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Do you know what a pricing strategy is? In general, this stage can be interpreted as a mechanism to control the level of costs that consumers bear or have to pay to purchase a product or service. In practice, the pricing strategy will always be different depending on the company or manufacturer that manages it. To understand more, let’s check out the full review in the article below!

Understand pricing strategy

Defining pricing strategy is determining the right value consumers must pay to receive a product or service. In practice, many strategies are used by business actors to set prices. Some of these include setting costs plus prices, markups, BEP prices based on competitors and market demand.

 

Steps in a pricing strategy

Here are some things to consider when taking steps in a pricing strategy.

 

  1. Setting the cost-plus price

Cost plus pricing is a strategy for determining sales value by adding up total costs. Cost-Plus pricing typically includes overhead, direct materials, and labor. Well, the percentage of the premium that is later taken as a profit. Several steps can be taken to determine costs plus prices. First, determine the total cost of the product along with its services. Then divide the total by the number of units to get the unit cost addition result. Finally, multiply the unit cost by the markup percentage to get the product’s cost of sales and profit margin.

 

  1. Mark

This type of pricing strategy is based on the cost of goods added by a certain amount. So, the higher the markup value, the higher the income the company receives. In other words, markup takes a product’s starting price and then increases it by a few percent. For reference, here is an example markup pricing strategy:

If a IDR 50,000 product sells for IDR 70,000, the percentage markup achieved is 40%. Here’s a full explanation along with the formula

(70000 – 500000) / 50000 = 0.4 x 100 = 40%

 

  1. BEP (Break Even Point) Prices.

BEP (Break Even Point) is the income and return on investment point which is at point 0. That means there is no loss or gain. So, the BEP pricing strategy is a strategy that aims to find the market price equilibrium.

 

  1. Competitive Analysis

The next pricing strategy is to analyze competitors. Aside from using internal methods, as mentioned earlier, a business owner can also set prices through competitor analysis. The main goal of this strategy is to gain market share. When using this strategy, it is important not to set the lowest sale value as this can damage the market price and cause losses for the company.

 

  1. Market Demand Research

Can consumers have a say in the price of a product? Of course I can. Of course, when making a product, the company must listen to what consumers want in order to be accepted by the market. This pricing strategy is very effective in tricking consumers into not switching to other products. However, the pricing must of course be based on other considerations so that the producers do not lose out.

 

Different pricing strategies

How can a pricing strategy be applied in business? Here are a variety of pricing strategies you can try.

 

  1. Cost Plus Pricing

Cost plus pricing is the most common strategy. In this type, the selling price is determined by calculating the total cost and the desired markup. For example, the total cost to the company to produce 30 pairs of clothes is IDR 30,000,000. If the premium is set at 30%, the calculation is:

Cost per unit = IDR 30,000,000/30 = IDR 1,000,000

Selling price = total cost + markup

= IDR 1,000,000 + (30% x IDR 1,000,000)

= IDR 1,300,000

 

From these calculations, the selling price of each shirt is IDR 1,300,000.

 

  1. Premium pricing

Typically, the target market for this type of strategy is a market segment that prioritizes quality. Typically, companies that implement this strategy actually charge high prices to differentiate their products from other competitors. An example of a company using this pricing strategy is Apple. The Apple company uses premium pricing to give the impression of being exclusive or having more quality than other smartphone products.

 

  1. Competitive Pricing

Another example of a pricing strategy is competition-based pricing. As the name suggests, this strategy sets a selling price based on the competitors. For example, if a competitor sets a price of IDR 50,000, the product can be sold within that price range. To attract more customers, you can slightly lower the price from the market price or competitors. However, if the products offered offer luxury and exclusivity, you can set a price above the competition.

 

  1. Freemium Pricing

If you have a digital products business, this costing strategy is perfect for you. The reason is that this strategy allows you to offer products with two functions, paid and free. The indirectly provided test function offers consumers the opportunity to get to know and try out the product first. If deemed appropriate, purchasing them can give them access to more comprehensive features.

 

  1. Skimming prices

This example of a sell value strategy is typically applied by setting a high price to start with but lowering the price over time. For example, the difference in the price of groceries that occurs in the morning and in the evening. Usually groceries that are not sold in the morning are sold cheaper in the afternoon. The goal is that there is no food that is not sold for free.

 

  1. Bundle Pricing

Bundle pricing is an example of a pricing strategy that aims to increase sales of multiple products at once. For example, have you ever seen a price promotion for two combined products at a low price? Well, this is an example of applying a bundle pricing strategy that exists in the community.

 

  1. Psychological Pricing

As the name suggests, this one strategy relates to the human psychological side. Specifically, this strategy is divided into three parts, namely:

 

  • quota prices

Have you ever felt that a IDR 99,999 product is cheaper than a IDR 100,000 one? Well, if so, then that’s the impact of this kind of odd pricing strategy. Because it is spelled with an odd number suffix, the economic impact of this pricing strategy is that it makes goods easier to sell due to the cheaper appearance.

 

  • Even prices

Well, if you want to make a product that looks luxurious, then this strategy can be used. The reason for this is that the use of round numbers at a price gives the impression of luxury and is paramount in terms of prestige.

 

  • BOGOF

Ever bought anything with a buy one get one promo? Well, here is the BOGOF (Buy One Get One Free) pricing strategy. Like the bundle pricing strategy, this strategy can be used to accelerate the number of sales.

 

  1. Target Prices

The pricing strategy with the goal of return on investment is target pricing. With this strategy, the sales price is determined on the basis of the ROI (return on investment) or the desired return on capital.

 

Hence a full explanation ranging from understanding to types to examples of pricing strategies. Using this discovery mechanism will certainly make it easier for you to measure yourself against competitors. Also, remember that before you start setting prices, you need to consider several factors to make transactions easier for consumers. To find out which factors are having the greatest impact on increasing consumer interest in buying, you can conduct a survey.

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