Price strategy: High or low prices? – Starting your own business #6

Pricing strategy – There are whole books on the subject of pricing. Why, why and why? In fact, pricing is crucial in the market, for competition and for customers. Small prices, large quantities or large prices and small quantities? Perhaps even large prices and large quantities, as well as one of the world’s largest smartphone manufacturers. Maybe even small prices in small quantities, as well as the decoration shop in your neighborhood.

Price models: High or low prices?

Depending on the business model, there are individual advantages and disadvantages, but also opportunities and risks, which must be noted in writing in the business plan but also in principle mentally.

Low prices: Advantages and disadvantages

Low Pricing has the advantage of mass business, as well as the cheap toilet paper, the muesli bar, the soft drink or even the windshield wiper. The disadvantage: if the sales structures are not sufficiently organized, it quickly becomes a minus business, especially with physical products, where the risk lies. At the same time, the risk of having to sell a lot is, conversely, a great opportunity. Once you open up the mass market to yourself and have your product in people’s minds, they will always fall back on it again. Not just once a year or once in a lifetime, every week or even every day.

High prices: Advantages and disadvantages

The unbeatable advantage of high pricing is that the work is less intensive than the revenue. Who e.g. represents more expensive rights of use or sells an expensive product, will usually have a smaller quantity of customers than products in the mass business. Accordingly, the effort involved in logistics, purchasing, sales, marketing, personnel and many other factors is manageable. Some management teams only work with two or three people, but sales are still in the seven-digit range or even higher. This would not be possible with a product such as handkerchiefs of this size (effort, personnel, logistics, etc.). Products must be produced, they must be transported, they must be stored, they must be unpacked and repacked. In addition there are withdrawals, of course also the corresponding personnel, which is needed for the corresponding work. Little effort, high yield, a clear advantage for the high pricing strategy.

The disadvantage is obvious: if you don’t reach the solvent clientele, you have invested a lot and haven’t sold anything in the end. Once the structures for this price strategy have been created, it is hardly possible to change the price strategy in the current business (to become favourable). While low-cost manufacturers can also bring out exclusive products, e.g. cooperation with prominent people, it is difficult for high-priced companies to bring low-cost products to the market. The solvent clientele and clientele ultimately expect an exclusive brand image. If “everyone can afford it”, the brand is quickly out of fashion. Anyone who presents themselves as an exclusive brand in discount stores (away from the big stars) or suddenly pursues a low-price strategy loses recognition and image.

strategic conditions and discounts

In addition to the fixed product price or the fixed price for the service, there are of course many other variable prices, from conditions for regular customers to introductory prices and of course special discount campaigns. What pricing strategy do you follow to win and retain customers?

Lock offers for new customers

Launches are usually associated with special discounts in order to attract the first customers: attractive offers. This is a sensible strategy because it gives you at least a price advantage over your competitors. Because the costs are not so high at the beginning, e.g. by a low managing director salary, these cost advantages can be passed on naturally to the customer. Such conditions are very important not only for your new customers, also your regular customers should be considered with attractive offers. If a customer books more frequently, he brings his company not only turnover, but above all reliable turnover. An advantage for you in planning but also an advantage for credit banks and investors.

Calculable sizes

Calculable sizes make business much easier and, of course, planning and making decisions. Therefore, regular customers or customers who purchase very large quantities should always be thanked with discounts and conditions. A win-win situation, because the bundled business also means less work and less risk of payment defaults.