• Selina Bolton

How to choose a pricing strategy for your small business

Updated: Jun 6

Choosing the right pricing strategy for your products is essential for maximising profits and revenue, keeping margins low, and positioning yourself competitively in your market.


A pricing strategy is the thought process and planning behind the price of your products or service. It’s influenced by:

  • Current and future market conditions

  • Profit margins

  • Cost of production

  • What your buyers expect to pay

  • Competitor pricing

  • Brand positioning

Choosing the right pricing strategy for your products is essential for maximising profits and revenue, keeping margins low, and positioning yourself competitively in your market.


For example, the average takeaway coffee costs between £2.50 and £3 in the UK. If a coffee shop began charging £1, they would need to be confident they’re going to attract enough customers, and be able to keep overheads low enough, to make such a low price worth it.


On the other end of the scale, a coffee shop charging £4-5 for a coffee would need to be able to demonstrate its higher value to customers through taste and environment to keep them coming back.

Check the current market

It’s essential to take the temperature of your market before you establish or change your pricing strategy. Your customers will be making a choice between your business and a competitor, and price is one of the most influential decision-making factors.


Consider how new or established your product or service is, what it currently costs, how it’s produced, and how frequently people are likely to re-purchase.


Pricing strategies to consider:

  • Competition-based pricing. Pricing products slightly below your competition.

  • High/low pricing. Setting a brand new product or service at a high price, so it can be lowered gradually as it becomes less popular or relevant. This is common with new technology.


Complement your sales funnel

Your sales funnel dictates how sales prospects are nurtured and eventually converted. Pricing can have a big impact on whether someone buys quickly to secure the best price, or spends time researching and shopping around.


Understand the psychology of your customers’ decisions at different stages of the sales funnel. Could you apply a discount to secure their business earlier, or change the perceived value of your product or service? It’s all about perspective and perceived value.


Pricing strategies to consider:

  • Surge pricing. Increasing or reducing prices based on demand and time. This is common with airlines, hotels and apps like Uber.

  • Promotional pricing. Short-term price reductions to generate interest. Offers, discounts, ‘Buy One Get One Free’ etc.

Keep developing customer relationships

Customer preferences change constantly, and you should always be in the loop. Many products and services are ‘elastic’, meaning customers will shop around for the best price.


That doesn’t mean the lowest price always wins, your value proposition is important too. Customer care, convenience, efficiency, location, and what your competitors do or don’t offer, will make all the difference. Maintain a dialogue with customers and keep learning what they want and definitely don’t want.


Pricing strategies to consider:

  • ‘Freemium’ pricing. Offering a basic or free version of your service, with the option to upgrade for more features.

  • Premium pricing. Higher prices charged for a high-value, luxury, or premium product.


Adapt and defend your market position

As expectations and market conditions change, your pricing strategy should too. This doesn’t mean dropping prices and stretching your margins simply to appeal to as many people as possible. Instead, it means adapting to and predicting market changes to generate the best profit. This can mean both making changes and standing firm.


If a second coffee shop opens up a few streets away from one that’s had a strong local presence for a while, both businesses will need to make some changes. The original coffee shop will want to maintain its position, make sure its prices still appeal, and keep doing what it does best. The owner might also decide to change the menu, adapt opening times, host events, or whatever else they think is needed.


The new coffee shop will want to offer the local area something new that the existing coffee shop doesn’t, and they’re likely to have their own pricing strategy in place. That could be pitching themselves as the premium or budget option, or something else entirely. Both coffee shops could coexist and enjoy plenty of business if they adapt and defend their market positions, just like Costa and Starbucks coexist.


Pricing strategies to consider:

  • Penetration pricing. Lower pricing to attract customers to a new or emerging business. This can draw attention from other businesses and improve brand awareness.

  • Value-based pricing. Prices based on what customers are willing to pay. This is usually informed by market research.


Choosing and adapting your pricing strategy

Pricing affects everything – customer loyalty, reviews, repeat business, and your relationship with competitors. When you’ve developed your pricing strategy and competitive position, a meaningful business valuation assessment can help you understand the true value of your company.


WANT TO LEARN MORE

Selina Bolton is a business strategist and the founder of Seed.Partners; a mergers & acquisitions firm specialising in attracting investment and creating opportunities for small to medium-sized businesses to scale and build value at pace.

Contact Us to find out how we can partner with you to accelerate your business growth.

SEED PARTNERS

20-22 Wenlock Road, London

+44 208 242 4378

SEED PARTNERS