dynamic pricing Archives - Business Intelligence

Tag: dynamic pricing

Product pricing strategies

Pricing a New Product: The Right Product Pricing Strategies to Follow

Charging a lesser price for a new product may not always be a good decision.

One of the key questions to answer while launching a new product is- how much should the product be priced at? But the dilemma that most companies face here is that if they charge too much for a new product it won’t sell, and if the product is priced too low the product’s market value proposition becomes low. Moreover, once companies decide on their initial product pricing strategies and a price is set for a product, it becomes extremely difficult to raise prices.

Today, businesses and consumers alike are demanding more for less, making it even more difficult for brands to formulate product pricing strategies that are favorable to all the parties involved. Global competition, increased pricing transparency, and lesser market entry barriers across industries are forcing brands to rethink their new product pricing strategies. Before zeroing in on their product pricing strategies, companies must have a clear estimate of the highest and the lowest price that they could charge for a product. Then a detailed price-benefit analysis must be undertaken during the preliminary stages in the product development cycle. This not only shows companies whether price barriers might make products unfeasible but can also guide their development by indicating the product attributes for which customers may be most willing to pay for.

Planning a new product launch? Request a free proposal to know how our experts can help you build successful product pricing strategies with effective market insights that you may have overlooked.

Product pricing strategies for a new product

Product pricing strategiesSome of the key product pricing strategies that can be used for a new product include:

Segmentation pricing

Pricing a new product could often prove to be a challenging task. An important tactic that can be followed by companies is to set different prices for different market segments. In order to enhance profits, markets can be split into sectors based on differences in price sensitivity. Higher prices can be charged to those who are impervious and lower prices to the more price sensitive customers.

Penetration pricing

Companies often get tempted to build market share, especially with the launch of every new product, through aggressively low prices. This competitive product pricing strategy is known as penetration pricing. However, a fixation on volume could reduce profitability and consequently ignite a price war. As a result, it is generally advisable to keep upward pressure on prices and promote good industry pricing behavior. On rare occasions, however, the price lever may be an effective tool to undermine competition.

Not sure about the right product pricing strategy for your new product? Request a free brochure to learn more about our solutions and how they can help enhance your new product pricing strategy.

Cost compression curve pricing

Cost forecasting for pricing new products is based on the cost compression curve, which relates the actual manufacturing cost per unit of value added to the cumulative quantity that is produced. This cost function is mainly the consequence of cost-cutting investments to discover and achieve internal substitutions, automation, worker learning, scale economies, and technological advances. Usually, these move together as a logarithmic function of accumulated output. Such product pricing strategies are highly effective when the product superiority over rivals is minimal and when entry and expansion by competitors is easy and probable.

Learn more about Infiniti’s new product pricing strategies

market segmentation

Popular pricing strategies that e commerce companies swear by

Choosing the right pricing strategy is one of the most crucial decisions that you have to make. Get it wrong, and it could cost big for your business. Online and offline retailers alike recognize pricing strategy as one of the key value levers, and, accordingly, companies have worked to refine their pricing strategy, tactics, and tools over the past several decades in hopes of optimizing their approach. Today, with the rising use of the internet and smartphones, customers can compare prices with just a click of a button. So, the pricing strategy that companies in the e commerce industry choose must be one that not only gives them a good ROI but also gives a sense of ‘value for money’ to the customers. There are endless ways for companies in the ecommerce industry to configure Get More Infoand set their pricing strategy. Here is our pick of the top five ways to get online pricing strategy right:

Loss leader pricing

This is a crucial pricing strategy for companies in the ecommerce industry to convert their customers into loyal customers and ensure repeat sales. This strategy is generally practiced by retail giants such as Amazon and Walmart. The main idea behind this pricing strategy is to price certain products at a price that is significantly lower than that of the competitors in the e commerce industry. This is similar to the predatory pricing strategy that is mostly followed by offline retailers. This technique not only drives traffic into the store but also help in converting window shoppers into paying customers.

