Product Pricing Strategies for Successful Cannabis Companies
It’s no surprise that pricing is a major factor for all businesses. The fact is, without proper pricing strategies, you can do everything else right and still fail. As the saying goes, “You can have the best product in the world but if you price it wrong, your business will go bankrupt.” But how do you know what strategy to choose? What are the different types of product pricing strategies? To answer these questions, let’s take a closer look at some of the different pricing strategies available for both wholesale and retail businesses.
How to create a Pricing Structure for your new product line?
Terms to Know
- Cost of Goods Sold (COGS) is the total of all a product’s direct costs that a manufacturer, retailer, wholesaler, or distributor has incurred to acquire or manufacture and distribute to a customer. This includes material costs, manufacturing and fulfillment labor, storage costs, factory overhead, raw materials, products purchased including private labelled products purchased for resale, and allowances or reserves set aside for returns. COGS do not include indirect expenses regardless of the quantity of products produced such as office expenses, sales commissions, or marketing costs.
- Revenue – the total amount of money coming into a company which, depending on how it’s used, can reference a company’s gross income, an order’s total paid price, or an individual’s Sales Price after any discounts are applied. It also includes money owed. For example if you sold $1000 worth of Whole Plant Hemp Gummies but allowed your customer net 30 terms (up to 30 days to pay), the $1000 would still count towards your revenue.
- Cost of Revenue – COGS plus all other indirect expenses such as salaries and marketing expenses.
- Income or Profit – both mean revenue minus expenses.
- Sales Price – The products price after discounts have been subtracted.
- Margin – Profit or (Revenue – COGS) divided by Revenue then multiplied by 100 to convert it to a percentage. Profit Margins show the profit compared to the sales price.
- Markup is Profit divided by Cost or COGS then multiplied by 100 to convert it to a percentage. Cost Markups show Profit compared to the original cost of the item.
Do you research.
Choosing a pricing strategy is one of the most important decisions a business can make. It’s no surprise, then, that so many entrepreneurs and business owners spend hours researching different pricing strategies before making a decision. But what should you be looking for when researching pricing strategies? Let’s take a look.
What factors should I consider before I choose a Pricing Strategy?
Before choosing a pricing strategy, you need to identify your target market, your competitors, figure out your Cost of Goods Sold and other Operating Expenses so you can calculate the minimum profit margins you want and need to make to operate, learn about the different types of Pricing Strategies, and think about how the strategies you choose can be implemented into your business or ecommerce website.
Identify Your Target Market & Competition
The most successful businesses are those that understand their target market and know who their competition is. Knowing your target market will help you determine which pricing strategy will work best for your customers. For example, if you have an audience of budget-conscious shoppers, then using price skimming or penetration pricing may not be the best option. Similarly, knowing who your competitors are is essential to determine how your prices compare to theirs and where you can set your prices accordingly.
Calculate your COGS and Expenses
You need to start off with a feasibility study. Price everything about your business out, then add in your fixed expenses, and see if your Costs plus your profit is less than or equal to the estimated Price after discounts you can sell your products for.
Consider Your Margins & Profits
Pricing isn’t just about setting the right cost—it’s also about ensuring that your margins and profits remain healthy. When researching pricing options, consider which strategies will give you the highest margin and profits without sacrificing customer satisfaction or loyalty. For example, if you have a high-end product or service with significant costs associated with it, using premium pricing may be more beneficial than going for volume sales with lower prices per unit.
Understand the Different Types of Pricing Strategies
There are many different types of pricing strategies available to businesses today, from value-based pricing to bundle discounts and beyond. Understanding these strategies and how they work is key in selecting the right one for your business model and target market. Consider each strategy carefully before making any decisions; while some may seem attractive on paper, they may not actually work in practice due to customer preferences or other factors such as competition or cost structure.
How will you implement this system to your website or POS system?
Is it possible with the WordPress plugins available, will you have to do custom coding, can you change the pricing easily, when you update prices will you have to do everyone manually or is there a way to reduce the workload when you do with dynamic pricing. These are all the things that you should think about ahead of time.
Are there different Product Pricing Strategies?
