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Pricing Strategy

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Pricing Strategy Techniques

As the Federal Reserve has declared that it will do whatever it takes to bring the inflation down to 2%, the likelihood of United States economy going into recession has increased significantly. To navigate growth in a slowing or stagnant economy requires numerous structural changes for businesses such as

.

Stagnant economic conditions in the overall economy put various pressures on players in the industry. In the past players often respond with reducing prices. But this pricing strategy is very easy to copy other players in the and it reduces the overall profitability in the industry. To overcome this limitations needs to have a comprehensive re-examination of its pricing strategy.

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18 Pricing Strategies that

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can use are -

Royalties or sales commissions

Royalties and sales commissions are highly popular in publishing industry and real estate industry. It is also highly successful in the franchise industry. can explore the franchise model pricing where it pays for the initial set-up but then charges commission based on product sales and other revenue streams.

Subscriptions

Netflix has made subscription trendy again. Some of the benefits of subscription are – regular and predictable cash flow, customization of product offerings etc. Some of the other companies that have successfully used subscription model are – Spotify for its music streaming business, Blue Apron for meal kit delivery, and Peleton for its online bicycle and fitness services.

Progressive Pricing

Progressive pricing is often used by events and conferences companies where prices keep increasing as one gets closer to the event. This strategy gives a reason to reach out to the prospective customers repeatedly. Secondly it provides sellers an insight into the – pace of sales, features people are selecting, and other variables.

Auctions

In number of businesses price discovery is a difficult process. One way to do so is through auctions. Ebay and OLX have used this model successfully for old products. can even use it for its new product by providing a certain baseline price. One of the most successful real time auction business is Google’s advertising business where algorithms compete based on the conditions already fed by the advertisers. It helps Google in optimizing revenue by providing ad space to the highest bidder for each digital ads.

Metering Pricing Strategy for

Another unbundled technique is charging customers based on usage, for example charges tied up with small incremental usage the way it is done in taxi. can use this strategy to customers who are not only price conscious but also pertinent about product usage. Similarly small metering strategy could be easily applied to post sales service subscription services.

Payment Over Time

Options such as ‘Buy Now Pay Later’ and other EMI based programs in collaboration with the banking partners can help to target customers who will struggle to afford the products in the slow and stagnant economy where real incomes are not keeping pace with the inflation.

Mixed bundling

Various aggregators have used the mixed bundling pricing strategy to cater to different needs of customers by providing a unique mixed bundle. For example class pass membership card enable customers to access not only fitness classes but also dance classes, yoga classes, and other activities.

Future options for

Options are common in both the equity and the commodities markets, can use similar pricing strategy for its products. It can do so like hotel industry where 15-20% of the bookings are booked before being purchased. This provides customer the flexibility to change, and company an insight into its future cash flow.

Split Usage, Leasing or Renting

House rental services such as Airbnb, private plane renting companies etc are successfully using the split usage pricing strategy. can use it for its high value products that customers who either can’t afford the product or who don’t want to own it. One of the good examples of such services is – Rent the Runway pricing strategy that allow its users to rent designers clothes for limited period of time.

Volume discounts

It is one of the oldest pricing strategies, providing volume discounts to the buyers who are willing to purchase more. It is highly efficient for the businesses where the marginal cost of producing an extra unit is low. It enables the company to utilize the production capacity, increase market share, and provide options for lucrative post product sales services.

Off Peak Pricing

Restaurants are regularly using off peak pricing where the prices of drinks are different or drinks are complimentary during day time but at high prices during the peak hours. Similarly movie halls regularly use this pricing for weekend shows and non-weekend shows. can explore off peak pricing for some of its products.

Pricing by Unconventional Time Increments

Amazon has successfully used the unconventional time increment strategy for its prime membership services. The services initially started at an annual subscription of 79 USD. As it noted that prime customers orders more often it provided customers a 14.99 monthly option. This not only brought more users into prime members fold but also increased the margin for the company.

Pre-Paid Plans

During recessions and stagnant wage growth the credit card default rates increase dramatically. In 2023, more than 67% retired Americans are already late on their credit card bills. To reduce the credit risk, can use pre-payment strategy for some of its products. To make success of prepayment strategy, needs to reduce the unit size, make the product affordable for small consumption.

Capped flat rate pricing

Uber and Lyft has successfully utilized the flat rate prices. Both of them provide rates at the time of the booking which saves the uncertainties or end of ride surprise bill. This enables the companies to build confidence in customers and also provide a clear picture to the driver who also needs to calculate the per mile cost.

Dynamic pricing

Google use dynamic pricing for auctioning advertisement space in real time. Similar approaches are used by companies for high demand product or exclusive products. Airlines are using dynamic pricing to sell last seats for higher profits at the risk of leaving them unsold. Dynamic pricing often work well when supply of the product or service is constrained.

A la Carte or Unbundled Pricing

This is opposite to the unlimited and all inclusive plans. Under the unbundled pricing can target customers who are frugal in nature, often highly knowledgeable about the product, and are comfortable to make choices. We have seen most of the Airlines such as Delta, Southwest, United, British Airways, Spirit Airlines etc have gradually moved to this model over the last decade and half. Spirit Airlines passengers spend 46 USD on airfare, while on average 58 USD on non-ticket revenue that includes drink on board, extra pay for luggage and seat. Some of the restaurants have also started this pricing strategy where they charge more for the premium seats.

Unlimited – All Inclusive Plans

This pricing strategy appeals to those customers of , who are either heavy users at fixed price or who want to consume products without the headache of paying extra if they breach a certain limit. Disney often uses such pricing strategy. It can help to retain its heavy users and attract customers who are looking for an all-inclusive value proposition.

Initiation Fees

They are mostly used to discourage customer from leaving the products or services they have subscribed. Country clubs often use them. After giving some thought, we believe that initiation fee model is not suitable for because it will discourage the initial purchase by the customers.