7 TYPES OF PRICES AND THEIR CHARACTERISTICS - CULTURE VOCABULARY - 2024

The price types refer to the different strategies that are used to define the value of a product or service in the market. A wide range of factors is considered in the pricing process.

The costs of production and distribution, the supply of the competition, the situation of the economy, the positioning strategies and the customers you want to reach must be taken into account.

Not always the lowest price is the most appropriate. It is considered that there are different types of customers and that recognizing them is essential to establish prices.

In the case of those who are unwilling to pay for expensive goods, the necessary mechanisms to reduce production costs and offer low prices should be considered.

However, there are also customers for whom it is important to pay for a product that has a differentiator. In these cases, high prices can be taken as an indicator of quality.

A good pricing strategy is important because it allows you to identify the exact point at which the price is most convenient for the company.

That is, the type of price that allows you to maximize the benefits in the sales of products or services.

Price types

These are some of the different types of prices that companies often use to maximize their profits:

1- Premium Price

This pricing strategy involves launching the product with a higher price than the competition to achieve a premium positioning.

In these cases, it is necessary that the good or service being promoted has differentiating characteristics that justify the extra cost.

These differentiating characteristics can be given by different factors. One of them may be a higher quality of the product, but it also has to do with the marketing strategy, the packaging and even the decoration of the establishments.

This can be a good strategy for companies entering the market with a new good or service.

Going straight in with a premium pricing strategy can help maximize revenue during the first product lifecycle.

2- Penetration prices

This type of pricing is usually applied in order to capture a customer base during the first stage of a product's life.

The strategy is to enter the market with a lower price than competitors to attract the attention of potential customers.

This can be a strategy that gives good results in the long term, however it can represent losses in the first life cycle of the product.

Therefore, it is necessary to apply it carefully because in an unexpected situation that further reduces the profit margin. Which can put your entire business at risk.

This strategy is often used with the goal of increasing brand recognition.

However, once the desired market share has been captured, prices are usually raised according to the market average.

3- Price of the economy

This is a type of price that aims to attract those consumers who focus their attention on prices.

This strategy aims to reduce the costs associated with production and marketing in order to offer a lower priced product.

As a result, these products are often positioned within the category of goods that are consumed on a regular basis and not as a luxury item. This can be very convenient for certain companies because it ensures a constant cash flow.

On the other hand, this pricing strategy is not equally effective for all companies.

In the case of large companies it is extremely useful, but in the case of start-up companies it is usually dangerous because keeping a low price can reduce profits to unsustainable levels.

4- "Skim" price

The “skim” or “doped” price is a strategy designed to maximize the benefits that the company receives during the launch of new products and services.

This method involves keeping prices high during the introductory phase. However, subsequently the company gradually reduces prices as competitors appear on the market.

This pricing strategy seeks to allow companies to maximize profits in the first life cycle of the product.

Later, thanks to the reduction, it allows to attract new audiences that are more focused on taking care of expenses.

On the other hand, one of the main advantages of this strategy is that it allows the company to recoup its initial expenses. Furthermore, it creates the illusion of quality and exclusivity when the product is first launched on the market.

5- Psychological price

Psychological pricing refers to techniques that salespeople use to encourage customers to respond emotionally, not in a logical or practical way.

Its objective is to increase demand by creating an illusion of greater benefit to the consumer.

An example of this strategy is when an item is priced at 9.99 instead of 10.

Although the difference is not significant, the operation of this trend is due to the fact that consumers pay more attention to the first number instead of the last.

6- Package prices

This type of price is based on the sale of several items within a package to offer it to users at a lower price than if they bought them individually.

This strategy is effective for mobilizing products that take the longest time to sell. However, it also helps customers perceive a greater benefit, as they feel that they receive something for free.

Package prices are most effective for those companies that sell complementary products.

For example, a restaurant can take advantage of this strategy by including dessert on each plate.

For this technique to be functional in the case of small businesses, it is necessary to take into account that the gains that come from the higher-value items should compensate the losses that the lower-value product generates.

7- Geographical prices

It refers to the variation in prices according to the geographical location where the products are offered.

It is usually influenced especially by changes in the currency as well as the inflation processes of each country.

This is a type of price that is usually applied in multinational companies. An example is the heavy machinery companies that consider, to define their price, the cost of transportation in the different places where they offer their products.

References

1. Bashin, H. (2017). 11 different Types of pricing and when to use them. Recovered from: marketing91.com.
2. Chand, S. (SF). 8 Types of Pricing Strategies Normally Adopted by Firms. Recovered from: yourarticlelibrary.com.
3. Economic Discussion. (SF). 4 Types of Pricing Methods - Explained. Recovered from: economicsdiscussion.net.
4. Maquire, A. (SF). 6 Different Pricing Strategies: Which Is Right for Your Business? Recovered from: quickbooks.intuit.com.