What is the Advantage and Disadvantage of buy price tags

On the surface, a product's price seems like a reasonably straightforward piece of information, communicating how much a customer needs to pay to bring an item home. But pricing strategies can be complex and sophisticated, taking into account everything from production costs to consumer attitudes. The advantages of a pricing policy lies in its ability to make your product appealing to customers, while also covering your costs. The disadvantages of pricing strategies come into play when they are not successful, either by not sufficiently appealing to customers or by not providing you with the income you need.

Geographical Pricing Advantages and Disadvantages

Geographical pricing is the practice of varying price tags based on where you sell your products. A geographical pricing strategy can grow out of a need to recoup shipping costs, which tend to grow higher as you send your offerings further afield. Or, your products may have a higher perceived value in another region, because of rarity or cache. Sometimes, obstacles to operating in a certain area may require you to raise prices to break even, such as working in areas that have prohibitive regulatory structures. Geographical pricing offers the advantage of allowing you to earn more in certain situations. This is disadvantageous, because it adds extra layers of bookkeeping, because you need to keep track of different prices in different places.

Competitive Pricing Strategy Advantages

A competitive pricing strategy positions your product in reference to other options on the market. You set your price after considering the prices of comparable products, using the product to send a message about whether your offering is a better value or of higher quality. Competition-based pricing advantages and disadvantages include the opportunity to leverage a simple tool to send a powerful message, and the danger of locking into a price that makes it hard to break even, as you undersell the competition.

Value Based Pricing Strategies

Value-based pricing can be part of a competition-based strategy, as you use price to communicate that your product has features or workmanship that make it worth more than the competition's offerings. But you can base price on value, without worrying about what competition charges. If you offer something unique or uniquely appealing, you may be able to write your own playbook when it comes to price, as long as you're able to find the customers who understand that your product is worth more and that they have the money to pay for it. Alternatively, you can incorporate value into your price by charging a fair price for a high-quality item. The benefits of pricing with value in mind are that value is somewhat subjective, so you can craft a marketing message that supports your price's value claims.

Skimming and Penetration Pricing

Skimming and market penetration are pricing strategies based on a product's newness. When a product has cache, fans are willing to pay more, so that they are among the first to use the product Releasing long anticipated products in limited quantities can help add to the buzz that makes passionate customers happy to pay more. By releasing a product that has a high price, initially, you can make the most of this initial enthusiasm. Once consumers have grown accustomed to having the product on the market and more people own it, you can reduce the price to entice a more diverse pool of buyers.

Penetration pricing takes the opposite approach, offering an initially low price to encourage customers to buy and familiarize themselves with the product. Skimming and penetration pricing offer the advantage of attracting attention when your product is especially fresh and interesting. However, these pricing strategies have the disadvantage of not being long-term strategies, because newness always fades.

If you’re a small eCommerce business, you may find it challenging to pick the right pricing strategy for your offer. Low price strategy sounds luring for sure, especially when you don’t have a unique product, but let’s see what are the pros and cons of this model.

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Before we go in depth on how good or bad low pricing is, let’s cover the five steps you need to undertake so you can get a better picture of what works for you.

• Set some goals you want to achieve
• Analyze the pricing situation of the market you’re in
• Create a detailed buyer’s persona sheet
• Analyze your direct competitors and their pricing plan
• Create your own pricing strategy and an execution plan

You can also check some of the other pricing strategies perfect for small companies we’ve covered if setting low price tags isn’t your thing.

Low Price Strategy Philosophy

The goal of setting up a low price strategy plan is to trigger increase in demand for the product while the company manages to gain a certain share of the market. The strategy is employed most often in two cases:

• When the product has no competitive advantage
• Where economies of scale can be achieved

One of the most used low price strategy models is the market penetration one, which we’ll take as our focus point in this article. Successful implementation of cost leadership requires:

• Low prices
• Satisfactory quality
• Certain number of customers above the threshold

Low Price Strategy Pros

Some of the reasons why small eCommerce businesses may benefit from using a market penetration low pricing strategy:

Increased Sales Volume

This is probably the main reason why you’re considering setting low prices for your products or services. Your sales will skyrocket, or at least they have the potential to do so, which by itself will put you in a position to set the trend for your competitors and while you’re at it position yourself on the market.

