Mastering Price Positioning for Optimal Growth

Optimize your growth strategy with effective price positioning. Our blog offers insights on mastering price positioning for business success.

POST UPDATED:

February 13, 2024

Pricing Strategies

Price positioning strategy dictates long-term profitability. That is why choosing the best pricing model for your business is so important.

In this post, you will discover:

  • Factors that influence price positioning
  • How price impacts brand perception
  • Price positioning challenges and how to overcome them
  • How to develop a price positioning strategy
Table of Contents

    What factors should be considered when setting a price position for a product or service?

    When determining a price position, consider the brand’s goals, customer demand, competitor pricing, production costs, and desired profit margin. Businesses can analyze these factors to set prices for maximum profitability while also meeting customer expectations.

    Price positioning and the brand

    The price of a product or service isn’t just an amount customers pay. It actually impacts several other areas of business.

    A company’s prices can affect its brand perception. Various aspects of perception shape consumers’ decision-making process and behavior.

    The perceived quality of a product is one example. Consumers often associate higher prices with high quality and vice versa. Bang and Olufsen, an audio products designer and manufacturer, uses premium materials and innovative technology to make their products. As a result, consumers often associate Bang and Olufsen with top-notch audio quality.

    Lower prices can serve as a signal of inferior quality. This view doesn’t always have negative implications, though. One brand known for being budget-friendly while maintaining quality is IKEA. Though their furniture needs assembly, customers appreciate the cost-effectiveness and quality IKEA offers.

    A product’s perceived value is another aspect influenced by price. Perceived value refers to the benefits customers expect to get from the product. Apple products are more expensive, but the company’s customers are some of the most loyal in the world. They will pay a premium for an Apple product because its design and technology exceed that of lesser brands.

    Psychology plays a role in pricing as well. There is a reason products sell at $9.99 instead of $10. Odd pricing gives the impression that a product is cheaper than it is. This is known as charm pricing, and it’s an effective strategy used all the time in almost every industry.

    Price anchoring is another play on consumer psychology that places a high-priced item next to a lower-priced one. This strategy makes the latter seem like a bargain even when it isn’t. The goal is to convince customers they are getting a deal. And it works.

    The price of a product should cover a company’s expenses and support its long-term profitability. Striking the right balance is key. Proper pricing ensures that all production, marketing, and distribution costs are covered. This financial equilibrium assures sustainability and growth.

    Pricing Positioning Strategy (Click to expand)

    Factors that influence pricing and positioning

    It's essential to consider the factors influencing a company’s price positioning. Market demand, level of competition, and perceived value are examples. External factors, like the economy, regulations, and trends, also affect price positioning. By staying in touch with consumer trends and preferences, brands can adjust to changing market demands.

    Businesses that sell products with strong demand and limited supply can set higher prices with little resistance. However, companies that sell low-demand products may need to reduce margins to remain competitive.

    Consumers will pay more for products they believe offer more value, such as those with unique features or superior benefits. Brands can justify higher prices using a communication strategy highlighting these unique attributes.

    During economic downturns, brands may adjust prices to stay competitive. Government regulations, like price controls or taxes, can restrict businesses and may also increase material costs.

    Develop a pricing strategy (Click to expand)

    Types of price positioning strategies

    In this section, we'll look at different pricing strategies. Each one takes a unique approach. Some companies combine strategies depending on their market and business model.

    Economy price positioning strategy: Affordable for all

    Companies that use economy pricing offer products at low prices to attract cost-conscious consumers. This can lead to high sales volumes and a larger market share. However, economy pricing often results in lower profit margins and could negatively impact a brand’s image.

    Economy pricing can be effective, but companies need strict cost-control measures to use it for long periods.

    Price skimming strategy: Leveraging innovation

    Price skimming is a strategy typically used when launching new products. Initially, prices are high but gradually decrease to make the product affordable for different consumer groups.

