The Top 4 B2C Pricing Strategies
- A price strategy is the overarching framework that defines how the company will increase market share, revenue and profits using price. Some B2C pricing strategies go further and define how to penetrate new markets or defend markets from competitor encroachment.
- B2C sales are characterized by selling high volume, low margin goods to consumers over multiple channels. Because consumers believe items are largely undifferentiated, seek out cost or value advantage and readily switch brands, consumer pricing strategies should be tightly integrated with the brand and customer strategy.
- Systemic and continuous revenue growth can be achieved with the right price strategy. Research shows that B2C price strategies and optimization increase annual revenues by 2 to 4 percent and grow profits 4 to 9 percent.
Research published in The Sales Excellence Report shows that B2C companies with strategic pricing programs and active price optimization achieve greater agility, more value from their goods and services, and higher customer affinity for the most competitive goods. They also achieve top line revenue growth of 2 to 4 percent annually, on average, and bottom line profit growth of 4 to 9 percent, on average.
The research also finds that while a minority of companies implement formal price strategies and optimization, those who do were 40 percent more likely to achieve year over year revenue growth.
Having implemented B2C pricing strategies for more than two decades we are the first to recognize the low adoption and the difficulty. Fortunately, there are price optimization methods to make the process prescriptive and repeatable.
The first and most important best practice is to avoid implementing a consumer price strategy in isolation. Instead, the price strategy should be tightly integrated to the brand promise, customer strategy and loyalty program.
Consumer pricing is heavily influenced by brand. In fact, the brand will directly impact price elasticity and how consumers will respond to price changes. Integrating price strategy with brand value will improve roll out execution and top line revenue growth.
Similarly, pricing is influenced by the customer strategy. Companies with a customer-centric or customer-first strategy such as Customer Experience Management or Customer Relationship Management will better leverage consumer price strategies and achieve higher top line revenues.
B2C Pricing Strategies
B2B sales strategies are built on solution differentiation, tightly defined customer segments and flexible product options which grant a multitude of price and discount permutations. Consumer sale strategies are different. They are more often designed by merchandise categories, product lines and most importantly key value categories (KVCs) and key value items (KVIs).
Below are four of the more popular consumer sale strategies that can be very effective in achieving sustained revenue or profit growth.
Cost Leader Sale Strategy
This is actually one of the three fundamental price strategies that all other strategies are created from. But unlike other strategies, this one is more focused on cost than price.
Adopters of a cost leader strategy deliver goods with acceptable quality to an expansive customer base at a low sale amount.
The financial model is built on the two operating constructs of high volume, low margin sales transactions and economies of scale. Cost leaders must develop an efficient supply chain and minimize cost to serve to price their goods below competitors.
An upside of this strategy is that cost leaders can generally withstand price competition from competitors. The low-price business model also creates a barrier to entry that discourages new entrants.
The downside is the need for high sales volumes and recognition that customers are willing to pay more for certain goods or to companies based on their brand vale.
Dynamic Price Strategy
It wasn't that long ago when retailers updated key value item (KVI) pricing quarterly or annually. But that's no longer the case for retailers seeking growth in competitive markets.
A dynamic pricing price strategy continuously fluctuates product sale amounts to present the best price at any point in time. The item amount will change based on customer demand, inventory supply, competitor pricing or other variables defined in price software rules or algorithms. It's sometimes referred as demand pricing or surge pricing.
This consumer price strategy is the norm in several industries such as travel and transportation, hospitality and tourism, and entertainment.
Amazon has skyrocketed its profits with dynamic pricing. The company makes over 250 million sale amount changes each day and shifts the sale amount for an average product every 10 minutes. The retail behemoth has demonstrated that dynamic pricing can accelerate revenues and profits for both e-tail and retail.
Progressive Price Strategy
Another shift from unitary pricing is progressive pricing. However, it's frequently confused with dynamic pricing.
Where dynamic pricing is based mostly on market factors such as demand, supply and competitors, progressive pricing is based on individual consumer attributes. Dynamic pricing is based on a point in time, but charges everybody the same amount. Progressive pricing charges different prices to different customers for the same product at the same time.
Sometimes progressive pricing is simple based on customer segments. For example, discounted sale amounts for students or senior citizens. Or the sale amount may be based on a combination of simple factors such as time, location, and occasion.
More often, sellers use technology to track consumer profiles, purchase patterns, digital footprints, online behaviors, customer sentiment and other individual characteristics to feed algorithms that calculate price sensitivity, willingness to pay and optimal price.
The goal of progressive pricing is to achieve a personalized price based on consumer preferences, individual utility and perceived value.
Long Tail Price Strategy
Companies with a high number of SKUs and assortments, or ecommerce retailers with their limitless shelf space can really grow profits with a long tail price strategy.
Like some other consumer price strategies, long tail pricing is built on key value categories and key value items to be competitive on a smaller number of high-visibility capture products. It's effective at increasing margins for a larger volume of less price sensitive attach products.
Consumers are the most price sensitive for goods routinely purchased. These are the core items. Consumers are less price sensitive for items infrequently purchased or that compliment core items. These are the non-core items.
Long tail refers to the many niche, specialized, unique or non-core products infrequently sold. Individually they don't account for much. But collectively, they drive the highest margins and profits.
Long tail products are often bundled with capture products. Ecommerce engines often suggest upsell or cross-sale long tail products based on other core products in the cart.
Because of the high volume of SKUs, manually calculating optimized niche product pricing is laborious and impractical. But that's a missed opportunity as long tail products have a lower price elasticity and therefore can absorb higher margins. Fortunately, pricing software can automatically calculate consumer price optimization for any volume of long tail goods.