Deciding how to price products and services is a significant step for businesses looking to maximize profitability and reduce risk. At the end of the day, product price is a value that is involved in almost every calculation a business performs. But, despite what some may assume, it isn’t as simple as pricing as high as possible and waiting for customers to suddenly stop shopping before bringing the price down—at least, it isn’t always that simple.

Instead, businesses move toward a proven product pricing strategy to help them find a good price from the outset, reducing the risk of building a bad reputation for overpriced products or setting unsustainable consumer expectations with prices that are too low.

To help businesses better understand the strategy behind product pricing, we are going to cover:

• The four most common product pricing strategies
• How to make pricing more flexible with financing
• How to get started

The Four Most Common Product Pricing Strategies

There are several product pricing strategies out there, but we are going to focus on the five most common. Which are:

• Cost-plus pricing
• Competitive pricing
• Price skimming
• Penetrative pricing

Each of these has its own benefits and drawbacks, so let’s examine how each of them work.

Cost-Plus Pricing

Cost-plus pricing is the strategy of calculating the average cost of bringing each unit to market and adding a standard markup. This is easily the most common strategy, as it allows businesses to set their own profit margin manually. This makes it a great option for companies looking for predictable margins, but it doesn’t necessarily address the more strategic aspects of pricing, like market penetration or adjusting to competition.

Competitive Pricing

Competitive pricing is the strategy of setting product prices based on what comparable products are being sold for by competitors. This is a more market-aware approach to pricing that is great for products that consumers are likely to buy based on who gives them the best deal. For products that provide more individual value, like ones with unique features that consumers are willing to pay a premium for, this pricing strategy may end up leaving money on the table for a business.

Price Skimming

Price skimming is the strategy of opening with a high price and slowly lowering it as the market responds. This strategy ensures that no money is left on the table but risks putting some customers off of a product by developing a reputation for being overpriced.

Penetrative Pricing

Penetrative pricing is the opposite of price skimming, as it is the strategy of entering the market at a low price in order to capture a significant percentage of the market quickly, eventually raising that price to create a more sustainable profit margin once market demand has been established.  

This helps businesses build a consumer base early on but does obviously leave money on the table at the beginning. This works best for products that improve tangibly over time, like tech products, as the eventual raising of prices can be excused by introducing new product iterations with better features.

Make Pricing More Flexible With POS Financing

Pricing isn’t the only financing consideration that consumers make when buying a product. For many products, consumers are willing to accept a price they wouldn’t normally if their ability to pay is made more convenient or flexible. The easiest way to do this is through POS financing, which gives consumers the ability to break their purchases into payments for low-to-no-interest.

Consumer financing options like this have exploded in popularity. So much so that businesses that offer them see an average 20-30% increase in conversion and a 30-50% increase in average ticket size. As a result, businesses looking to ensure that their product pricing strategy is successful should get in touch with a fintech provider that can allow them to offer financing at the point of sale. Luckily, Skeps provides just that and more.

Refine Product Pricing Strategy With Skeps

Skeps offers a comprehensive, end-to-end consumer financing platform that helps businesses modernize their entire payment process. Working with a whole network of established lenders, we go above and beyond one-click payment, also offering a one-click application process for several different types of consumer financing, including:

• Installment financing payment plans
• Co-branded credit cards
• Consumer loans and leases

If you’re looking to partner with a forward-thinking fintech company that will keep consumers' eyes on the purchase while offering best-in-class financing, Skeps is the perfect fit.