Is Psychological Pricing an Effective Strategy?

Price has a psychological value. Buyers will buy a high priced product because they believe that the high price is a good indicator of value. Their perception is not reality based, it is psychologically based therefore buyer behavior is affected by more than the product and price tangibles.

Interestingly, as buyers do more investigation into the product's attributes or the business promotes the product's characteristics more effectively, that product knowledge ('familiarity breeds contempt') enables buyers to make a more rational, versus psychological, buying decision and for buyers, price moves down the value scale.

Strategy

One use of psychological pricing is in price-ending numbers. Buyers believe that prices ending in uneven, rather than even numbers, (such as, .99, 9,999, etc.) are a better deal or a better price than even numbers (e.g. or 0,000). If the products to be priced are to be in a price 'band' (such as on-line auctions, or cars or other sales listings), if the listing price is in the odd range, say 9,000, it will appear in a lower price band than the 0,000 listing and will be viewed as better value. The challenge with this strategy is that products ending in an odd number are also often perceived as being lower in value. Ensure that you chose the right price and the right strategy for your specific product or service.

Is Psychological Pricing an Effective Strategy?

Another use of psychological pricing is reference price. Reference pricing is when buyers have a psychological response to the price that mirrors the way they view a price's relationship to a specific product. A business could capitalize on reference pricing and position their product amongst high value or luxury items to imply that its product belongs in the same category. Be careful with that positioning strategy, it can backfire if buyers feel that your product doesn't really belong in that category.

For psychological pricing to be an effective price strategy, the product needs to have some characteristics that would appeal to an ego-sensitive buyer. For example, luxury goods are attractive to ego-sensitive buyers. Premium recreational goods, such as boats, are attractive to ego-sensitive buyers. Your strategic planning model must ensure that the pricing strategy selected for your product or service is a best-fit price.

Make sure that your price strategy fits your product and your market by testing the price before releasing that price to your whole target market. Also consider the impact that the other elements of marketing mix have on your price: is the product the right fit for a psychological price strategy, is the promotional program in-step with the price strategy, and is place or the distribution channel in balance with the price (i.e. shipping of the product should not cost more than the product itself)?

Is Psychological Pricing an Effective Strategy?

For more information on pricing strategies, visit http://www.more-for-small-business.com/pricing-strategy.html and for more information on small business strategies and advice, visit http://www.more-for-small-business.com/
Kris Bovay is the owner of Voice Marketing Inc, a business and marketing services company. Kris has 25 years of experience in leading large, medium and small businesses.
Copyright 2008 Voice Marketing Inc.

Market Penetration Pricing - A Quick Market Entry Pricing Strategy

Market penetration pricing is a quick-entry price strategy that assumes low price will gain high sales volume which, in turn, will result in lowering costs. This strategy is used in price sensitive markets. For example, consider the market for DVD players; it is a high volume market, it has a high number of competitors, the costs to produce DVD players have fallen, and new and/or changing technology allow businesses to rapidly introduce new features and benefits on new models. The businesses that introduce DVD players quickly, sell high volume at low or reasonable prices, are following a market penetration strategy.

Businesses using market penetration pricing are usually trying to penetrate the market by growing their share of the market. They assume that the lowest price will win market share. Make sure that if you use this pricing strategy that you test your market, your price sensitivity and your price elasticity or in-elasticity first. Also be sure to do your market research to gain an understanding of how your competitors will react to this penetration pricing strategy. For example, your low price may cause your competition to lower price, then you will lower your price again, and so on - no one wins with a strategy like this.

Strategy

But your market penetration pricing strategy can also be a deterrent for new competitors who are considering entering the market. When they see how low your pricing is and realize that their margins will be low and the risk of gaining market share for new entrants is high, they might choose not to enter the market. For your business to be successful with this strategy, it must have the capability to enjoy the economies of scale that high volume will bring and be the low cost provider in the market.

If you are an existing business and your competitor is following a market penetration strategy, do a thorough market research assessment of your capabilities:

• Can you drive your costs down?
• Can you produce high volume?
• Do you want to sell your product at a low price (and hope volume sales will get you both the market share and the profitability you want)?

If you answer no to any of these questions, don't follow this penetration strategy (or at least, consider this strategy very carefully). However, if you are a new business considering this strategy in a new, or scarcely populated, market, focus on how to drive your costs down and your efficiencies up.

Whatever pricing strategy you use, make sure that you specify it in your marketing mix plan and write down the reasons you chose that strategy. Then, at least on an annual basis at the time of your business plan update, review your chosen marketing strategy (including your pricing strategy) and ensure it is the right strategy for the product life cycle, for the market conditions, for your buyers, and for the competitive environment at that time.

Market Penetration Pricing - A Quick Market Entry Pricing Strategy

For more information on pricing strategies, visit http://www.more-for-small-business.com/pricing-strategy.html and for more information on small business strategies and advice, visit http://www.more-for-small-business.com/
Kris Bovay is the owner of Voice Marketing Inc, a business and marketing services company. Kris has 25 years of experience in leading large, medium and small businesses.
Copyright 2008 Voice Marketing Inc.