Yes, and choosing the right pricing strategy for your new business or product line is vital to its success. The 15 different pricing strategies are:
- Competitive pricing: beating out the competition
- Cost-plus pricing: a simple markup
- Discount Pricing: prices market down to increase sales
- Dynamic pricing: adjusting price in response to variables
- Penetration pricing:
- Freemium Pricing: free version to try with paid upgrade features
- Value-based pricing: customers perceived value of a product
- Price skimming: higher, short-term profits
- Keystone pricing: a simple markup formula
- Psychological pricing: use charm pricing to sell more with odd numbers
- Volume Pricing: offer discounts when sold in bulk
- Bundle Pricing: combine multiple products with a discount
- Loss-leader pricing: increasing the average transaction value
- Manufacturer suggested retail price: your supplier sets the retail price
Can I use more than one pricing strategy?
Absolutely. It is possible to be successful choosing only one. However, most companies, including Hemp Lively, use a combination of pricing strategies.
Competitive Pricing
Pricing Based on your Competitors
This pricing strategy can be beneficial for businesses in any industry, but it is especially important in industries where there is fierce competition and/or a lot of price-sensitive customers. In this blog post, we will discuss the pros and cons of using a competitive pricing strategy, which industries are best suited to use this strategy, and examples of companies who have successfully employed it.
What is Competitive Pricing?
A competitive pricing strategy is a pricing method used by companies to stay ahead of their competition. It’s the art of setting prices that are lower than what your competitors charge for similar products or services.
How do I calculate a product price when using a Competitive Pricing Strategy?
First, you must complete a Comparative Market Analysis (CMA). A Comparative Market Analysis is done by seeing what your competitors are charging for the same, or similar products. Then pricing your products to match, or in most cases slightly below, your competitor's pricing.
What are the advantages of using a Competitive Pricing Strategy?
The obvious advantage to using a competitive pricing strategy is that if you can offer lower prices than your competitors then you are more likely to attract customers away from them. Lower prices also make your product or service more attractive to potential customers who may not be able to afford the higher prices charged by your competitors. Additionally, when you undercut your competitors on price, it puts pressure on them to either match or lower their own prices - leading to an even greater advantage for you down the line.
Another not-so-known advantage has to do with Google. Google has gotten smart these days and there are certain keywords when combined with the product name or type that will put the lowest priced product on page 1 of google, even if there are others that have better SEO and organic rankings. I know this because it happened by mistake on one of our product pages. Here's an example. Let's say someone is searching for "Delta 8 Gummies For Sale" and Company A's Delta 8 Gummies which cost $39.99 show up on Page 1 of Google's search results for that search term. Now, Company B's Delta 8 Gummies are way, way, way back on page 20 of Google search results but they are only charging $9.99. If someone were to search the same term "Delta 8 Gummies for Sale" but add the word "CHEAP" to the search query, it's very possible google would place company B's Delta 8 Gummies on page 1 if they were, in fact, the cheapest.
What are the disadvantages of using a Competitive Pricing Strategy?
There are several disadvantages to this strategy. First, you constantly have to spend the time checking your competitors' pricing and adjusting your pricing which can get extensive with signage and web development costs.
Another downside of using a competitive pricing strategy is that it can lead to unsustainable profit margins and a race-to-the-bottom mentality among competitors in an industry. If everyone is constantly trying to undercut each other’s prices, then no one will make any money and eventually the entire industry could collapse due to lack of profits.
Additionally, offering lower prices can erode brand loyalty as customers begin to associate low prices with inferior quality - which can be damaging for companies trying to build up their brands over time.
PROS
- Offer Lower Prices than your competitors.
- Lower prices will attract new customers
- Improved Google Rankings for terms like “product name cheap”
CONS
- Constant Competitor Price Checking
- Lower Profits per unit sale
- Price decreases can become unsustainable
- Low prices can be perceived as poor quality also
Example
Your competitor is selling 30ct Delta 9 THC Gummies (10mg ea) for $39.99.
You price your 30ct Delta 9 Gummies at $38.99.
