The art of setting prices

The way products and services are priced in today’s marketplace is a powerful marketing tool.

Businesses are moving away from simply adopting a ‘cost plus’ pricing method and instead leveraging customer perceptions of what is considered ‘value’ when setting the price of their products and services.

Below are five common pricing techniques aimed at maximising value for both the customer and long-term profitability of a business.

1. Decoy strategy

This pricing strategy involves products or services being offered in a ‘range’ or ‘family’ aimed at nudging the customer to trade up or upsize to a more expensive product. This is often achieved through differentiating on size, claim or packaging.

Examples: QSR offerings, packaged bread and streaming services.

• Freemium strategy

This pricing strategy involves adding a ‘freebie’ to a product in order to create the perception that the customer is getting more for their money.

Examples: In a simplistic way, many coffee chains achieve this well by offering a free cookie with their coffee to more sophisticated digital and e-commerce products such as Shopify and DropBox that offer a no-obligation or free trial period before purchasing the product.

• Honeymoon strategy

This pricing strategy involves offering the customer an introductory price or a discount on their first purchase.

Examples: Online e-tailers commonly offer 10 to 15 per cent discount off the first purchase.

• Fulfillment strategy

Shipping and fulfillment strategy is a key influencer in driving customer traffic to e-commerce sites as over 60 per cent of online shoppers are likely to abandon their cart if they are faced with excessive shipping costs.

Examples: E-tailers offering free shipping over a certain purchase value or through subscription to a customer loyalty program.

• Price bundling strategy

This strategy is similar to decoy pricing where the perceived value of a ‘bundle’ is worth more than its individual parts.

Examples: Travel, internet and telecommunication products and electrical appliances are renowned for offering bundles and add-on options.

For more information on pricing and strategy, visit www.sabellaconsulting.com