Pricing is a complex science. Do it wrong, and you’ll miss potential sales or lose out on revenue. It’s like trying to hit a bullseye on a dartboard.
Shifted market pricing is even more challenging. It’s like trying to hit a bullseye on a moving conveyor belt, blindfolded. This is why a robust shifted market pricing strategy is critical in pricing for the future.
With the right shifted market pricing strategy, you turn pricing into a powerful tool for business growth. You convert more prospective buyers into customers and maximize revenue per buyer.
Devising a shifted market pricing strategy takes data, insight, and planning.
This is a comprehensive guide on everything you need to devise your own shifted market pricing strategy. We’ll begin with the basics and then cover practical steps you can take to develop and implement a shifted market pricing strategy for your business.
What Is Shifted Market Pricing?
A shifted market occurs when the current market is affected by significant changes in the structure of the industry.
In a buyer’s market, supply is high, and demand is low. There’s not much buyer competition. Sellers have to begin making price reductions.
This eventually increases demand, and the market shifts to a more balanced market. That trend will continue until we’re in a seller’s market where demand is high and supply is low, there’s more buyer competition, and most sellers increase prices.
Shifted market pricing is when a business anticipates changes in a shifting market and prices for the future.
These minor price reductions and increases help businesses charge the highest and best price possible in a changing market.
What Are Pricing Strategies?
Pricing strategies are practical, data-driven methods of finding the highest and best price for goods or services in the current market.
They involve extensive research into competitor pricing, industry trends, and customer behaviors, enabling companies to identify the optimal price for their offerings.
Pricing strategies also help position a product or service in the market to maximize profits. Different pricing strategies may be applied depending on what works best for the company.
What’s the “highest and best price”?
If the price is too high, you lose out on new customers. Make a price reduction, and you might lose out on revenue.
The “best price” is the price that balances the importance of both revenue and sales to maximize profit per customer.
Do I Need a Pricing Strategy?
Most products and services are elastic. Demand rises and falls in a shifting market. What you determine as the right price today, might not be the right price tomorrow.
A few inelastic products don’t need a pricing strategy because no matter how the current market shifts, demand is guaranteed—industries like fuel, salt, or any goods sold by a company with a market monopoly.
You need a shifted market pricing strategy if you want to price ahead. Without one, you won’t know it’s time to make a price reduction until you observe a drop in sales.
A recent review by McKinsey found that the top 25% of companies reviewed increased their profits in response to inflation challenges and “tended to engage seriously in active price management.”
The Best Shifted Market Pricing Strategies of 2022
Different strategies suit different businesses. Usually, companies trying to anticipate the market’s future will employ multipThe Four-Step Pricing Analysisle shifted market pricing strategies simultaneously.
This list covers the most common and effective shifted market pricing strategies:
Value-Based Pricing
Value-based pricing means a business will charge what they believe consumers will pay.
It sounds more straightforward than it is.
Value-based pricing is often used when a business has a feature or selling point that competitors don’t have. For example, let’s say Business A and Business B sell laptops of equal specification, except Business A’s laptop is 15” and Business B’s is 12”.
Business A might use a value-based pricing strategy by considering what that extra 3” of screen real estate is worth to consumers. How much extra would buyers pay?
Competitive Pricing
Also called competition-based or competitor-based pricing. You use your competitor’s prices as a benchmark and make either a price reduction, a price increase, or a price match.
Competitive pricing is easy to implement since you’re letting competitors do the hard work. Pricing slightly lower than your competitors is especially effective in highly competitive, saturated markets.
For example, searching for “computer mouse” on Amazon will yield pages of virtually identical devices with minor price adjustments. Presented with this choice, consumers will gravitate towards cheaper products— but usually not the most affordable due to concerns over quality.
Pricing the same or slightly more than competitors can be effective if you offer something your competitors do not. This could be a better returns policy, excellent customer service, or including batteries.
Penetration Pricing
Sometimes known as “access rate” pricing, a company under-prices its products or services.
It’s a common tactic among startups and an effective way to break into competitive markets, generate high sales volume and begin building trust with customers.
Building trust and loyalty is the most important thing when implementing this strategy. Penetration pricing isn’t sustainable. Prices will have to rise eventually, and when they do, you want to retain as many customers as possible.
