.
• The highest price a customer can accept.

5.4 Plan pricing strategy according to product structure

Finally, to perfect the pricing strategy according to product structure, businesses need to ensure the following factors:

• Build a detailed pricing framework for each product and service in the company.
• Determine the company's position based on competitive prices.
• Fix gaps in business costs to optimize product prices.
• Offer the most competitive prices based on the detailed structure of products and services.

5.5 Quotation

After having a complete pricing strategy , businesses can start quoting prices to partners and customers. Depending on the distribution channel (direct, through agents, franchise), businesses need to ensure that the beneficial relationship between the parties is optimized.

6. Distinguish between pricing strategy and pricing method

Distinguishing pricing strategy from pricing method is essential for businesses to optimize the price management process and increase profits.

7. Answers to frequently asked questions about pricing strategy

By answering frequently asked questions about pricing strategy, businesses can better understand how to apply, adjust and optimize this strategy to achieve the highest business performance.

7.1 Which pricing strategy is most effective?

There is no most effective pricing strategy, only the most suitable strategy. An effective pricing strategy depends on many different factors, including the industry, the business's goals, and the characteristics of each business's target market.

7.2 Which pricing strategy is the simplest?

The additive pricing strategy is the simplest method of product pricing. This strategy involves calculating the total cost of manufacturing the product and adding a profit percentage to it.

7.3 What is price analysis?

Price analysis is the process of evaluating a business's current strategy compared to market demand. The purpose of this analysis is to identify opportunities to adjust and improve pricing strategies.

8. 1C:ERP - Solution to support businesses in flexible product price management

1C:ERP is a comprehensive enterprise resource planning solution designed for businesses worldwide and can be immediately deployed into any business model. With 1C:ERP, businesses can easily manage business costs, understand market demand and analyze data to come up with appropriate pricing strategies:

• 1C: ERP provides a cost management system based on powerful methods and functions, aimed at reducing costs from more efficient use of available reserves.
• Offers a flexible pricing system, supports multiple currencies, and has special agreement templates available.
• Store competitor information and pricing policies to assist in determining competitive prices.
• Divide customers by segment, product and business field for the purpose of analyzing, reporting and appropriately pricing products.

Thus, the above article has explained in detail the pricing strategy as well as proposed a specific price building process. To speed up the product pricing process as well as provide more accurate and effective pricing strategies, businesses can refer to the comprehensive business management solution 1C:ERP. If you have any questions about the product, please contact 1C Vietnam for support.