Great Pricing Tactics – Part 2
“…anything that directly affects how much you earn is worthy of your time, careful consideration and testing […] there is no stronger determinant of revenue than price…”
AUTHOR’S NOTE: Pricing, like most things marketing, is an art and a science. There are so many pricing tactics that it can be dizzying to choose one. But the good news is that you’re here and you’re giving it some thought.
This is the second blog in a series that deals with pricing tactics (check out the first pricing tactics blog). We are discussing pricing because it has everything to do with marketing. The fact is, businesses don’t pay enough attention to it. I say anything that directly affects how much you earn is worthy of your time, careful consideration and testing. And the last time I checked, there is no stronger determinant of revenue than price.
Let’s jump in and discuss some more great pricing tactics:
Cost + 20.
As the title suggests, Cost + 20 is where companies will markup the cost of their good or service by a certain percentage, usually 20%. Print companies might adopt this tactic since they know exactly how much a vinyl banner costs them to produce (vinyl material, ink, grommets, etc.) and will charge you a certain percentage markup of their total cost. This allows them to standardize prices for various print jobs and, given the right volume of business, ensure that every order is profitable.
You’ve seen this in practice many times, but why do some companies choose to have their prices end in 99 or 47? Because psychologically, the majority of us will not recognize a $1.99 price tag for the two dollars that it is at a glance. While some may argue that it’s sort of deceptive, loads of research has proved that psychological pricing can be very effective. Costco is notorious for psychological pricing. In fact, you will almost never see them selling something that ends in $.00. Obviously, they do this to maintain their customers’ belief that they are saving money by buying in bulk. However, Costco’s psychological prices do more than encourage more purchases. Did you know that prices ending in .99 are regular prices and those ending in .97 are for markdowns? Check out this article to learn more about secret Costco price codes.
On the topic of grocery stores, loss leading is another tactic that they use. Wal-Mart will offer essential commodities, like milk and eggs, at-lower-than-cost to lure customers into their store on the basis that they will purchase other, more profitable products, along with these “loss leaders”.
The pricing tactic you choose must be aligned with your business strategy. If you are a luxury brand, then you might want to rethink your approach if you are using Loss Leading, for example. Do you think that McDonald’s free McCafé coffee campaign would have worked for Starbucks? The short answer is yes. The educated answer is no. Starbucks is a premium coffee chain, and serving free coffee to gain more customers is not in-line with their strategy. If fact, one could argue that it could significantly dilute their brand, which is probably why they haven’t done it. So remember that your pricing should reflect your overall business strategy.
Cost + 20, Psychological pricing and Loss leading are all great pricing tactics, but before you use them, question whether they are in line with your overall business strategy. In the next article pricing tactics article, we’ll discuss 3 critical ones in detail that both service and product-based businesses should implement. To stay tuned for that one, make sure that you’re subscribed to our email newsletter below.
Meet the author.
Meet Fortified Marketing's founder and lead marketing consultant. Taro loves reading fascinating articles on various marketing-related subjects, just as much as he enjoys writing about them. When he isn’t savouring a latte while working on his newest blog post, he can be found at a coffee shop in Ottawa's Little Italy, or marathoning shows and documentaries on Netflix.
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