Industries for this Pricing Strategy
The industries that are best suited for employing a competitive pricing strategy are those with high levels of competition and/or those with plenty of price-sensitive customers. Examples include the retail industry (e.g., clothing stores), consumer electronics (e.g., laptops), food service (e.g., restaurants), telecommunications (e.g., cell phone plans), and travel (e.g., airline tickets). These types of industries tend to have very tight profit margins so they must constantly look for ways to reduce costs while still maintaining quality products/services – which makes them ideal candidates for this type of aggressive cost cutting measure.
Companies that use Competitive Pricing Business Models
Walmart and Amazon are the best examples of Competitive Pricing. Walmart prices itself on maintaining the lowest prices in the industry. Amazon, on the other hand, has set up their entire marketplace so the Amazon Sellers’ listing with the lowest price is at the top making it a constant competition between Amazon sellers forcing them to lower prices. This keeps prices extremely low for consumers and has made Amazon an ecommerce powerhouse.
Is Competitive Pricing a Good Strategy for Cannabis Companies?
It depends. If you are selling Wholesale or manufacturing and selling to a distributor, then you will have to make this a large part of your pricing strategy. If you own a Retail Store and there are other similar shops near you, then you will most definitely need to use this as part of your pricing strategy. If you sell online to consumers, you need to be aware of your competitors pricing but not make it your sole focus. Instead focus on differentiating your brand from others, marketing that message to new audiences, then capturing that customer with quality products.
Conclusion
In summary, there are both pros and cons associated with using a competitive pricing strategy in business today. While it can be beneficial for attracting new customers away from competitors and putting pressure on them to match or reduce their own prices, it can also lead to unsustainable profit margins and damage brand loyalty over time if not managed correctly. The best industries for employing this type of aggressive cost cutting measure are those with high levels of competition and/or price-sensitive customers such as retail, consumer electronics, food service, telecommunications, and travel – all of which tend to have tight profit margins that require constant cost cutting measures in order remain profitable over time. Companies like Amazon and Walmart have been successful at implementing this type of strategy – making them leaders in their respective markets today!
Cost-Plus Pricing
Cost of Goods marked up by a set Profit Margin
Cost-plus Pricing is one of the most common ways to set prices and has been used by businesses for centuries. In this section, we’ll be breaking down the pros, cons, best industries for cost-plus pricing, and some companies that have adopted this strategy.
What is Cost-Plus Pricing?
Cost-plus pricing is a pricing strategy that considers the cost of production or acquisition. Then adds a mark-up to arrive at the final price. As stated in the name, it is the cost plus a profit margin.
How do I calculate a product price when using a Cost-Plus Pricing Strategy?
To calculate the product price, simply take your Cost and add in your desired profit, either in a Markup or a Profit Margin of the final price.
What's the difference between a markup and a profit margin?
A Markup is Profit divided by the Cost as a percentage.
A Margin is Profit divided by the Sale Price or Revenue as a percentage.
For example, let's say you sold a product for $10 that only cost you $5.
Your markup would be (Sales Price $10 - Cost $5) / Cost $5 = 1 or 100% markup.
Your margin would be (Sales Price $10 - Cost $5) / Sales Price $10 = 0.5 or 50% Profit Margin.
Therefore, you marked up your product 100% and sold it for a 50% Profit Margin.
What are the advantages of using a Cost-Plus Pricing Strategy?
One of the main advantages of using cost-plus pricing is that it’s easy to understand and calculate. A business simply adds its costs to a desired markup percentage or amount to arrive at the final price. This makes it easy for both buyers and sellers as neither party needs to do any complex calculations or guesswork to come up with an agreeable price.
Cost-plus pricing also gives businesses more control over their margins since they can adjust their markups based on how much profit they want to make from selling a product or service. This makes it easier for them to manage their finances and plan budgets accordingly. Finally, cost-plus pricing helps businesses remain competitive because they can easily adjust prices in response to market conditions without having to make major changes to their production processes or marketing strategies.
What are the disadvantages of using a Cost-Plus Pricing Strategy?
