Best Pricing Strategies for Consumer Goods With Examples

Be certain that your price approach encourages customers to purchase your goods. Here are five strategies to employ, as well as instructions on how to put them into action.

What is a Pricing Strategy For Consumer Goods?

The phrase “pricing strategy” refers to any and all of the techniques that a company owner employs in order to decide how much to price for their consumer products. You will always eventually wind up doing some math, doing market research, or gathering customer insights before you can put a brilliant plan into action.

Of course, not all pricing approach is as comprehensive as others. Manufacturer recommended retail prices or fixed markups (also known as cost-plus pricing) are preferred by certain company owners who want to make things as simple as possible (MSRPs). A pricing strategy is already in place if you employ a consistent method to determine your rates, such as the one described above. The ability to get an edge over your competitors in your sector will be realized when you develop a plan that more accurately accounts for market circumstances and other variables that influence customer behavior.

The Benefits of Nailing Your Pricing Strategy

We’ll go through the four most important reasons why you should create a clear pricing plan in this article. Everything you need to learn is as follows…

Pricing Has the Potential to Influence Customer Perception

Customers’ perceptions of your products are heavily influenced by the prices you charge. Based on the brands you run and the deals you promote, your store may be considered a premium, mid-range, or cheap option. Make certain that the pricing you provide on your portfolio are consistent with your brand. In addition, you should think about what your selection of brand partners suggests about your entire business offering.

Consumers will think that your shop provides less value for money when compared to rivals if you carry a large number of luxury goods and charge extra for them, for example. Working on a brand reputation plan will be very difficult if you want to turn around your bad image.

Sales and customer loyalty will be maximized if you charge the right price

Increasingly, consumers are willing to shop around for greatest prices. With an ever-expanding selection of shops at their fingertips, they’ve evolved into smart consumers who know where to go for the greatest deals. With this in perspective, you must price your products competitively compared to your closest competitors. The aim is to establish a position as a stockist who provides excellent value for money, in order to increase sales and customer loyalty. Maintain consistency, and you will quickly establish yourself as a go-to place for beauty consumers.

Your business strategy may assist you in gaining a competitive advantage

Speaking of rivals, it’s critical that you keep a close eye on how comparable SKUs are being priced at your competitors’ shops. Are they adhering to their suggested retail prices or are they lowering the cost by just few sales-boosting pounds? It is necessary to take a lot of things into consideration when comparing prices at competing shops. Keep an eye out for the widespread use of discount coupons, the bundling of goods, and the supply of travel and/or industrial-sized supplies.

All of these elements may have an effect on the impression of value without affecting the stated price of a product. Even something as basic as next-day delivery has the potential to be a deal-breaker for customers. (Take, for example, Amazon Prime.) By considering every aspect of your rivals’ pricing tactics, you can improve your own to guarantee that you are obtaining an advantage over your competition.

Promotions that are well planned may have a positive impact on performance

It is impossible to discuss pricing tactics without bringing up the subject of promotions. It is possible to attract consumers to your business in a variety of methods, ranging from gift with purchase (GWP) offers to multi-buy discounts. As long as you make sure that your customers are aware of your promotions while they are running, you should be OK. This may include running paid social advertisements, posting organically on Instagram, and distributing newsletters, among other things.

Always-on advertising should be included throughout your email marketing campaigns as well. For example, you might give everyone who signs up for your mailing list a 10 percent discount on their first purchase. Using this easy incentive, you can develop a larger email list, that you can then use to retarget customers with new goods and promotions in the future.

Best Pricing Strategies For Consumer Goods

Value Based Pricing

It is possible to determine the cost of the product or service in accordance with the perceived value of that product or service by its customers using a value-based pricing approach. This implies that the price of a product or service is not decided by how much it costs to manufacture or deliver, but rather by how much the consumer is prepared to pay for it.

If you use this pricing technique, you may set a considerably higher price and improve the profitability of every transaction. However, your service or product must have a really great deal of value in the eyes of consumers in order for this strategy to be effective.

Pros

• Brand value will increased as a result.
• Profit margins that are higher
• Customer loyalty is enhanced

Cons

• Markets for certain products or services are smaller
• Increased competition
• Costs of manufacturing are high

Examples of Value Based Pricing

1. Apple

Without mentioning Apple, no discussion of value-based pricing would be complete without mentioning the company. The technological business has elevated the practice of charging a greater cost than fair value to the level of an art.