Assuming you’ve built a certain customer base and you’ve been successful when trying to present the value of your product, there’s good chance users will switch from your competitor’s products to your offer. After all, you provide quality like everybody else yet you got the lowest prices.

Decrease in Production Costs

This is something you probably haven’t considered when scanning through the pros and cons of a low price strategy. It’s highly dependable from the type of business you run and the nature of your product, but here are some ways lower prices resulting in increased sales can save you money during the process of production:

• Faster turnaround time of your inventory – You’ll sell so many products you won’t need to keep them stored for a long time, placing storage costs at the minimum. This becomes even better if you’re a reseller and opens the doors towards drop shipping.
• Discounted prices for higher volume orders from your suppliers – Once you establish a high volume of sales because of the competitive prices you offer, you’ll be able to order higher amounts of the production elements you need, which will probably lead to huge discounts from your suppliers.

Reaching Wider Audiences

Remember those people that switched from your competitors to your brand because of the low prices and decent quality you offer? Well, it’s quite possible this group will spread the word about your product or service to their peers, family and friends.

Remember, there’s no better marketing than word-of-mouth, no matter the communication channel it happens on.

Another target audience you should think about is the economy orientated bunch. These people aren’t willing to purchase the product you offer as long as it’s in the premium price range that your competitors set. Once you give them the opportunity to get what they want without paying too much, you build a community of loyal followers.

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Low Price Strategy Cons

Credibility

The Internet is great because it provides you with the opportunity to compete on a global level, but there’s also a downside to this benefit.

Operating in the eCommerce world means your audience is able to compare your prices with hundreds if not thousands of your competitors, so you can find yourself in a situation where a company from China has the same offer as you, but can afford to have even lower prices with shipping not being an issue.

This way you automatically lose credibility among the audience you target because you claim to have the lowest prices, but in reality you can’t deliver.

Discounts

Promotions and discounts are a huge part of your marketing. With low pricing you will find yourself in a situation where you can’t conduct the occasional sale, so you’ll lose a great deal of sales in holiday periods like Black Friday sales, when all of your competitors with premium pricing can afford to give a hefty discount.

Even if you can afford to give a discounted price, your audience can see this as a sign that you actually don’t provide the lowest price on the market.

Perception of Quality

Sometimes or better said in most cases, low competitive pricing can be a double headed knife. The strategy relies on offering lower prices than your competition no matter the demand on the market and your production costs.

On the long run this will create an overall perception of lower quality among your audience, so businesses with premium prices that offer the same quality as you’re, can still have a greater volume of sales.

Customer Service

It’s not just about customer service. By accepting to make minimal profit or no profit at all during the beginning of your campaign, you’re sacrificing on the quality of some departments in your company.

Speaking about eCommerce businesses, the department that experiences the hugest hit is customer service. If you aren’t able to provide a satisfying customer service and employ CS representatives, you should seriously consider a different pricing strategy.

Low Price Strategy and Small eCommerce Businesses

One of the things that can happen when employing a low price strategy is starting a price war with your direct competitors. If you’re a small company or a one-man show, it’s probably for the best to avoid wars with your competitors at the beginning.

Actually, you should always avoid starting a price war at all costs. Here are some of the things you can undertake to avoid a pricing battle with your competitors:

• Work on your branding – Having a strong brand will give you the opportunity to choose between different pricing strategies.
• Provide a clear added value – Your customer must know why he’s choosing your product.
• Create your own specific niche – Be specific with your target audience and create a highly customizable offer.
• Determine if a product is profitable or not before you produce it – Find out is it worth to even start selling a certain product.

How did you set up the price for your offer the first time you started selling products online and what were the results? Share what you learned from your experience.

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