One of the biggest drawbacks of using cost-plus pricing is that it doesn’t consider consumer demand or other market factors such as competition. As a result, businesses may end up setting prices that are too high or too low relative to what consumers are willing to pay for a particular product or service. This can lead to missed opportunities for sales as well as lost revenue due to overpricing products or services. Additionally, when competitors start offering similar products at lower prices, businesses may find themselves unable to compete effectively if they’re stuck with higher costs due to cost-plus pricing models.
PROS
- Standardized Pricing
- Easy to implement and calculate for new products
- If combined with a competitive pricing approach, you can easily adjust prices across the board.
CONS
- By itself, Cost-Plus does not take into consideration competition
- Prices can end up too high or low on some or all items
- This is a simple pricing strategy and if solely used will not maximize profit and seize all sales opportunities.
Example from Sales Price
Let’s say you sold a product for $10 that only cost you $5.
- Your markup would be (Sales Price $10 – Cost $5) / Cost $5 = 1 or 100% markup.
- Your margin would be (Sales Price $10 – Cost $5) / Sales Price $10 = 0.5 or 50% Profit Margin.
- Therefore, you marked up your product 100% and sold it for a 50% Profit Margin.
Example with COGS + Margin
You can also work backwards from the COGS with a set margin by using this formula.
- Cost =$70, You want a 30% Profit Margin
- $70 / (1 – 30%) or $70 / (1 – 0.3)
- $70 / 0.7 = $100
Working Backwards when you sell a product for $100 and it cost you $70, your profit margin is 30%.
Industries for this Pricing Strategy
Cost-plus pricing works best in industries where there are few competitors and little price competition. For example, industries such as medical equipment manufacturing have few players in the market and tend to rely more heavily on cost-based pricing models than others. In addition, industries with consistent production costs such as food processing often use this type of pricing strategy due to its simplicity and reliability.
However, almost every company utilizes this strategy at least in part for knowing their minimum sales price. Most companies will not solely use this but it’s part of their minimum sales price figures for very large wholesale and bulk orders. Knowing these figures also allows for an effective sales team.
For example, let’s say the cost of a product is $40 and the Company needs their sales team to sell this product for a minimum of a 20% Profit Margin which would put the lowest possible sales price at $50. The retail price is $100. Anything over the company’s Minimum Sales Price of $50, Sales Reps earn a 20% Commission. Knowing these figures can allow the sales team to maximize revenue for both them and the company.
Companies that use a Cost-Plus Pricing Business Model
Many large companies use cost-plus pricing strategies to remain competitive in their respective markets while still ensuring adequate profit margins for themselves. Major corporations such as Dell Technologies Inc., Walgreens Boots Alliance Inc., and Apple Inc., all utilize this type of pricing strategy when setting their own prices for goods and services they produce/sell. In addition, smaller companies such as local bakeries often use cost-plus pricing strategies due to their simplicity and effectiveness at maintaining healthy profit margins without sacrificing competitiveness in the marketplace.
Is Cost-Plus Pricing a Good Strategy for Cannabis Companies?
Cost-Plus works very well if you are selling in bulk like bulk delta 8 gummies or manufacturing large quantities for big distributors. With bulk purchases, the market is so competitive that when orders are extremely large, you need to use this strategy to give the lowest possible price and still cover your expenses and have a minimum profit margin.
It also works for Retail Shops that have a fixed markup on all products. However, most retail stores will still combine this strategy with both Competitive and Psychological Pricing.
Remember, most online or in store cannabis products will have different potential profit margins depending on market saturation. Let's compare this to the Competitive approach where you could make a 100% Markup selling a CBD Relief Salve and a 200% Markup on Delta 8 Tinctures. If you used Cost-Plus and only used a 100% markup across the board, you'd lose half your profit on Delta 8 Tinctures.
Conclusion
As you can see from this overview, there are both pros and cons associated with using a cost-plus pricing model in your business operations depending on your specific industry needs and goals. However, if you’re in an industry where production costs are relatively stable (such as manufacturing) or you sell large orders in bulk, this could be an effective way of setting your prices while still maintaining healthy profits margins in the long run – provided you keep tabs on your competition! This pricing strategy is best used as a safeguard to understand your business and the minimum sales price you can use during holiday sales, when the competition is lower, or when selling in bulk.