Is Psychological Pricing an Effective Strategy?

Price has a psychological value. Buyers will buy a high priced product because they believe that the high price is a good indicator of value. Their perception is not reality based, it is psychologically based therefore buyer behavior is affected by more than the product and price tangibles.

Interestingly, as buyers do more investigation into the product's attributes or the business promotes the product's characteristics more effectively, that product knowledge ('familiarity breeds contempt') enables buyers to make a more rational, versus psychological, buying decision and for buyers, price moves down the value scale.

Strategy

One use of psychological pricing is in price-ending numbers. Buyers believe that prices ending in uneven, rather than even numbers, (such as, .99, 9,999, etc.) are a better deal or a better price than even numbers (e.g. or 0,000). If the products to be priced are to be in a price 'band' (such as on-line auctions, or cars or other sales listings), if the listing price is in the odd range, say 9,000, it will appear in a lower price band than the 0,000 listing and will be viewed as better value. The challenge with this strategy is that products ending in an odd number are also often perceived as being lower in value. Ensure that you chose the right price and the right strategy for your specific product or service.

Another use of psychological pricing is reference price. Reference pricing is when buyers have a psychological response to the price that mirrors the way they view a price's relationship to a specific product. A business could capitalize on reference pricing and position their product amongst high value or luxury items to imply that its product belongs in the same category. Be careful with that positioning strategy, it can backfire if buyers feel that your product doesn't really belong in that category.

For psychological pricing to be an effective price strategy, the product needs to have some characteristics that would appeal to an ego-sensitive buyer. For example, luxury goods are attractive to ego-sensitive buyers. Premium recreational goods, such as boats, are attractive to ego-sensitive buyers. Your strategic planning model must ensure that the pricing strategy selected for your product or service is a best-fit price.

Make sure that your price strategy fits your product and your market by testing the price before releasing that price to your whole target market. Also consider the impact that the other elements of marketing mix have on your price: is the product the right fit for a psychological price strategy, is the promotional program in-step with the price strategy, and is place or the distribution channel in balance with the price (i.e. shipping of the product should not cost more than the product itself)?

Is Psychological Pricing an Effective Strategy?

For more information on pricing strategies, visit http://www.more-for-small-business.com/pricing-strategy.html and for more information on small business strategies and advice, visit http://www.more-for-small-business.com/
Kris Bovay is the owner of Voice Marketing Inc, a business and marketing services company. Kris has 25 years of experience in leading large, medium and small businesses.
Copyright 2008 Voice Marketing Inc.

Marketing Mix - 4 Pricing Strategy Alternatives

Pricing is an important part of your marketing mix strategies. Pricing can help or hinder your product or service sales. Given that your product is good quality, that it has the features and benefits that your buyers want and need, that it is differentiated from your competition, and that it has a good cost structure and a good, strong promotion and distribution program, your pricing strategy for your product or service can help you sell it, or not. Pricing strategies can have a very direct impact on growing your market share.

Four alternative pricing strategiess for your business are:

Strategy

• Generic or economy pricing. This strategy treats generic or economy-type brands with a low price - the value to the buyer is in the low price. Your business approach to this pricing strategy must be rooted in a low cost structure, minimal features, minimal promotion but still solid (not extravagant) benefits.
• Differential Pricing. With this strategy, you might choose to price your product differently by buyer type (e.g. retail store, online store, a department store), by geographic region (e.g. the California market might be higher priced than Illinois), by volume purchased (e.g. a customer buying a large volume would receive a different price than one buying a small volume), by national account segment (e.g. you might negotiate special differential pricing with a national account versus the price you would charge to a local account). With all of these differential prices, there must be a justifiable reason for the price differences.
• Premium Pricing. This strategy is commonly used for luxury items or high end, high value goods, such as expensive jewellery, boats, planes, estates, etc. Only use this strategy if your product's value is recognized by your market as being a premium or luxury good.
• Captive Product or Companion Product Pricing. This pricing strategy is also used in product line pricing. This strategy bundles, and usually packages, like products together to be priced as companions (for example, a mixer and a mixing bowl) and as captives (for example, pens that have to have a specific refill (not generic), razors that can only use a specific blade, etc.). Captive or Companion product pricing often relies on packaging to offer the two products in one package (for example, a trial pack of blades with the razor; one pen refill packaged with the pen; or the tape refill with the tape dispenser). Then when those blades, refills or other companion products are used, the price to buy new blades, refills or other products is significantly higher than the original priced package.

Thoroughly analyze your product, your buyers, your competitors (and their possible actions and reactions), and your market before you decide which pricing strategy would best-fit your business. Then review pricing strategy by product, and by product line, on a regular basis to make sure that the fit remains the best.

Marketing Mix - 4 Pricing Strategy Alternatives

For more information on pricing strategies, visit http://www.more-for-small-business.com/pricing-strategy.html and for more information on small business strategies and advice, visit http://www.more-for-small-business.com/
Kris Bovay is the owner of Voice Marketing Inc, a business and marketing services company. Kris has 25 years of experience in leading large, medium and small businesses.
Copyright 2008 Voice Marketing Inc.