There are various pricing strategies that you can employ when running your Australia based business, from simple to complex. One of the most critical decisions you must make is what pricing strategy will work best for you and your company. Here are four main types:
- Cost-plus
- Value-based
- Competitive
- Experience-based
It would help if you considered each strength and weakness before implementing them into an overall marketing plan. Each one also has a slightly different philosophy that can help you better understand how you run your business. Keep reading to learn the best pricing strategy.
Cost-plus Pricing
Cost-plus pricing is when a business calculates the cost of producing an item and adds to that cost, to ultimately arrive at a final price for the product. This type of pricing strategy works well for businesses that have relatively high fixed costs and low variable costs but can find it difficult if there are not enough people who want your product or service.
Value-based Pricing
Value-based pricing occurs when you provide consumers with added value beyond just offering them goods and services because they will pay more than what it would take to cover all of your expenses.
The purpose here is really about getting customers into your store to find other items they might purchase while there, such as through impulse buying; however, this kind of approach carries some risk since many companies do not offer much extra value to customers.
Competitive-based Pricing
Competitive pricing occurs when you base your prices on what similar products or services from other companies are charging for theirs. This helps you to remain competitive and attract more clients while maximizing profits.
This strategy works well if the market grows rapidly but can prove difficult because of how quickly things change due to external factors that no one controls.
Experience-based Pricing
Lastly, experience-based pricing considers a customer’s willingness and ability to pay more rather than basing it on costs like cost-plus. For example, experience-based strategies might involve offering high-end luxury items at increased prices since they would appeal directly to those who would not only want them based on their functionality. However, this approach also carries some risks as not everyone is willing to pay for these higher-priced items.
Pricing Strategy in Australia
Nowadays, the term “Pricing Strategy” has become more common in Australia because the price of everything seems to be getting higher and higher, which makes having a sound strategy essential for every business owner. There are many different pricing strategies available to use, but it’s up to the owner and their employees to determine which is most effective for them.
Benefits of a Pricing Strategy
A sound and stable pricing strategy can help you identify and target your most profitable customers. Price setting is the way to create a unique identity for yourself to stand out from all of the other businesses selling similar products or services. Determining what prices you want will allow you to have more control over your company and where you want it to go in the future.
Another benefit is that it helps you reduce your risks. For example, it ensures that the price of everything is in line with what customers are willing and able to pay; this can also help prevent over, or under, pricing, which could hurt business growth since no one can do so would be buying anything.
In conclusion, a good pricing strategy can help you grow your business and make more money. Developing one that works for you is essential to success.
Kylea Martin is a Financial Strategist who boasts numbers among her many superpowers.
She can decode your business data and transform it into information you can readily understand.
A Certified Practising Accountant, Kylea leads the Financial Services team, bringing over 25 years of corporate experience to small and medium business owners.