Pricing is one of the most critical elements of running a successful service-based business. Almost every entrepreneur undergoes extensive research and trial-and-error to nail their pricing strategy, which drives profitability and market dominance over competitors.
In this blog post, we will outline the three common pricing strategies:
- economic pricing
- dynamic pricing
- premium pricing
This guide will teach you how to select and implement the optimal approach for your business needs. We hope you find the information compelling, driving you to make the changes that will forever impact your profit.
Key Takeaways
- 3 common pricing strategies
- How to pick the best pricing strategy for your business
- How to successfully implement it
3 Common Pricing Strategy Techniques
Economic Pricing Strategy
The economic pricing strategy is all about aiming for maximum sales volume by offering the lowest-cost option in the market.
Now, here’s the scoop: while the profit margins may not be sky-high with this approach, the goal is to make up for it with sheer sales volume and snagging a big slice of the market pie.
This strategy works best for businesses with minimal overhead and access to cost-effective supplies. Plus, you’ll need a solid, growing team to keep up with the high production volume this approach demands.
So, if you’re looking to dive into economic pricing, make sure your ducks are in a row, and your team is ready to hustle!
Dynamic Pricing Strategy
Dynamic pricing is a strategy that is flexible and adjusts to the current demand.
The goal is to generate leads, increase revenue, create production movement, and get the best price you can get at that moment in time.
By adjusting prices on demand fluctuations you can strike the perfect balance between sales volume and revenue growth.
Premium Pricing Strategy
A premium pricing strategy involves increasing the perceived value of a product or service by offering it at a premium price.
This strategy hinges on positioning your offering as high-quality, luxurious, and exclusive, thereby justifying a premium price tag.
When you get this right, your offering is enhanced, and the profit margin is hefty.
How to Pick the Best Pricing Strategy For Your Business
Case study 1
The Lemon Yard is a used car lot. They employ the economic pricing strategy.
The goal of the owner is to move cars as fast as possible. They aim for high sales volume because used cars are abundant and they can keep new ones flowing in as quickly as they can sell them.
This works well because the salesmen are paid commission and they also want to sell as many rigs as possible as fast as possible because it means they also make more money.
Case study 2
Revive Remodels uses the dynamic pricing strategy.
The goal of the owner is to make as much profit as possible and to not have a lag time on production of more than 6 weeks.
In the spring, pricing is lower because they want the schedule to be as full as possible to get their team to work as early as possible in the year.
Prices increase when you have a booked schedule for 6 weeks or more. This slows down the number of jobs hitting the schedule and makes the profit of the jobs that do get scheduled much loftier.
This works well because the team has a production limit. However, adding crews is not a quick process because labor is tight, and it takes time to get them fully operational.
If a new crew is hired and once they are up and running at full capacity then the prices will be decreased again. This allows the schedule to fill up quickly so the new crew has work.
This balancing act is continued throughout the year. Year after year.
Case study 3
Premier Painting Group finds that a premium pricing strategy works best for them.
The owner invested in top-of-the-line equipment and has a specialized technique that not every painting company can pull off. Their trucks are shiny, their painters are clean-cut, and their office is warm and welcoming for people to come in and see work samples.
The owner’s goal is to position PPG as the elite painting group that services high-end clients and goes above and beyond to ensure each job is perfect. Their clients consist of celebrities, business people, and the ultra-wealthy in their community.
This works because they keep their team small and highly specialized in their skill. They offer services that are above and beyond competitors and are highly sought after by anyone who earns more than $500,000 per year.
They do the same amount of work as the next guy. However, their profits are much higher because they offer a premium service that customers are happy to pay a premium price for.
How to Successfully Implement Your Pricing Strategy
There is a 4-way “No BS” technique to implement your service pricing strategy seamlessly:
- Do your research- find out what your competitors are charging.
- Set your prices.
- Set the % increase or decrease for dynamic pricing.
- Monitor your results.
Wrap Up
Implementing the right pricing strategy is crucial for maximizing your business’s profitability and competitive edge. By aligning your pricing approach with your unique business model and market positioning, you can optimize revenue growth. Moreover, you can firmly plant your flag as the pricing leader in your industry.
