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Top 5 pricing strategies for small business

GoCardless
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Last editedAug 20222 min read

Good strategy is good business, and while it might seem obvious that sales and marketing require strategy and planning to get right, the same attention also needs to be given to your pricing. Because choosing how much to charge your clients and customers is just as important as how you’re choosing to sell yourself to them.

Settling on a pricing structure that’s ideal for your small business can be difficult as there are so many to choose from. Go with the wrong one and you run the risk of either alienating your customers or not generating enough profit.

What is a pricing strategy?

Pricing has always been a difficult concept to grasp. Why, for example, are some products worth so much more than others when they offer essentially the same thing? Generally speaking, a price will have been carefully considered and tested before being implemented, and that’s true whether you’re selling smartphones or soft drinks.

Ultimately, your pricing strategy is what you plan to charge for your products or services. But it’s not as simple as just choosing a price and seeing if it works for you. It’s a strategy that takes into account everything from marketing and branding to promotion, your place in the market, and the desirability of your offering. So it’s always healthy to explore different pricing strategies as a smaller business just finding your feet.

Understanding pricing strategies for small business

Settling on a pricing strategy for your small business might feel like a juggling act, as there are several factors to consider and keep in the air.

  • Customer – How much is your target customer willing to pay for your offering?

  • Competition – What is your competition charging?

  • Costs – What are your fixed and variable costs, and how much do you need to sell your offering for in order to break even?

Find a pricing strategy that offers the customer value, competes with the other providers in your sector and realistically turns a profit.

5 different pricing strategies for small businesses 

There are dozens of potential pricing strategies for small businesses, and these are the 5 strategies we feel offer the best opportunities for SMEs.

1. Penetration pricing

Penetration pricing is a very popular pricing strategy for startups. It helps introduce them to the market by offering a low introductory price that undercuts the competition, before gradually increasing it as the market grows accustomed to your brand.

2. Economy and premium pricing

Economy pricing is a keen strategy for small businesses looking to offer a budget product. The problem with economy pricing for small businesses, however, is that it depends on being able to produce bulk quantities for a low manufacturing cost. This is why many SMEs favour the premium pricing model, which provides a more premium and sustainable offering for a slightly higher price than the competition.

3. Competitor pricing

If you are entering a market rife with competition, then competitor pricing is often a sensible strategy. This involves carefully monitoring the pricing strategies of your closest competitors and always ensuring that your prices are either the same or cheaper. This is a strategy most commonly employed by high street stores and supermarkets.

4. Price anchoring

If you happen to sell premium and budget products, then in seeing the lower-priced model next to a premium alternative, customers are more likely to purchase the cheaper model. This gives them a comparison without having to explore different brands or businesses.

5. Psychology pricing

There is a surprising amount of emotion that goes into many purchases, andpsychology pricing takes that into account. This is why many retailers charge .99. It’s charm pricing – trying to trick people into paying less than they actually are. The opposite method (a rounded-up number) promotes a feeling of prestige and authenticity. Finding the sweet spot between the two is always ideal.

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