Which prices you can use best depends heavily on your company and product. Here are some price types in a row.
Dynamic prices.
Dynamic prices adapt to the circumstances (based on strategy). The hotel industry makes extensive use of dynamic prices, in combination with a demand-oriented pricing strategy. When there is a lot of demand for hotel rooms in a certain period, the price of that room increases enormously (conferences, holidays, events). But in quieter periods (weekends or holidays) the price can fall again, based on the chosen target group (leisure vs. business). This is often forecasted by the department ‘Revenue Management’. The best-known example for dynamic prices is the stock market!
Airline companies also use the dynamic pricing strategy. When you book your flight a year in advance, it will be a lot cheaper than if you do this 2 to 3 months in advance. If you book a ticket at the last minute (1 to 7 days in advance), the ticket may be sold at a cost price. This is because it is a time-bound ‘product / service’ and the aircraft seat can only be booked once during that flight. They’ll offer it at cost price, so that they at least cover the costs. Dynamic prices are, with this kind of products, obvious.
Another example of the dynamic pricing strategy are online stores such as Bol.com and Amazon. They have a large market share and easily scan the prices of their competitors. Their prices are adjusted automatically every day, so they can always be the cheapest. Pricesearch is an example of the software used for this.
Premium prices.
With premium prices, a high and fixed price is generally used for a product or service. The competition is almost low and the product is unique. Think of Apple products, luxury car brands, perfumes etc. This pricing strategy is strongly linked to the status of a brand.
Economic prices.
This pricing strategy is based on prices that are as cheap as possible. Well-known users of this pricing strategy are Aldi, Lidl, Walmart, Action, Ryan Air, Transavia, etc. By using this pricing strategy, people know what price they can expect. Because you almost always use low prices, people will be more inclined to come to shop with you, provided the expectation matches the price: price / quality ratio.
Take Walmart for example; an cheap alternative to, for example, the supermarket at your corner. Walmart has, besides A-brands, its own cheaper brands that have a good price / quality ratio.
Psychological prices.
Many companies use psychological prices, even though you often do not know this as a consumer. This is precisely the intention! Psychological prices are prices that feel like a good deal or buy, making it easier for the customer to purchase. There are different strategies for using psychological prices:
Charm pricing.
Only advised for prices that ‘may look cheap’ (i.e. not for premium prices). Think of 34.99 or 99.99! Especially the ‘9’ has a magical effect on people.
Price Perspective.
By offering someone 2 options with a little difference and a small price-difference, people are still inclined to choose the more expensive variant ‘because it has more options and only costs $10 more’ (for example). It also works well the other way around, if you want to make a product look cheaper. This strategy is used very successfully with mobile phones.
Flash sales.
By temporarily offering a product for a cheaper price, people are more likely to buy it directly because otherwise they have to pay the full amount.
Second-one-free.
People love free products. It’s very easy to leave out the shipping costs so people are more inclined to buy the product. Also 1 + 1 free, or 2nd free, encourages visitors to buy extra because otherwise they miss out on the discount.
Anchored pricing.
With this option, you give more value to your products by labelling them. This works as follows: Give your product a ‘basic’ or ‘most chosen’ label, and a slightly different product a premium label with a more expensive price. Then, people are more inclined to buy the basic option. Sometimes just because the packaging is a little different.
Conclusion.
What is the best price strategy? That is not so easy to say. In fact, the best price strategy doesn’t exist. You can only decide for yourself, as an entrepreneur, which strategy suits your company, product, market position and situation. We advise you to think carefully about which price strategies there are and which you want to apply before you market your product. This can save you a lot of disappointment, trouble and especially time and money. Once you have positioned yourself as a premium brand or price fighter, it is very difficult to undo or change this, because you will have to justify it to your customers.
There are, of course, best practices, but the question is whether these also apply to your unique company. A romantic overnight stay in an expensive hotel in Tuscany, Italy can be booked for $799, – in March, but in July you can also book a holiday in Tuscany for $22, – on an online auction and you will probably spend the night in the same hotel.
You’ll be disappointed if you find out you spend $777 too much and you’ll never, ever, book a trip on the same website again.
