Pricing Strategies All Creators Should Be Familiar With
If you’ve ever considered monetizing your craft, you’ve probably spent a great deal of time attempting to formulate pricing. You understand that it’s not only important to generally make sales but to make a profit while doing so. The difficult part however, arises when it’s time to decide exactly how you will do so.
Strategies vary based upon the type of creator and the kind of product or service being provided! It’s important to understand the various strategies so that you may decide which one(s) will work best for you and enable you to maximize your profits!
Hourly Pricing
Who: Commonly used among (but not limited to) consultants, freelancers, contractors
What: Those providing the service are paid a determined rate per hour of labor.
Competitor Pricing Strategy
Who: Commonly used among consultants, freelancers, contractors
What: When setting prices, sellers observe the prices of other competitors that are selling the same or similar products and services. In order to do so, a market analysis is performed.
Sellers may choose to price products or services below, equal to or higher that competitors. If the seller chooses to employ prices that are equal to competitors, it is important to communicate to consumers which factors add value to the product. By doing so, sellers demonstrate that while prices may be the same as competitors, consumers are gaining an advantage by choosing to purchase the said product/service.
Project Based Pricing Strategy
Who: Commonly used among (but not limited to) consultants, freelancers, contractors
What: Similarly to hourly pricing, project based pricing is a relatively simple model. In this case, the seller provides a flat fee to customers. The fee is determined based on value, skill and labor of the service being delivered.
Customer Perceived Value Pricing Strategy
Who: Commonly used among (but not limited to) consultants, freelancers, contractors
What: Customer Perceived Value is as straightforward as a strategy name can get! Sellers base prices on what the customer is willing to pay for the product or service. Rather than basing the price on the cost of the product, its all about how the customer perceives it.
In this case, brand image plays a large part in the success of sales. Factors that play a part in customer perception include trustworthiness, quality and reputation, to name a few. Social and emotional factors also heavily influence the perception of the product/service in a customers mind. In order to increase a customers perception, sellers may decide to use testimonials, trials, partnerships and more.
In order to calculate customer perceived value, the customer perceived cost is subtracted from the customer perceived value.
High Low Pricing Strategy
Who: Commonly used among (but not limited to) retailers
What: Sellers start by selling items at a high cost and eventually decrease the price depending upon relevancy of the item. This strategy is commonly used for seasonal items such as decor, for example.
Cost Plus Pricing Strategy
Who: Commonly used among (but not limited to) retailers
What: This strategy primarily focuses on the cost of producing the good. A fixed percentage is then added to the original cost of production.
For example, if a shirt costed $15 to make and the retailer wanted to mark up the price by 100%, the final cost would be $30 ($15 being the cost of production and the other $15 being 100% of the original cost of production). If the retailer wanted to apply a 75% mark up instead, the final price would be 26.25 ($15 being the cost of producing the item and the remaining $11.25 being 75% of the original cost of production).
Penetration Pricing Strategy
Who: Commonly used among (but not limited to) technology companies and retailers
What: The penetration pricing strategy is useful in combating high entry barriers to a market. The seller enters the company with extremely low prices as a way to draw attention away from competitors with higher prices. Although the strategy is not sustainable long term, it is sustainable for short periods.
Premium Pricing Strategy
Who: Commonly used among (but not limited to) technology companies and retailers
What: Sellers employ high prices with motives to communicate that the brand is luxury/high end. By charging high prices for items, both value and status is delivered through the purchase of products.
Skimming Pricing Strategy
Who: Commonly used among (but not limited to) Technology companies
What: This strategy is similar to the high to low strategy. Prices originally start high and decrease based upon the relevancy of the object. It differs from the high to low strategy however as prices decrease gradually over time.
Dynamic Pricing Strategy
Who: Commonly used among (but not limited to) hotels, flight companies
What: Price of the good/service waver based upon customer demand and market. Dynamic pricing is also known as time based, surge and demand pricing.
Freemium Pricing Strategy
Who: Commonly used (but not limited to) among software companies
What: In this case, the company originally provides the good or service for free. Payment is necessary however, in order to upgrade or increase content features. Build-your-own-website services do this for example. Squarespace.com initially allows users to use the service for two weeks free of payment before charging a monthly or annual price.