Pricing is the prime factor to increase the profitability of the small businesses. When it comes to putting a pricing tag on the products, either large or small businesses don’t invest time to figure out the right pricing model. Manual pricing methods only emphasize reflecting the costs of the products rather than formulating strategies to retain customers. To maximize business profits and increase sales, price optimization and management software help businesses automate the process.
Undervaluation of the products might leave money on the table; fair valuation of the products lets you outperform your competitors and improve the quality of the brand.
Types of pricing strategies
1.Demand Pricing
Demand pricing uses the market demand of the products or services based on the customer’s expectations. This pricing strategy fluctuates based on the consumers’ demands.
2.Competitive pricing
It is also referred to as strategic pricing. Competitive pricing is set based on the competitor’s pricing.
3.Cost-plus pricing
At the time of setting cost-plus pricing, the businesses use the cost of raw materials and the production cost, and both are added to the overhead costs of the products.
A markup percentage (profit margin) is added to this sum which is cost-plus price. Upon a successful computation of all the costs and sales, the businesses run at a profit.
Pricing Impact On the Businesses
1. Pricing and profitability
Pricing is directly proportional to the profits of the businesses. Sometimes, higher pricing doesn’t bring higher profits and ends up losing customers. Higher pricing of the products increases the overhead costs per unit thereby lowering the sales volume.
2. Pricing and sales volume
More or less sales volume depends on the pricing of the products. As per the research of economists, when products’ price rises, sales volume falls down and decreases the overall profits of the businesses. Businesses get higher profits if the cutting on the cost of the products jumps the sales. Businesses can test the incorporation of the new pricing strategies by the market response.
3.Pricing and business positioning
Pricing depicts brand value among your customers and acquaints them with your products and services. It affects the position of the businesses in the marketplace.
Some brands portray themselves as luxurious brands by setting higher pricing of the products. Offering smart rebates and discounts on the products increases customer retention rates of the businesses thereby boosting sales and profits.
4. Market value and competition
Pricing strategy makes small businesses more or less competitive to hold their stake in the market. Lowering the prices temporarily helps companies to gain market share from their competitors. When customers build trust and acknowledge your product then the businesses can increase their prices again and reset pricing to maximize profitability. And, this time, businesses have more loyal customers. Higher pricing of the products increases the overhead costs per unit thereby lowering the sales volume.
Predatory pricing is a strategy to lure customers to buy the products by lowering the pricing. It brings the market share to the businesses.
Conclusion
Although lower pricing of the products attracts more customers. But it might take away huge profits from the businesses. That’s where Vistaar steps in. When it comes to putting a pricing tag on the products, either large or small businesses don’t invest time to figure out the right pricing model. Manual pricing methods only emphasize reflecting the costs of the products rather than formulating strategies to retain customers. To maximize business profits and increase sales, price optimization and management software help businesses automate the process. Vistaar is a leading SaaS service provider that provides smart pricing software solutions. We incorporate advanced CPQ software that easily adapts to your business environment to increase sales.