Basket-based pricing

Basket-based pricing is a common pricing strategy that is used by players in the e commerce industry to entice customers to make a purchase. In this technique, certain price points or products are used to incentivize customers to purchase products. For instance, it is often seen that online retailers offer free delivery if your total basket value exceeds a particular limit. This sometimes makes customers purchase more than they would have initially intended so that they can avail of the benefits.

Quick-delivery pricing

Amazon is a prominent example of an e commerce industry player who has been leveraging this pricing strategy effectively. The company leverages its state of the art logistics network to not only serve its customers at the shortest possible time but also to use it as a profit-making pricing strategy. They give customers options such as same day delivery, next day or 2-day shipping, in return for an additional premium from the customers. This is a great way for the company to keep its prices lower than the competitors but at the same time drive profitability for the business.cta ir

Real-time price optimization

With the advent of advanced technology, it is now possible for companies in the e commerce space to gain real-time insights on determining whether the rate at which the products are priced is the ideal way of ensuring profitability or not. It is not advisable to always price the products lower than that of the competitors. Instead, players in the e commerce industry can use retail analytics to identify and adjust the prices based on factors such as demand and out-of-stock situations.  Out-of-stock situations are opportune moments for setting prices at a higher rate as customers looking for these products on competing sites will surely navigate to you.


Know how our market intelligence solutions help companies in the e commerce industry stay relevant in the market

Contact US


 

Competitor analysis

Dynamic Pricing: What Are the Biggest Challenges?

Dynamic pricing has been one of the most lucrative pricing strategies that companies use to mint money. While it is not an entirely new concept, companies have been using it randomly over the years. In laymen terms, dynamic pricing is a strategy in which product prices continuously change, sometimes in a matter of minutes, in response to real-time supply and demand. Examples include Uber for taxi rides that sets its rates based on supply and demand, consumer electronics shop MediaMarkt that has installed electronic price tags to change prices depending on competitor behavior, and the gas station chain Tanq4you that bases its rates on the actual oil price and the weather condition. But in several cases, implementing dynamic pricing may not turn out to be as easy as it sounds. Here are some of the challenges that companies face while implementing dynamic pricing strategies:Request Free Proposal

Data accuracy

Dynamic pricing relies heavily on data, and when pricing is being changed on the basis of hours or even minutes, ensuring that the data driving pricing decisions is accurate is highly critical. While there’s a growing ecosystem of data providers and the techniques by which data is collected and filtered are sure to improve, businesses should refrain from assuming that bad data won’t make it into their systems.

Customer perception

Many consumers are not aware of the fact that retailers resort to dynamic pricing to alter prices on a regular basis, but as it becomes more noticeable thanks to the web, companies must consider the perception issues it raises. A customer who observes that a product can become cheaper or more expensive within minutes might get discouraged at the prospect that they could end up paying more for a product based on little more than what they would pay if they waited longer. Also, there is the possibility that some users will notice dynamic pricing, but won’t quite understand what’s going on, resulting in a reduction of trust.

Algorithm errors

Several instances from the past emphasize on the fact that algorithms are far from perfect and can produce costly errors. As retailers embrace dynamic pricing models which are of course based on algorithms, thought should be given to how mishaps can be minimized and what policies will govern when a mishap results in a significant mistake (e.g., customers being able to purchase a product at a ridiculously low price).

Change in customer behavior

As the existence of dynamic pricing becomes more evident to consumers, companies will need to come to terms with the possibility that it could impact customer behavior. Dynamic pricing undoubtedly has the potential to encourage sales, but is it possible that in some instances it could it impede sales? If customers get a feeling that the price of a product might dip in the very near future, or perhaps even on the same day, this could result in some of them deciding to hold off on a purchase. And as every retailer knows, a delayed purchase is much more likely to become a purchase that never happens or happens somewhere else.


To know more about dynamic pricing strategies and how retailers use it to their benefit

Ask an analyst


Related Posts

Close
Infiti Logo

Hello there!

Contact us to know more about our cost-effective custom market research offerings to support efficient market penetration, new product launch, and devise strategies to monitor and outperform your competitors.

Cookie Policy

The Site uses cookies to record users' preferences in relation to the functionality of accessibility. Please refer to the help guide of your browser for further information on cookies, including how to disable them. Review our Privacy & Cookie Notice