Price positioning is the act of setting a price on a particular product/service that is within a specific price range. The price positioning shows where a product is positioned as regards to its competitors in a particular market as well as to the customer’s perception. With price positioning, you will know whether the product is viewed as cheap (low-priced) or expensive high-priced). Price positioning is significant to businesses that are trying to persuade customers to buy a certain product/service.
When choosing the price, you should therefore consider the following criteria:
- Compelling to the target customers
- Differentiated from competitors
- Brands can be positioned on different attributes such as functional benefits, emotional benefits, self-expressive benefits, heritage, personality and sensory assets.
3 price positions
- Penetration Pricing is the favoured alternative when a business is trying to attract a new customer and convince to try the new offering by initially providing a lower price. In doing so, it helps a new product/service enter the market and entice customers away from rivals. The aim of a price penetration strategy is to convince customers to try a new product and create a market share with the expectation of keeping the new customers when prices go back to normal levels.
- Neutral Pricing is the most common strategy and preferred option when the market has fierce competition and little differentiation among competing offers. Prices are set so that customers are somewhat indifferent between your product and your rival’s product after considering all features and benefits, including price.
- Skimming Pricing is the opposite of penetration pricing. In price skimming, a business sets the initial price high and then lowers it over time. During the new product launch, when companies skim, they sell to customers with a high willingness-to-pay. As the demand of the first customers slows down, the company lowers the price to attract another tier of customers.