December 26, 2012

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Determining the best pricing strategy for your company’s products and services can seem a bit daunting. However, your pricing strategy can ultimately determine your company’s success or fate. Therefore, it is important for small business owners to ensure profitability and longevity by paying close attention pricing techniques that can drive incremental revenue and boost their bottom line.

Here are 5 pricing techniques that have made both big and small brands profitable.

1. Individualized Variable Pricing

Charging each individual customer a different price based on their willingness to pay is every retailer’s dream. However, for some company’s it is a reality.

For instance, Priceline.com offers a unique pricing scheme for booking airline flights, hotel rooms, and rental cars that helps service providers match supply and demand and capture some profit through price discrimination. Customers can visit its website and specify the price they are prepared to pay and the acceptable range of times, days, and/or quality for a particular leisure travel service.

Although individualized variable pricing is legal and widely used in some retail sectors, such as automobile and antique dealers, it is impractical for most companies.

First, it is difficult to assess each customer’s willingness to pay; second, retailers cannot change the posted prices in stores as customers with different willingness to pay enter the store. In addition, customers might feel they are being treated unfairly if they realize that they are being charged a higher price than other customers.

2. Promotional Markdowns

Promotional markdowns can promote merchandise and increase sales by increasing customer traffic flow. Small portable appliances (such as toasters) are called traffic appliances because they can be sold at promotional or reduced prices to generate in-store traffic.

Another opportunity created by promotional markdowns is to increase the sale of complementary products. For example, a supermarket’s markdown on hot-dog buns may be offset by increased demand for hot dogs, mustard, and relish—all sold at regular prices.

3. Price Bundling

Price bundling is the practice of offering two or more different products or services for sale at one price.

For instance, McDonald’s offers a bundle of a sandwich, french fries, and a soft drink in a Value Meal at a discount compared with buying the items individually. Price bundling increases both unit and dollar sales by increasing the amount of merchandise bought during a store visit.

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