They have the ability to do so as well. After all, its clientele is among the most devoted in the whole field of consumer electronics, according to Gartner.

Furthermore, their business model essentially pushes consumers to extend their tech ecosystem to a point where it contains the majority, if not all, of Apple-branded goods.

While Apple’s business strategy has lately come under fire, the company’s goods continue to be sold at a premium price to compensate.

What is Apple’s secret to success?

Apple’s pricing strategy starts and ends with the consumer, according to the company’s policy. Theirs is an eminently illustrative case of the trade mark being more significant than the product in the aggregate.

In the beginning, their price mirrored the elegance of their goods and the ease with which they could be used by the consumer. This was an experiment in establishing a market share and a devoted customer base, as well as accumulating a significant number of customer worth over the course of many years.

They achieved this by creating a software that placed a high priority on simplicity of use, putting it a step ahead of the products of its major rivals at the time. Fast forward two decades, and Apple products account for the large majority of home computer systems, cellphones, and other technological devices (wearables, MP3 players, and so on) that are utilized in the united States.

In reality, Apple’s operating system has a 39 percent market share in the United States.

For Apple consumers, overall value of their purchase is determined by the following factors:

• Apple’s already-existing ecosystem, which they’ve built up via acquisitions over the years, will be used.
• Familiarity with the iOS and macOS operating systems
• Apple was the first company to provide a legitimate mobile platform 
• The elegant design feature that distinguishes this product from others of its kind.
• The software / hardware integration that enables Apple products to perform exceptionally effectively inside their respective ecosystems.

Apple has essentially abandoned consumer research in lieu of cultivating and sustaining customer loyalty – and their revenues reflect this.

2. Starbucks

Starbucks is one of the most beloved brands in the world, and few businesses can rival it. Due to the fact that coffee is a much more of an experience product than technology, its client groups are even more varied than those of technology businesses.

Starbucks has mastered the skill of peer-to-peer marketing, which is one of the reasons why you won’t see any Starbucks ads on television or in magazines. The company has established such a deep bond with its customers that, despite the fact that other, lower-cost alternatives are readily accessible, people continue to flock to their local Starbucks seeking their caffeine fix.

What is Starbuck’s secret to success?

Starbucks has a huge worldwide consumer base that is growing every day. Their brand recognition has grown to such an extent that they have been associated with high-quality coffee-based drinks. The fact remains that this is another another example of consumers identifying more with the brand’s name than with the actual product itself.

Starbucks has made it a policy to encourage social connections amongst customers in its stores. Customers may stay in their stores for as long as they choose without feeling pressured to purchase anything every time they come in. In addition, holding a mug of Starbucks in your grasp as you go into a social setting evokes a picture of confidence and success. Starbucks is banking on the fact that the image is valued more than the real coffee, which is exactly what they are doing.

In addition, the business has been very fast to embrace seasonal culinary trends. Since their introduction, their ‘pumpkin spice lattes,’ which are inspired by dessert delicacies that consumers love throughout the autumn and winter, have sold more than 424 million units worldwide. As a result, Starbucks has introduced a variety of seasonal beverages, all of which emphasize the attraction of being fashionable and drinking whatever is currently fashionable.

For Starbucks’ consumers, the worth of the product is determined by the following factors:

• The product’s urban charm is one of its main selling points 
• The friendliness of their store interiors and the style of their emblem are two things that stand out about them.
• Ability to interact inside the confines of a store without being restricted
• In addition, the business portrays a high level of prestige.

Starbucks has raised the price of its coffee over time, which has resulted in a larger customer base with greater income levels. The company’s success is dependent on the continued patronage of its customer base.

3. Louis Vuitton

The French apparel and accessory business is associated with high fashion and luxurious design. Regarding Louis Vuitton, the worth of a product is entirely determined by the established identity of the company’s emblem in the eyes of consumers.

When it comes to premium pricing, LV is the gold standard. The company has never steered away from charging its goods in a range that attracts a very elite clientele. All of this is despite the fact that their product has a very simple design – it is the logo that is printed on the outside of all of their bags that drives sales.

What is Louis Vuitton’s secret to success?