Skimming
Also known as skim pricing or price skimming, it’s the opposite of penetration pricing.
Skimming is when a company sets a price high and lowers it over time.
This is common in the smartphone industry, where manufacturers often release flagship phones with new, market-leading features— and an eye-watering price tag.
The price is later dropped for a number of reasons. For a more in-depth look at this strategy, check out the case study on Apple at the end of this guide.
Price Plus Price
Also known as cost-plus pricing or markup pricing. You take the cost of producing a product and add a markup based on how much you’d like to profit.
For example, a keyboard manufacturer produces a quality mechanical keyboard for $100 but costs $200. That’s a 100% markup. It’s easy but not very dynamic.
It’s a common strategy for retailers selling physical goods. However, this pricing strategy isn’t ideal for digital services because there’s little to no cost in mass production and distribution.
Premium Pricing
Also known as prestige or luxury pricing. The idea is to price products high to reflect (and increase) their perceived value over their actual value.
It’s common among fashion, automotive, or technology brands. In pricing your product, you’re also factoring in the value of the status associated with your brand.
Premium pricing strategy depends on a robust marketing strategy, and it’s far more common in Business to Consumer (B2C) industries than in Business to Business (B2B) industries.
Economy Pricing
The idea of economy pricing is to offer a cheaper product than the competition. Pricing this way generates less revenue per item sold. But in theory, this pricing strategy makes up for it by selling in greater volume.
Think store-brand groceries and discount chains.
An interesting application of this pricing strategy is in “loss-leaders,” where physical retailers will price products so cheaply that they make a loss on each unit sold. They do this to draw more customers into their stores, who go on to spend money on more profitable goods.
Dynamic Pricing
Also known as surge pricing, demand pricing, or time-based pricing. Dynamic Pricing uses algorithms to assess factors like competitor pricing, seasonality, buyer demand, etc.
Dynamic pricing is common among hotels and airlines. The algorithms used are complex and sophisticated, and the goal is to find the price buyers are willing to pay when they’re ready to make a purchase.
Knowing that prices are dynamic can also encourage buyers to take action for fear of a higher price.
Geographic Pricing
Geographic Pricing is adjusting the cost of a product or service based on geographical location.
Different countries have different costs of living, so companies that serve international markets must consider geographic pricing strategies.
It’s not just international markets, however. Ice cream costs more by the beach than it does 15 minutes inland.
Even local businesses need to consider geographic pricing.
Psychological Pricing
Psychological Pricing ties in closely with marketing— it’s about using human psychology to help you sell.
The most common application is the “9-digit-effect,” where customers see a product priced at $99.99 as a better deal than a product priced at $100, even though the real difference is negligible.
Another common application of psychological pricing is where a business artificially inflates the price of one product to make another seem like a better deal.
For example, a coffee shop sells coffee in small, medium, or large cups. A small cup costs just $2, a medium costs $5, and large costs $5.50.
In this case, the price of a medium coffee is inflated to bring it closer to the cost of a large coffee. Most customers want medium coffees, but since the large is only $0.50 more, it’s a deal buyer’s can’t turn down.
Bundle Pricing
Bundle pricing is when you offer multiple products together and sell them for a single price. There are several ways you can use this effectively:
- Bundle multiple products together, allowing you to offer a more competitive price than you could if they were sold separately.
- Bundle weaker sellers with stronger sellers to sell excess stock.
- Bundle new products with established products, encouraging buyers to try new releases.
It’s a versatile strategy, and most businesses can use it.
Hourly Pricing
A common pricing strategy among freelancers and contractors, hourly pricing is charging a flat rate for each hour of your time. It’s simple, easy, predictable— and widely used for those reasons.
A common criticism of this strategy is that it rewards labor hours over experience and efficiency.
It can also be inaccurate as a pricing strategy. Project scopes can change over time, and breaking an entire project into an accurate number of working hours can take time and effort.
How To Create A Shifted Market Pricing Strategy
There’s no one-size-fits-all with shifted market pricing strategies. The strategy that works for your business will require applying the multiple methods we’ve discussed.
But which ones?
To answer that question, you’ll need data and insight.
Here are some practical steps you can take to create a shifted market pricing strategy for your business:
Pinpoint Buyer Personas
Pinpointing buyer personas requires both qualitative and quantitative data.
