Pricing is a critical piece of your business’s overall strategy. The approach you take in setting prices directly influences such factors as people’s perception of your brand, the niche you occupy, and the margins your business earns. Choosing the right strategy can, therefore, make a huge difference in determining both the immediate profitability and long-term viability of your business.
What to Do Before Choosing Your Pricing Strategy
Before we delve into the common small business pricing strategies, it’s important first do the following:
1) Get the Right Small Business Banking Partner
If you have a small business, you’re best off with financial partner that offers business solutions to small- and medium-sized enterprise (SME) business banking. Over the years, Maya Business has developed many products for small business banking Philippines’ startups and SMEs now depend on. Through offers like the high-interest Maya Business Deposit savings product and the no-collateral Maya Flexi Loan, Maya Business is changing small business banking online in favor of Philippine-based startups and SMEs. By offering these SME-oriented business banking products and top-tier payment processing services, Maya is the clear choice for a partner that can help you flawlessly execute your pricing strategy.
2) Do Market Research
Don’t let your passion blind you to the realities of the market. Doing proper market research will help you better understand available market opportunities as well as the best pricing strategies in a given situation. While there is a time and place for going with your gut instinct, your pricing strategy is one thing that you shouldn’t leave to chance.
3) Run a Cost Analysis
Analyzing your projected fixed and variable costs will help you determine the prices you need to set as well as the minimum sales volumes needed to cover your costs. Once you have those figures, you’ll be able to choose a strategy that meets both your risk appetite and your business’s goals.
4) Set Your Goals
As mentioned earlier, your pricing strategy doesn’t just determine your margins. It also helps shape market perceptions of your brand and determines the niche your business occupies. Aligning your pricing strategy’s goals with your business’s mission and vision will serve to help your business maintain its focus, not only bringing it the margins it needs but also helping to consciously steer its overall direction.
Popular Small Business Pricing Strategies
After you’ve done the necessary preparations, it will be time to select, customize, and execute your small business’s pricing strategy. Though pricing policies can get highly complex, most can be categorized under one of a few popular strategies. See which one of these will work for your business:
1) Market Penetration Pricing
This price strategy involves gaining a foothold in the market by offering low prices, often lower than those of competitors competing within the same niche. Once you have a sufficient market share, you can then raise your prices to widen your margins. To execute this strategy, it’s important to have a firm handle on your minimum sales volume (break-even point) and to have enough initial capital to absorb any expected losses.
2) Price Skimming
This strategy is often considered to be the opposite of market penetration pricing because it involves pricing your offer as high as the market is willing to bear until a lower-priced competitor comes on the scene. Price skimming can be viable if your business has no serious competitors within its niche, but it can be detrimental to your business if you don’t fully understand how your market will react.
3) Premium Pricing
If your business creates or sells high-quality products and services, the reputation of your offers can be undercut if you price them too low, even if the prices are well above the cost of production. Premium pricing goes together with “lifestyle” branding and marketing to appeal to high-income or aspirational consumers.
4) Economy Pricing
Where premium pricing is meant to reach relatively high-income buyers who want “the best,” economy pricing aims to reach a wider customer base that wants to save money on their purchases. Larger businesses can often do this successfully because they can leverage their scale to offer low-priced goods while still maintaining profits. Because this strategy favors organizations with size and scale, SMEs may find it difficult to adopt this model even if they manage their overheads well.
5) Bundle Pricing
Bundle pricing involves selling products together for less than they would sell individually. This strategy is often used to quickly dispose of inventory, but it can also be a good way to penetrate new markets or to boost your business’s marketing.
6) Cost-Plus pricing
This simple strategy involves adding an amount to the cost of a product, usually whatever is needed to meet the margins for a specific offer. While simple, this strategy ignores other important things about your business like its brand and marketing. It’s especially suited for B2B markets where costs often matter more than brand positioning or product quality.
7) Value-Based Pricing
With this strategy, you name prices that you think customers will pay for your product, based on their perception of the value offered. It’s similar to premium pricing except that the main proposition of your product should be value, not luxury. While you may drive away price-focused customers, successfully pulling off this strategy can earn your business lifelong loyalty from more discerning shoppers.
8) Dynamic pricing
This pricing strategy involves changing the price of your offers according to current market demand. This is often used for basic commodities like food, but it has, in recent years, also been applied to such areas as online shopping and ride-share services. To pull this strategy off, you must have a good handle on current market rates, your variable and fixed costs, as well as your minimum required sales volumes given certain prices.
Amplify Your Pricing Strategy's Impact with Maya Online Business Banking and Payment Solutions
With Maya Business, your small business now has access to the financial products and services it needs to grow. Whether you’re conserving your operating capital with a high-interest Maya Business Deposit account or expanding into new markets with a Maya Flexi Loan, you’ll have everything you need to execute the best pricing strategies for your business. Create a Maya Business Manager account today to bring your pricing strategy to fruition.
Creating your Maya Business Manager account also lets you in on exclusive deals like Maya 1-2-3 Grow. This one-of-a-kind business growth bundle entitles you to a 1% MDR discount on all QR Ph transactions for 3 months from signing. This will save you PHP 14,600 in fees for every PHP 1 million in QR Ph sales, making a world of difference in conserving the capital you need to pull off your pricing strategies. As part of the bundle, you can also set Maya Business Deposit as your settlement account and you’ll be able to enjoy a 2.5% p.a. interest on your account, translating to an earning of PHP 25,000 per year on a PHP 1 million deposit Signing on also qualifies you for a Maya Flexi Loan offer of up to PHP 2 million, which means more funds to expand your SME. Sign up for a Maya Business Manager account for better SME banking and to take advantage of deals like Maya 1-2-3 Grow.