To put it bluntly, Louis Vuitton is a premium apparel and accessory company, and as such, its price follows the traditional luxury goods pricing paradigm. However, rather than introducing fresh and spectacular designs, the business has opted for a more modest design approach, relying on a recognized colour theme and the brand’s ubiquitous emblem to get the job done effectively.

Louis Vuitton has maintained consistency in its design style, which allows their goods to stand out from the crowd. It’s easy to recognize a Louis Vuitton purse, even if you don’t own any luxury accessories. A Louis Vuitton bag may be worth $1,000 to $2,000 or more, depending on the model.

For Louis Vuitton consumers, the worth of their purchase is determined by the following factors:

• Style and exclusivity are usually often associated with the word “exclusive.”
• Their accessories’ social adaptability is one of their strongest assets.
• Despite a gender-segregated catalog, the product design is gender-neutral.
• Although it has a fashionable image, the pricing is somewhat less expensive than that of certain other high-end companies.

Louis Vuitton has also been increasing its product line, all of which are priced in accordance with the same pricing plan. As an added bonus and in contrast to other businesses, Louis Vuitton has never been challenged for its value-based pricing strategy.

Competitor Based Pricing

Competitor-based pricing is a pricing approach that uses the price structure of your rivals as the primary standard for developing your own pricing strategy. You base your price on general market trends and ensure that it corresponds to your consumers’ expectation of what they will be willing to pay for the product or service.

Pros

• Simplicity
• Risk is minimal.
• This pricing strategy is used in combination with other pricing methods.

Cons

• Customers are ignored.
• It restricts one’s ability to adapt.
• Demand has been disconnected from supply.

Examples of Competitor Based Pricing

1. Retailers

Because prospective consumers often compare pricing for their desired goods and base their purchase decisions on price, retailers that offers a similar product as their rivals commonly utilize Competitive Based Pricing. This is particularly prominent in the internet arena, where Google’s Shopping function makes it simple for customers to compare prices across many websites.
For example, Amazon is an example of an online seller that performs large-scale and continuous research of rival pricing in order to maintain its position as the lowest-priced choice in the market.

2. Apple

It may be claimed that Apple adopts a competitor based Pricing strategy, yet chooses to implement a Premium Pricing plan instead of the former. Apple routinely charges greater costs than its rivals, and the company’s branding, marketing, and messaging all work hard to convince customers that the higher pricing are justified.

3. Coca Cola

Coca Cola sells a diverse range range of goods in a variety of worldwide markets, and as a result, the company will use a diverse range of pricing methods to achieve maximum profitability. However, if we focus only on the Coca Cola product, we can see that the company employs a competitor based pricing approach, with prices that closely follow those of its largest rival, Pepsi, for the most part.

Price Skimming

Price skimming is the practice of charging the maximum price your market would tolerate for your goods at the outset, then gradually reducing it over a period of time. Essentially, you are attempting to “skim” off the top segment of the market to whom you are appealing at the moment when your product is at its freshest, thus maximizing your profit as soon as possible.

Pros

• An increased rate of return on investment
• It contributes to the creation and maintenance of your brand image.
• It divides the market into segments.
• Early Adopters Contribute to the Testing of New Products

Cons

• It will only work if your supply curve is relatively elastic to begin with.
• In a crowded market, this is not an effective strategy.
• Competitors are attracted to skimming.
• It has the potential to enrage your early adopters.

Examples of Price Skimming Pricing

1. The Latest Iphone

When it comes to product pricing, Apple’s strategy is a textbook example of price skimming in a manner that nearly everyone can understand. Apple’s pricing for freshly launched goods seem to be so expensive that they are nearly dissuasive for each new product launch — yet still, there are always lines outside Apple shops on iPhone launch days.

This is due to the fact that Apple checks all of the boxes required for price skimming to be effective, including the following:

• It already has a large number of consumers who consider the brand to be very trustworthy and appealing in their eyes.
• It doesn’t have direct competitors that are able to outperform them on price or quality.
• It utilizes premium price to communicate the better quality of its new device, a notion that is supported by the remainder of the company’s product line.
• Due of its anticipated sales volume and the pace with which it develops new items, reducing prices all across the skimming process will have minimal to no impact on the company’s total sales volume, according to the company.
• For a business of Apple’s scale, unit prices are not a significant consideration.

