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Business Pricing Strategies: Marketing Your Goods & Services

written by: Nicky LaMarco•edited by: Michele McDonough•updated: 2/1/2011

When a competitive pricing strategy is used, decisions are made to determine the price a product or service can be sold for that will allow it to compete successfully with similar products offered by other companies. Read to learn more about this and other business pricing strategies in marketing.

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    Competitive Pricing

    Competitive pricing is one of the most common marketing strategies used by businesses. Other factors are often ignored with this type of pricing, in an attempt to drive consumer demand towards your own products. It’s important to be careful when using this type of pricing, because you don’t want to damage the consumer’s perception of value for your product since this could negatively affect the product’s future profitability. You also have to consider the distinctiveness of your product or service when considering this type of business pricing strategies.

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    Penetration Pricing

    Dollar (Erick Nguyen) When using penetration pricing, the initial price is set intentionally low, often much lower than what the eventual market price for the product will be. This strategy is often used to generate interest in a new product, or to reach a new customer base for the product.

    It can be used to entice customers to switch brands, or to get them to try your product because the price is low. This type of pricing can result in a fast public adoption of your product, but it’s important to remember that you will need to eventually raise the price of the product in order to sell it profitably. It’s often best to raise the price gradually over time, rather than change it suddenly after the introduction pricing period.

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    Psychological Pricing

    In marketing, there is a theory that certain prices have more of a psychological impact than others. This theory explains why prices are often expressed as “odd numbers", such as $19.99. Using psychological pricing points is a complex theory, and is based on a number of factors, such as the consumer’s perception of these fractional prices as having been set to the lowest possible price. It’s also leveraging the expectation that consumers will ignore the less significant digits of a price, and focus on the dollars instead of the cents, for example. This is why $19.99 is often used instead of $20.00.

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    Other Business Pricing Strategies

    There are many other methods for setting pricing strategies in marketing as well, including predatory pricing, premium pricing, and marginal-cost pricing. Careful evaluation of the pros and cons of each pricing method can help you determine which types of business pricing strategies will be most profitable for your specific business needs and circumstances.