Pricing

5. Tactics

5.1 Varying your prices with differential pricing can increase your profitability.

For example:

• Charging lower prices for high profile products to capture customers who will also buy higher margin products.
• Charging different prices at different times of the day, week or year to reflect changing demand or the changing value to customers of your product.
• Charging different prices for different levels of service or product specification.

5.2 Discounting can be worthwhile, but only if it achieves your aims.

• In some industries, trade discounts are the norm and you may have to offer them to match the competition.
• A cash payment discount can encourage early payment.Some customers may claim the discount but delay payment anyway.
• Clearance discounts can help you to sell off old stock and release working capital.
• Bulk discounts encourage large orders, which may carry lower unit costs for you.
• Retrospective discounts or rebates may encourage customers to concentrate their purchases with you.
• Introductory discounts may encourage customers to try a new product.However, they may create the wrong image for your product or generate sales which are not repeated when the discount is removed. They can also cause resentment among current customers.

5.3 Special tactics may work in particular situations. For example:

• Bundling additional products together and charging a package price.This works well if the perceived increase in value is greater than the additional costs.
• Charging a psychologically attractive price.For example, £7.99 can be perceived as being more than a penny less than £8.00.
• Charging a fixed price across a range of products.This makes it easier for you to predict your income. Also, some customers may prefer being able to compare products without having to make price comparisons.