    This strategy best suits innovative, high-demand products in markets with limited competition. High initial prices may limit sales, and rival companies may introduce cheaper alternatives.

    Competitive price positioning strategy: Winning the market

    Competitive pricing involves setting prices based on what other businesses charge for similar products. The goal is to attract price-sensitive customers and gain a competitive edge.

    On the downside, there is potential for profit margin erosion. This often occurs when there is a price war. Customers may also believe the quality of the product suffers as prices decrease.

    Balance is crucial. Relying on competitive pricing alone may stifle long-term sustainability and brand differentiation.

    Optimal Price Point
    Optimal Price Point

    Penetration price positioning strategy: Making an entry

    The purpose of penetration pricing is to set a lower price point for a new product to gain market share quickly. Startups often use this strategy to help a product gain popularity, then gradually increase the price.

    Penetration pricing can result in lower profits initially. Like other low-price strategies, consumers may develop the perception of inferior product quality. Companies must also plan how to maintain customer loyalty when prices rise to manage those who get frustrated at the higher price point.

    Dynamic price positioning strategy: Adjusting prices on the fly

    Dynamic pricing is a strategy where businesses make pricing decisions based on current market conditions, such as demand, competition, or time of day. This gives them the potential for higher profit by capitalizing on demand and supply fluctuations that occur within a short period.

    The downside includes the challenge of customer perception. Frequent price changes may lead to confusion or distrust. Dynamic pricing can also create backlash if brands using it are not transparent. There is also a risk of alienating some customers.

    Uber is an example of a brand that uses surge pricing during busy times to match demand to supply.

    Premium price positioning strategy: Establishing prestige

    The premium pricing strategy (prestige pricing) conveys exclusivity and higher quality. This strategy can influence customers to associate higher prices with superior value. Premium pricing can also create a perception of prestige and luxury, which enhances the brand image.

    Premium brands use this pricing method to limit their market. However, it's critical to balance perceived value and actual cost. Customers may not trust the brand if they sense the company is overpricing or gouging. Maintaining consistency in product quality and delivering on the brand promise is essential.

    Premium pricing can position a brand as an industry leader and create significant differentiation.

    How to Differentiate Your Brand with Premium Pricing

    Discover the art of premium pricing strategy. Learn how to implement premium pricing to attract high-end customers and maximize profits.

    Building a pricing strategy for business growth

    Building a pricing strategy for optimal growth requires careful consideration of various factors. In this section, we'll explore steps to help you determine which strategy to use.

    Perform market research

    Conduct a market analysis to determine your product’s potential price point. An analysis includes understanding economic indicators, such as inflation, unemployment, GDP growth rate, and consumer confidence index. Knowing how these metrics affect purchasing power is crucial and can directly influence the price of your product.

    You should also assess consumer perception of the market sector. This reveals how much the audience will pay and what price they consider fair for your product. Consumer surveys, focus groups, or online feedback are sources that provide insights into consumer views.

    Companies can use A/B testing to find the right price point. A/B testing involves offering the same item at two different prices simultaneously and observing customer response to each.

    Brands can also use a van Westendorp Price Sensitivity Meter survey to ask consumers about their perception of price levels. These questions address pricing: is it expensive, affordable, or cheap?

    Consumers must believe the value of your product or service exceeds its price. When they do, you can charge more for it.

    Studying your target audience and competitors

    Companies must understand the target audience and competitors when performing pricing research.

    Regarding the target audience, exploring demographics like age, gender, income, and location shows companies who their potential buyers are and their financial capabilities.

    Beyond demographics, it's also useful to understand purchaser preferences. Market surveys and customer interviews can tell you what customers value in products like yours. These insights show what features or benefits customers will pay more for.

    A more in-depth approach is to analyze consumer purchasing behavior. Assess how target customers evaluate product features to learn more about their decision-making process and sensitivity to price fluctuations. The Conjoint Analysis method is a popular way to study consumer decision-making. This reveals which product features impact the target customer’s purchasing decisions the most.

