Pricing Models: A Beginner’s Guide in 3 Easy Points

Introduction

Have you ever wondered what is the greatest challenge which a business owner and a manager face? Pricing the model and services is actually the greatest challenge which the business and the manager’s face. It exclusively affects the business. The importance of pricing models of course will bring profit and money to the company or business for which the business runs. However, if you do not have the price and product at the right price, it is directly going to risk the business as the competitors who have lower prices can attract more customers benefitting from the same quality.

Now, here is the catch, in the case now that you have decided to keep the prices too low with small margins, the benefit of this will be that you will be able to earn a good amount of money however only the companies who have set their prices right will be able to stand in the market for a longer duration. This is great for option pricing models.

This is where the advanced pricing model comes into the picture which settles the pricing model which is perfect for the market and your products as well. It does not really matter that what will be the price that we will set for the product, what matters is that whether the customer is willing to make the payment for the price quoted or not. 

1. What is the Pricing Model?
2. Types of pricing models
3. Examples of pricing model

1. What is Pricing Model?

The pricing models in marketing is one of the key variables used in the marketing mix. There are various types of pricing models that can be used, however, there are four general pricing models that can be the used basis on the products and the service which are called value pricing, cost-based pricing, competition-based pricing, and value-based pricing. The production cost sets a fairly lower limit while the upper limit is set by the customer.

2. Types of pricing models

There are various types of pricing models basis which the pricing for the product is set.

A) Cost-based pricing model 

This is said to be the most common way to set the price standards in the market. In this type of model, we use the cost of production basis the final price quoted which the customer can see while purchasing which is the MRP. The multiple which is used in the model to set the pricing depends on the industry standards. Some of these industries see such multiples around two to three times the cost of production whereas other industries can be even five times higher than that.

One such pricing models examples can be about an industry that sells the product three times higher than the cost of production. If you have assumed that the average cost of one unit is around Rs. 100 you will look forward to selling that item into the market for Rs. 130 with the help of a cost-based model. This is a great way to get the right kind of pricing for your product. This is one of the best examples of asset pricing models. You can continue to do this unless you find the right price for your product according to the set market standards. 

B) Market Pricing model 

With the name suggests in this model we set the price according to the market standards and the market conditions you see all around. In these new pricing models, which are developed in the age of the internet, it has become quite easy to set the pricing determining the market standards for any product or services. You can immediately do this by searching the prices of your competitor. It is always good to sell the product which falls outside the market norms because then the pricing can be raised higher. These are suitable for eCommerce pricing models. In this case, such type of model works wonders and can be used in a much effective manner to earn great profits. 

This also does not mean that you will have to keep the price of the product always less priced to be available for the products. You can decide the price of the most expensive products. However, the price which you choose should match up the market strategy which you use to reach the potential customers. The PPC pricing models are also an example of such model types. If you tend to mark your higher quality product at a fairly higher price that should attract the customers in some or other way to have the product sold in the market. 

C) Portfolio Pricing

In case you are offering any service, this model works for you in a great and positive manner. In this model, you will be going to set the product and service which makes quite a sense throughout your product and service line. The derivative pricing models fit perfectly with such a service. For example, in case you are running an accounting agency, you may want to offer the basic tax preparation services at a particular rate and so for more advanced services, you would charge more accordingly.

Furthermore, the more advanced services you will be providing the more you will charge the customer. The pharmaceutical pricing models fit in such kind of model. You can charge according to what the customer feels which is the best part of such kind of pricing models. If you are providing more services with less price, this might not attract the customers so set the structure of the portfolio pricing model with price strategy. Such pricing models in its service industry are a blend of such a strategy. 

D) Freemium Pricing

Last but not least is the freemium pricing model. You might wonder what is this model all about. Let’s have a deep look into it. With this model, you give away your base product for free which attracts customers and bounds to use your platform and later they decide to pay for the premium version of the product due to advanced features. Such types of models are widely used in the software industry. These are the pricing models in its industry. 

In this, the basic version or model of the product or service is provided free to the customers with an advanced version at a flat rate which the customer purchases later. This model cannot be used with other businesses but something similar related to this can be used. It works perfectly for some of the industries.

As a customer, there is always a fear of buying a product. Even if you take the product you will still remain unsatisfied with the higher price of the product. To make the customers satisfy the freemium version works perfectly for such kind of models. If still, some things do not work in the right manner, you can always adjust the prices back and forth to gain more experience and learn the market standards and strategies until you become quite accurate with the pricing choices you make for your product or service. These pricing models in its service industry are quite a trend. 

3. Examples of pricing model

There are varieties of pricing model which works best for different industry according to the product and services they provide. The companies can work on the above-said pricing models in order to reach the best price for their product or services. For example, for product pricing models the cost-based pricing model is a perfect fit as assets are involved.

In the healthcare pricing models, it depends on the customer requirement basis on which the price model is set. There are lots of innovative pricing models these days which companies can use and create new one’s basis their product and service provided in the market. The pricing models finance can be used in the portfolio pricing model which is raised according to market standards. These are some of the pricing model examples which are used and trend the market. 

Conclusion

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Not only this, but this is the only program in India with a curriculum that conforms to the 5i Framework. Post completion, learners receive a joint certification from the Indian Institute of Management, Indore, and Jigsaw Academy.