Price positioning - how to build it?

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Price positioning is one of the elements of brand positioning. Pricing is influenced by many factors, including your competitors' bids and products. As the name suggests, the goal in price positioning is to develop a strategy that will place the brand and its products in a specific position relative to the competition. What to do to make price positioning also appeal to clients' wallets? Explore some ways.

Price positioning depends on the goals the company wants to achieve. Are you looking to maximize your short term income or profit? Or maybe it will bet on a higher margin on the luxury goods market? Does a company need to stand out more to enter the market? Or is it currently running in survival mode? These are some of the questions a company needs to ask itself before it happens product launch, i.e. introducing the product to the market. Product pricing is one of the most important decisions as it affects almost every aspect of your business - from cash flow to profit margin. 

What is price positioning? 

Each brand makes a promise to its customers. When they buy goods or services, they expect it to be met. Price is just as important to a brand's value as the other factors that set it apart. One of the functions of price is to convey a message about the quality of the good purchased. It can therefore influence where the brand occupies in the mind of the target consumer. If the brand promise is ambiguous, prices are understated or inflated because companies do not know exactly what they are communicating to their customers. 

Price positioning is the act of placing the price of a product or service in a certain price range. The price places a product or service on the market, determining its position against competitors, as well as in the minds of various customers. Price positioning also affects whether a product is perceived as cheap or not. Getting the price right is essential for companies that want to convince customers to buy.

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If a company tries to sell cheap cars, it has to keep prices low enough - what it expects target groupto which the offer is addressed. On the other hand, if brand positioning is based on "being premium" or if the product is to be perceived as luxury, the company must price it in accordance with these assumptions. Companies can implement a variety of pricing strategies and tactics, but consistency is key. 

Product price positioning - strategies 

Price positioning decisions, in addition to taking into account the company's operating strategy and competitive strategy, are a direct reflection of the customer acquisition strategy. Price positioning can be based on three main tactics.

Skimming pricing

One of them is the so-called drinking cream skimming pricing). This positioning strategy involves the company taking a more aggressive approach to pricing, by bringing innovative, trendy and / or significantly improved products or services to the market. The use of high prices in the short term works well when there is little competition, the market is limited, and potential consumers are not very price sensitive and are able to pay the requested amount. It plays an important role in this case public relations. Price positioning of prestigious products definitely requires proper promotion. An important advantage of this strategy is that it is easier to lower prices - when demand falls or a competitive threat arises - than to raise them.  

Price penetration

Another option is the Penetration Strategy. penetration pricing), based on the belief that low cost plus reliable quality equals high demand. Positioning based on this tactic is the fastest way to gain market share and then secure it against new competitors. The firm focuses on setting an initial low price and then increasing it by switching to a skimming pricing strategy. It consists in the fact that consumers, while appreciating the brand, decide to buy a cheap, "high-quality" product. As a result, they enable the company to penetrate the market. The challenge here is that getting a price that is too low can hurt a brand if it begins to be perceived as offering low quality. This pricing strategy has been used successfully when introducing products to markets where demand tends to fluctuate, especially due to price movements.

Neutral pricing strategy

Price positioning it can also be based on dictating prices similar to competitors. Neutral pricing strategy neutral pricing) is the preferred option when the market is saturated and with low differentiation among competing offerings. In this case, success is largely decisive non-price competitionthat is, competing with everything except the price. 

How to effectively position your company?

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Price positioning - what mistakes to avoid? 

The pricing strategy is designed to help the company run its business more efficiently. Often, however, price positioning involves making mistakes that may result in loss of customers and a drop in profits. Here are 6 common pricing mistakes - learn what to do and what not to do if you want to ensure the overall growth and success of your business. 

1. Insufficient focus on the best values of what the company offers. Quality products reflect the perception of the company by customers. Being able to tell that your product is more amazing or has better features, or that your business has better customer service than its competitors is extremely valuable information. They increase the value of the product in the eyes of consumers and generate more interest in the target market. 

2. Price changes without justification. Price positioning is something that is hard to hide. Customers notice the slightest price change almost immediately and may react differently. Acquired customers ensure a higher return on investment. So remember about Customer Lifetime Value, or CLV, which means following them carefully. Make sure your customers are properly informed about the reasons for price changes. Otherwise, you may lose them. 

3. Product re-evaluation. You are the one who knows your product best and knows how much time and effort it took to make it. This knowledge often gets in the way of price decisions because it creates a dissonance between its "personal value" and "market value." Remember one thing. The product is not worth what you think it is worth. It is worth what the market says it is worth. That is exactly as much as customers will want to pay for it.

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Price positioning

4. Underestimating the product. Pricing products below their actual market value does not always mean generating more profits. The price of your product reflects the value of what your business sells. If it is too low, customers will have the impression that the product is of lower quality. To avoid this, it is worth comparing your product with similar ones and valuating it based on the average market price. 

5. Underestimating competition. Like you, your competitors are also trying to conquer the market and therefore will also pay attention to price positioning. It's good if you are aware of it. Be vigilant and look for new strategies that your competitors can use. Be proactive in doing so - stand out and take advantage of what they may miss. 

6. Treating costs as the only basis for valuation. Prices should not be based solely on production costs. Market growth is also important. Sales will go down or up depending on certain events. Firms should anticipate changes in purchasing patterns and take market developments into account to properly value their products. 

How to determine the optimal pricing policy of the company? 

The market is constantly evolving and it is sometimes difficult to keep up with it. Product pricing looks simple, but is actually very complex. The most important thing is to be able to answer the question - does your pricing strategy help build your brand or kill it? 

Great products and prices do not guarantee success. Price positioning requires careful planning. Many managers do not know exactly where the price of their product is placed in a competitive market. If customers don't know what they're paying for and managers don't know what the company is charging for, then you can expect serious brand issues over time with a consequent loss of revenue and margin. 

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