You need hard numbers like sales reports but also opinions and thoughts. You need to capture feelings.
You can collect qualitative data through direct outreach, social media, or asking for feedback from your on-the-ground teams who interact daily with customers.
Your goal should be to answer the following questions:
- What problem does the buyer need to solve?
- How much is the buyer willing to spend?
- What’s the Customer Acquisition Cost (CAC)?
- Which features does the customer prioritize?
- How are these customers being marketed to?
Examine Historical Data
Historical data can make the pricing process much more efficient.
What’s worked in the past? What hasn’t? There’s no need to retread ground.
Pay close attention to critical successes and failures— that’s where the best learning happens.
Study Competitor Pricing
You can also look at competitors for more data.
Consider this:
You must beat your competitors on either price or value. If you can’t offer the same product or service for a lower cost, you must have a competitive edge that draws customers to you rather than your competitors.
Determine the Best Value Metric
A value metric is what a business actually charges for. Per unit? Per user? Per month of access?
The best value metric aligns with customer needs and scales with their requirements— in-depth buyer personas help here.
It’s common among SaaS companies to use the simple “per user” value metric, but this isn’t always the best decision.
Here’s an example:
A small business using a SaaS marketing tool might pay for only one user and generate a respectable revenue thanks to the tool.
A larger enterprise using the same tool might have 5-10 times as many users. A fully-fledged marketing team. That said, they might generate 50 times more revenue thanks to the marketing tool.
The team behind the marketing tool is likely missing out on revenue because they’ve chosen the wrong value metric for a SaaS company.
Gauge Pricing Potential
Value is subjective. There’s not a single correct answer on the value of a product or service, so it’s better to establish a range.
The simplest way to do this is to answer the following questions:
- What price is so high that buyers wouldn’t consider purchasing?
- What’s the maximum price where buyers will think it’s expensive, but still consider purchasing?
- What price is low enough that buyers will think it’s a great deal?
- What price is so low that buyers will question the quality?
Once all this data has been collected, finalizing your shifted market pricing strategy is simply applying whichever pricing systems work for your business.
Is Price An Untapped Opportunity For Growth?
Evidence indicates that price is a highly underexploited opportunity for business growth.
A report by ProfitWell suggests that when trying to encourage growth, most businesses prioritize acquisition and retention over monetization.
Undoubtedly, having more customers is great for growth, but it also means higher CACs and operating costs.
Focusing instead on effective monetization makes promoting stable and robust growth easier. In other words, a business gets the most value from every customer with a good shifted market pricing strategy.
The Three Key Elements Of A Successful Shifted Market Pricing Strategy
What does a successful shifted market pricing strategy look like? What actual data can you measure to verify that your strategy is working? What are the outcomes of an adequately implemented shifted market pricing strategy?
The answer to these questions depends on your business. Below are three key elements of a successful shifted market pricing strategy:
Complements Overall Marketing Strategy
A shifted market pricing strategy works best when backed up with a robust marketing strategy. There’s no point in factoring your unique features into your pricing if your buyers don’t know about them.
This is more important with some pricing strategies than others. Your marketing strategy is critical if you’re implementing a premium pricing model. Nobody is going to pay premium prices without good reason.
Inherent Value Stream
A value stream is the entire process of steps taken to add value for a customer. It begins and ends with the customer. It starts with the realization that they want something or want a problem solved. And it ends when that customer gets what they want.
In this sense, a value stream runs through every team in a business.
The Inherent Problem, in a nutshell, refers to the idea that the biggest waste of time in any business is when teams must wait for decisions to be made by leadership.
So, one of the benefits of a successful shifted market pricing strategy is that it data-driven. This makes it quicker and easier for price adjustments in response to a shifting market to be approved.
A successful shifted market pricing strategy eliminates doubt.
Turn Prospects Into Customers
Customer acquisition is one of the main factors of growth in a business.
While some shifted market pricing strategies prioritize short-term profits over sales, the long-term goal of any pricing strategy is to convert more prospects into buyers. To achieve this, businesses must focus on customer acquisition.
Customer acquisition begins with understanding the needs and motivations of your target market. To attract new customers, companies must identify their ideal buyer persona and create a customer journey map to understand the steps taken by buyers before making a purchase.