As a consequence, Apple is in an excellent position to capitalize on the advantages of price skimming to a great extent possible. With so many profitable product released under its belt, and a matching price-skimming approach, the firm has set the bar high for other technological companies to follow.

Cost-Plus Pricing

Cost-plus pricing is a model in which the ultimate selling price of a product is determined by adding a markup to the product’s initial unit cost. In fact, it was one of the earliest pricing methods in the book, and it’s based primarily on just two factors: price and quantity.

All you have to do is take the expenses associated with creating your product or delivering a service to your consumers and apply a percentage to the total to account for your profitability. Every unit sold therefore generates the same amount of money to pay your expenses and maintain a profit margin of the same amount.

Pros

• Almost any product may be implemented in a short period of time.
• Calculation is straightforward.
• Profit that is predictable and always sufficient to pay manufacturing expenses
• Customers are aware of the rationale for your sale value and accept it.

Cons

• It makes it much too simple to back out of a pricing agreement after it has been established
• Isn’t connected to the value that your product offers to consumers.
• There is no financial motive to increase profits via revenue growth or changes.
• It is tough to adjust the pricing when it is required.

Examples of cost-plus Pricing

1. Manufacturing

Cost-plus pricing is a profitable business model for manufacturing businesses. They can easily allocate a profitability percentage to their goods since the fixed expenses associated with them (such as manpower, machine maintenance, and raw materials) are generally predictable. This allows them to charge a markup on top of their products in order to maintain their company.

Typically, businesses sell manufactured large quantities of goods to existing clients under the terms of a contract in many of these business agreements. Consequently, it becomes much more straightforward over time to establish a consistent income stream without the need for a price rise or reduction.

2. Grocery stores 

Consider the very last time you made a trip to your local grocer. Whether you were purchasing bananas, bread, or milk, you most likely had a decent sense of what each item would cost you prior to purchasing it. This is due to the fact that grocery shops also operate under the cost-plus pricing model.

Food retailers purchase goods in large quantities, therefore it’s probable that they depend on a procurement business that applies the same price evaluation as the manufacturing firm in our previous example.

Penetration Pricing

Penetration pricing is a kind of acquisition technique used by businesses seeking to gain a base in highly competitive industries. Market penetration occurs when a company offers a cheaper price than its rivals in order to lure consumers away from their present supplier in an attempt to acquire market share.

Pros

• Pricing products at a low level may be used as a marketing strategy to increase brand recognition.
• A fast and effective method to acquire market share and establish a presence in a competitive sector.
• It allows a company to take benefits of economies of scale, that results in reduced average costs and the ability to compete.
• Prices may rise over time, resulting in the company being more lucrative.

Cons

• It is possible that you may have to sell at a loss for the first few months.
• Consumers who have developed brand loyalty may not be willing to switch, despite reduced costs, making it a hazardous strategy.
• A company’s production must be high right from the outset in order for it to be successful.
• It may spark a pricing war, with current companies lowering their rates to deter new competitors from entering the market.
• Inelastic demand consumers will benefit from a significant rise in consumer surplus.

Examples of Penetration Pricing

1. Mokai

Mokai, a well-known Danish cider brand, has been attempting to break into the East African market, with an initial emphasis on Tanzania. Their rivals and the types of ciders that are now available on the market have been researched and evaluated as part of the consumer testing and strategy process. Savanah cider is among the most potent ciders available on the Tanzanian market, which may be attributed to the country’s relatively developed alcohol industry. Despite certain variations in flavor and design, as well as distinctions in target markets (Mokai is usually targeting the female sector, while Savanah is targeting both genders), Mokai was required to develop a plan to attract customers from Savanah.

Consequently, they have been hitting the market using a penetration pricing approach, which involves providing a decent price for their product during the initial period…. One of the primary goals was to improve market share as well as overall sales volume. Long-term, they hoped to decrease the expenses associated with the manufacturing process. However, since the prices were maintained excessively low, an increase in sales quantities did not always translate into an increase in profit. What was the end result? The product was unable to effectively incorporate into the Tanzanian marketplace. The incorrect use of the penetration price strategy, along with additional reasons such as a low level of investment in brand recognition and a lack of trust in the company’s distribution partners, contributed to the dismal failure of the Danish cider’s entry into the Tanzanian market.

