Pricing decisions are an important part of Web success. Many marketers however focus more on product development or promotion, as pricing is quite often left for the suits to decide. Giving attention to pricing is just as important as the attention given to more recognizable marketing activities, so understanding the various pricing schema's is crucial. Let's look at a few of the more prominent pricing models and how they might work for products and services online.

Competitive Pricing entails setting the price based on the prices of products sold by competitors. Competitive pricing however forces marketers to explore "price elasticity," a measure of the change in demand in response to a change in price of a product or service.

Cost-plus pricing is most frequently used and simplest pricing method, calculated based on the cost of producing the product and adding a percentage (profit) to that price to give the selling price. The downside of cost-plus pricing is knowing whether customers will purchase the product at the calculated price.

Premium pricing sets the price of a product or service artificially high to encourage a positive perception among buyers based on the price. The practice of deploying a premium pricing model forces buyers to assume that expensive items have a better reputation and overall quality.

Dynamic pricing is a flexible pricing mechanism that responds to market fluctuations or large amounts of data gathered from customers. This pricing model allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay - based on where they live or how much they have spent previously.

Target pricing is a method where the price is calculated to produce a particular rate of return for a specific volume of production. The target pricing method is ideal for companies whose capital investment is high but not useful for those whose capital investment is low because the selling price will be understated, causing an overall budgetary loss on the product.

Marginal-cost pricing is the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales.

In addition to these product pricing models, there are many others, some of which you may employ on your own website. For example, psychological pricing is an approach that is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar. Another is optional product pricing (routinely called upgrades) where companies attempt to increase the amount customers spend once they start the buying process. This is similar in many ways to captive product pricing in that when a product can be complimented by another product, the retailer charges a premium price for it when the consumer is already invested in another product and needs the other to maximize its use. Many merchants are increasingly considering product bundle pricing wherein several products are offered in a "package," promotional pricing (Buy one, get one free) and value or economy pricing which is useful in moving products and retaining sales in the short term.

What advice do you have about pricing products and services on the Web?
Log in or register now to comment on this article.