Shifted Market Pricing Strategies: Industry-Specific Models
Each business faces its own unique challenges when devising a pricing strategy. But there are some common threads.
Every business should use psychological, bundle, and competitive pricing. They should also consider whether they are premium or economy.
All physical businesses should consider geographical pricing, and new companies should consider penetration pricing.
Here are some further considerations for different industries:
Product Pricing Model
Any pricing decisions must factor in the costs of production. But that’s not all.
In most cases, a business will need to consider how much revenue it needs to maximize profits while fuelling product development.
On the other hand, it’s easier to leverage brand power with physical products, and prices tend to be more stable as the market shifts.
Common pricing strategies in the product industry include:
- Value-Based
- Skimming
- Price Plus Price
Digital Product Pricing Models
The most significant advantage of digital products like e-books and software licenses is the ease of distribution. CACs are lower, so pricing strategies should be built to maximize customer acquisitions.
Common pricing strategies in the digital product industry include:
- Freemium
- Skimming
Services Pricing Model
Business services like freelancers and contractors fall under this umbrella.
The challenge is the number of “hidden factors.” Things like calibre and experience are hard to justify in a pricing model.
That said, these are the pricing strategies that work best:
- Hourly
- Value-Based
Agency
The Agency industry has similar challenges to the Services industry, but agencies can usually make better use of marketing and reputation than freelancers and contractors can.
That said, the best pricing strategies are the same:
- Hourly
- Value-Based
Education Pricing Model
Tuition, classroom space, learning materials, scholarships… The list of costs for an education provider is lengthy. Like the services industry, it’s not always easy in the education industry to demonstrate value.
Prestige and reputation often become deciding factors for buyers, who tend to be inclined to invest more money in higher-quality services when it comes to education.
For these reasons, the best pricing strategies for the education industry are:
- Value-Based
- Premium Pricing
- Geographic Pricing
Nonprofit Pricing Model
Nonprofit doesn’t mean a complete disregard for profit. Costing is just as important even when profits aren’t a priority.
It’s important to calculate all operation costs and consider how much revenue is needed to reinvest into the business.
Nonprofits come in all shapes and sizes, but the common pricing strategies among them are:
- Price Plus Price
- Hourly
- Value-Based Pricing
Real Estate
A real estate agent is not only competing with other agents, but must find a balance between the buyer price, the seller price, and the list price.
People often attach sentimental value to a house they’re trying to sell, whereas buyers do not. A good real estate agent needs to be prepared to make price adjustments to listings on the fly, and since house prices are so closely tied to real estate market value, a dynamic pricing strategy is the most important thing.
These are the common strategies used:
- Competitive Pricing
- Dynamic Pricing
- Premium Pricing
- Value-Based Pricing
Manufacturing
The manufacturing industry is complicated, and optimizing costs requires a sophisticated pricing strategy.
With good product development, manufacturers can push new products to market with little to no competition, which makes the following pricing strategies good choices:
- Value-Based
- Skimming
- Price Plus Price
- Dynamic Pricing
eCommerce
eCommerce is a wide umbrella. Many businesses qualify as eCommerce, so it’s not very helpful to pin the industry down.
The most significant difference between eCommerce and physical retailers is that it’s much easier for prospective customers to check competitor websites than visit competitor stores.
For this reason, eCommerce is highly competitive. You should utilize all the shifted market pricing strategies you think could apply to your business, with particular emphasis on competitive pricing.
What Is A Pricing Analysis?
Establishing a pricing strategy is a great start, but it’s not good enough to set it and forget it in a shifting market. The market can shift for many reasons, from new competitors joining the fray to new products being developed. When this happens, a pricing analysis can ensure your business stays ahead.
By analyzing the market, you can identify trends that may influence your company’s pricing strategy. This will help you understand which pricing strategies are working best and which need to be adjusted. It can also help determine if increasing or decreasing prices can gain a competitive advantage.
You should also pay attention to the pricing strategies of your competitors. Understanding how they price their products can help you determine which areas need improvement for your business to remain competitive. You may find opportunities to undercut them or offer a better product at a higher price point.
The Four-Step Pricing Analysis
The four-step pricing analysis is a simple, effective way to assess a product’s or service’s overall value. Here’s some practical guidance on performing a pricing analysis:
Price Your Product Or Service Accurately
The true cost of a product or service is its price subtracted from the total sum of the costs and expenses of production.