2. Providers of Smartphones

To illustrate, consider the case of two major mobile operating systems that utilize drastically different pricing methods from one another.

Android’s penetration strategy is intended to increase the company’s market penetration. When opposed to Apple devices, Android phones, especially Samsung at the forefront of the pack, are offered at a significant discount or at much lower prices, with the expectation that consumers might become committed to the product. This method also opens up the Android marketplace to a broader variety of customers, while Apple pursues a skimming strategy, offering high-priced goods that only capture a tiny part of the market at the expense of other products.

Penetration pricing is also used in a similar penetration technique that is common among smart phone carriers as well. In this strategy, carriers offer consumers low-cost or even free smart phones in exchange for signing long-term contracts with them. Consumers are enthralled by the low-cost phone, but they fail to realize that the contracts would end up costing them significantly more in the long run than the device would have.

3. Gillette

When it comes to a good penetration price plan, one company that springs to mind immediately is Gillette. Having given out razors for free or at cheaper prices than its rivals, its been able to maintain its position as the market leader for many years. The revenues that Gillette loses by selling its razors at cheap costs are made up for by the profits that it makes by selling clippers, attachments, and accessories at high prices. The ability to distinguish your brand from competitors who are all selling similar products is particularly effective with in fast-moving consumer goods (FMCG) space. While you are new to the industry and developing brand recognition, offering disruptive prices is an impactful way to distinguish your brand from competitors.

4. Food and Beverage Services

A penetration pricing approach is used to introduce a large number of new items to the market. Some companies even give out bundles of new goods by sponsoring events and handing out trial packets to participants, as an example. When you go into a supermarket, you’re likely to notice ads offering initial low prices on some fresh products, which are excellent instances of penetration pricing. Costco and Kroger have used penetration pricing for the organic goods that they offer in order to boost demand for these items. Organic goods have a larger profit margin than conventional products, and because of scale economies, these grocery chains earn money by increasing demand and increasing sales volumes.

Another prominent example is Starbucks, a specialty coffee company that often offers unique and seasonal coffee drinks and beverages at a lower price range in order to entice customers to sample these new products. Once customers get used to these products on the menu and have a favorable reaction to them, Starbucks withdraws the penetration pricing incentives and resumes selling them at their regular, non-discounted rates.

Factors To Consider

When it comes to setting a pricing for your products or services, entrepreneurs face a slew of factors that must be balanced against one another. Among the factors to examine are the requirements and aspirations of target customers, as well as the overall economic environment. When developing a pricing plan, the following considerations should be taken into account.

• The cost of the item or service a major factor in determining whether or not to purchase it?
• What is the level of popularity of the item or brand being offered?
• When determining pricing and marketing tactics, consider how they interact with the company’s other qualities.
• Is the ultimate price decision in the hands of the owner?
• Is there an opportunity for specific market promotions to take place?
• When it comes to comparable products or services, what are rivals charging?
• Should temporary price reductions offered by rivals be matched?
• What is the maximum amount of markup that may be obtained for every product line or service area?
• Will the pricing produce a sufficient profit margin after deducting operational costs and cost-cutting measures have been implemented?
• Do you take into consideration the probable responses of rivals while lowering the price of products or services?
• Are there any legal considerations to take into account while determining a price?
• Should techniques such as “odd pricing” or “multiple pricing” be adopted in the future?
• If you want to attract consumers, should your marketing efforts focus on the sales of a few high-profile products?
• In the event that vouchers and other discount methods are made available, what effect will they have on net profits?
• Will the features of the product supplied (such as handling charges, installation needs, modifications, and so on) have a significant impact on the company’s operational expenses?
• Will product numbers be unnecessarily decreased as a consequence of spoilage, breakage, staff theft, or shoplifting, or will they be excessively reduced?
• Will services such as home or workplace delivery, gift wrapping, and other such services be included in purchase price?
• In your region, are economic circumstances especially favorable or unfavorably favorable?
• Will workers be eligible for discounts on the goods they buy from the store?
• Will elderly people or students be eligible for special discounts on products or services?
• What rules are in place regarding markdowns?

Final Thoughts

Finally, the goal of every business is to maximize profits for its shareholders while also creating goods that customers desire to purchase. It is necessary to begin with a thorough knowledge of the costs of manufacturing an item or providing a service and then balancing that understanding with the costs of getting it to the customer.