    Competitive analysis includes a review of rivals’ product offerings and market positioning. For this, you can use a competitive matrix or SWOT analysis. A competitive matrix helps compare your product features and pricing to competitor products. A SWOT analysis identifies your competitors’ strengths, weaknesses, opportunities, and threats. Both help you determine a potential market advantage using price.

    Price positioning in marketing

    Marketing helps communicate product value and supports the pricing strategy.

    Businesses can emphasize their product’s value by highlighting unique attributes. These features could relate to productivity or efficiency. They may also include design elements, quality materials, and innovative technology. Clearly defining a product’s unique attributes creates product differentiation to give the brand a competitive advantage.

    Connecting these unique attributes to customer needs, pain points, or preferences is imperative. Customers are more likely to value a product if it solves their problem and aligns with their tastes or lifestyle.

    Focusing on value-based pricing rather than cost-based pricing can also enhance product value. This approach emphasizes the product’s value to customers, which has more impact on their buying decisions.

    Problems with Pricing Strategies
    Problems with Pricing Strategies

    Overcoming challenges in price positioning

    In this section, we'll examine the main challenges businesses face with price positioning and how to manage them.

    Price sensitivity

    Dealing with price-sensitive customers can be difficult. This group always looks for the best deal and will switch brands for the slightest difference. To win them over, many companies price their products at or just below their competitors’ prices.

    While competitors are influential, they should not lead your pricing policies. Over-focusing on competitors can expose you to an unstable pricing structure. When this happens, customers lose respect for the brand and question its pricing altogether. Instead, emphasize the value of your product to justify its price.

    Create marketing campaigns to convey your product’s value. To justify its price positioning, highlight what makes your product unique, such as unmatched quality or excellent service.

    When customers are loyal to a brand, price becomes secondary. Companies must consistently deliver superior quality and service to develop strong brand loyalty.

    Undervaluing products

    Companies may undervalue their products to penetrate markets or increase market share. This strategy may increase sales volumes initially, but it could damage a company’s profit margins and create an image of poor quality.

    Overcoming this challenge requires brands to build a higher perceived value for the product. This involves assessing production costs, the product’s unique attributes, and brand differentiation. Once you have determined these factors, set a price that reflects its value. Supporting the price with communication about the product’s benefits ensures customers understand what they are paying for.

    Copycat pricing

    In highly competitive markets, businesses may copy competitor pricing strategies. This approach lacks uniqueness and doesn't account for individual business costs or added value.

    Creating a strong brand and marketing strategy can help companies address this issue. These strategies should establish the brand's unique value that has meaning beyond price. A compelling value proposition highlights exceptional product features and shows customers how the product is unlike its competitors. This helps a company create a distinct identity in the marketplace, which will make it difficult for competitors to copy.

    Do you need help with price positioning?

    A brand audit is a powerful tool that can help you identify the right pricing strategy for your business. The process includes an analysis of the market, customer preferences, and competitors. The results can help you determine the most effective and profitable price points.

    An audit can also help you:

    • Target the right customers who appreciate the value of your product or service.
    • Build price positioning that generates higher profit.
    • Determine the best price positioning strategy for your business goals and target market.

    To learn more, contact us to schedule a free consultation.

    Chris Fulmer

    Chris Fulmer

    Brand Strategist | Managing Director

    Chris has over 15 years of experience in brand development and marketing. He has designed strategies across various industries, such as technology, B2B services, and healthcare. His areas of expertise include brand positioning, competitive analysis, content marketing, and web development.

    Are you ready to find out how a brand audit can transform your business?

    Our brand audit process is a comprehensive analysis designed to help companies optimize performance.

    • Increase ROI on lead generation and sales conversions.
    • Reduce marketing expenses.
    • Strengthen brand positioning to become more competitive.

    We guarantee satisfaction or get your money back! Schedule a discovery call with a brand auditor to find out more.

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