True cost = (price of product or service) – (sum of fixed and variable costs)
Calculating this will give you an accurate figure and a better idea of what your customers are paying you for.
This is also a good time to look at cost optimization.
Research Your Target Market & Customer Base To Test Reactions To Pricing Structures
Understanding your buyer personas is once again the key to success. Customer engagement comes in many forms, from surveys to social media to focus groups.
This outreach is more effective for businesses with a content-based marketing system, like a blog or newsletter.
Building an audience ahead of time can be an asset in performing market research.
Keep An Eye On Competition’s Pricing Strategies
Hopefully, this seems obvious by now. Keeping an eye on your competition has been an undercurrent throughout this guide.
Research your closest competitors:
- What are the pros and cons of your product or service versus theirs?
- How do your prices compare?
- Where does your business fit into the market?
- Are you a premium or economy option?
Answering these questions is crucial in maintaining a competitive price.
Conduct A Review To Determine Legal Or Ethical Constraints That May Impact Cost & Price
Different countries and industries have various regulations on markups and other factors of pricing. For example, it’s common among life-saving medical products for there to be a limit on how much a pharmaceutical manufacturer can charge.
You should also consider the ethical implications of pricing. Are you targeting low-income markets with an inelastic product that people need to buy? If so, is it ethical to raise the price?
Objectively speaking, ethical business practices are good publicity. Subjectively speaking, it’s the right thing to do.
Pricing Strategy Examples
We’ve covered many theories, but nothing beats seeing ideas put into practice.
Here are a few examples of digital businesses with excellent pricing strategies:
Example One: Upwork
Upwork is a platform that connects freelance workers with potential clients, and they’re a case study of theRemember, Shifting Markets Require Dynamic Solutions excellent use of multiple pricing strategies at once.
Upwork uses a value metric called “connects,” which freelancers can use to send proposals for posted jobs. You can also spend to rise to the top of the pile of proposals, ensuring a client sees your profile first.
Users on a Freelancer Basic plan receive ten free connects per month. Higher-tier plans afford more free connects. Further connects can be purchased for $0.15 each and are sold in bundles of various sizes.
Upwork uses Freemium Pricing, Bundle-Pricing, and value-based pricing to full effect.
Upwork also takes a commission from completed contracts between a freelancer and client, and the more you earn through Upwork, the lower the percentage fee they charge.
This shows an excellent understanding of buyer personas. Upwork knows that freelancers want to:
- Apply for jobs.
- Rise to the top of a pool of applicants.
- Secure long-term and lucrative contracts.
And Upwork’s pricing strategy rewards freelancers for pursuing those goals.
Example Two: Apple
Apple has been a top mobile phone market contender for over a decade, and its clever pricing strategies have been critical in cementing its borderline monopoly.
Look at this graph of the Apple iPhone 12’s price history:
Source: camelcamelcamel.com
You can see the clear, steep drops in price. This is price skimming at work. At first, the price drops nearly every six months. Then it slows down and drops about once a year.
Apple does this because each new iPhone’s first release targets early adopters and corporations. Apple understands how much each demographic of its user base is willing to spend on an iPhone and how long they’re willing to wait to get it.
Apple also leverages its hefty marketing budget to promote its “premium brand” image, which allows it to charge a higher price than most other smartphone manufacturers.
Example Three: Humble Bundle
Humble Bundle’s pricing strategy is an excellent example of bundle pricing and value-based pricing.
Humble Bundle offers games, books, and software bundles. They recommend a price, but ultimately the customer pays what they think the bundle is worth, and a portion of the proceeds go to charitable causes.
This pricing strategy works exceptionally well because, for example, customers will often buy a bundle of nine games when they’re only truly interested in one or two of those games. But they’re inclined to pay more for the bundle because of the value they feel they’re getting.
Remember, Shifting Markets Require Dynamic Solutions
The most important thing is to remember that pricing is an iterative process that grows and evolves with your business.
You can’t just pick a price, then adjust for inflation every year and call it a day. You’ll have a very slim chance of getting it right.
Pricing isn’t just another bullet point in your business continuity plan.
It’s a tool for growth—a powerful one in the right hands.
That’s why you need the right strategy.