Discount Pricing
Discounts and Coupons for Holidays and Events
In today’s competitive marketplace, businesses must find creative ways to stand out from the crowd. One common way is to offer discount pricing. This type of pricing strategy is a great way to attract customers and increase sales, but it can also have some drawbacks. Let’s look at the pros and cons of discount pricing, which industries are best suited for this pricing strategy, and examples of companies that use it.
What is Discount Pricing?
Discount pricing is a form of pricing strategy in which goods or services are offered at a lower price than usual. This type of pricing strategy is usually used to attract customers and increase sales by offering them an incentive to purchase something at a discounted rate. Discount pricing can be used to clear old inventory, reward loyal customers, or introduce new products or services into the market.
Are there different types of Discount Pricing?
There are various types of discounting strategies that businesses can use depending on their needs and goals. Some popular types include volume discounts, promotional discounts, seasonal discounts, loyalty discounts, referral discounts, and cashback rewards. Let’s take a closer look at each one:
- Volume discount – A volume discount is offered when a customer purchases larger quantities of goods or services in one transaction. For example, if you offer free shipping for orders over $50 or 10% off for orders over $100 then this would qualify as a volume discount.
- Promotional discount – A promotional discount is offered as part of an advertising campaign or special event to attract customers and encourage them to purchase more than they normally would. For example, if you offer 50% off all items during Cyber Monday then this would qualify as a promotional discount.
- Seasonal discount – A seasonal discount occurs when businesses reduce prices during certain times of the year such as holidays or back-to-school season to capitalize on the increased demand for their products or services during these times. For example, if you offer 20% off all items during Black Friday then this would qualify as a seasonal discount.
- Loyalty discounts – Loyalty discounts are offered to reward existing customers who make repeat purchases from your business on a regular basis. For example, if you offer 5% off all items for customers who have made three consecutive purchases from your store then this would qualify as a loyalty discount.
- Referral discounts – Referral discounts are offered when someone refers another person to your business in exchange for savings on future purchases. For example, if you offer 10% off all items for every friend referred then this would qualify as a referral program.
- Cashback rewards – Cashback rewards are offered when customers make purchases from your store and receive cash back either immediately upon purchase or at some point down the line after reaching certain requirements (such as spending X amount). For example, if you offer 5% cashback on every purchase with no minimum spending requirement then this would qualify as a cashback reward program.
What are the advantages of using a Discount Pricing Strategy?
The main advantage of discount pricing is its ability to draw in customers with attractive discounts or offers. Discounts make customers feel like they are getting a good deal, even if they were already planning on making a purchase. Discounts can also be used as an incentive for customers who may not have been interested in buying your product or service prior to seeing an attractive discount offer. Furthermore, discounts can also be used to clear out inventory or get rid of old stock that isn’t selling well – something that could help you make room for more popular items.
What are the disadvantages of using a Discount Pricing Strategy?
Discounting can lead to customer price sensitivity, which means that they will expect further discounts in the future or become used to only paying discounted prices rather than full price. This makes it difficult for businesses to raise their prices due to increased costs without losing their customer base, which could hurt profitability in the long run. Moreover, offering too many discounts can devalue your product or service so you must be careful not to over-discount your products as this could damage your brand value.
PROS
- New Customers
- Increased Customer Loyalty
- Great Customer Experience gives great reviews
- Increased Referrals
CONS
- If the discounts are too big, customers may expect them and be disappointed when they are not regular
- Less profit per product
- Current Customers that purchased just before the sale may be upset
Example
Cyber Monday! Take 30% Off Storewide.
Buy 2 Get 1 Free Christmas in July.
It’s our Birthday, take 25% Off everything in the store.
15% Off your First Order.
Industries for this Pricing Strategy
Discount pricing works best in industries where there is already competition from other companies offering similar products or services such as consumer goods, retail stores and restaurants. This type of pricing strategy can also be beneficial for seasonal businesses such as ski resorts and amusement parks since they need to attract customers during their peak season when demand is highest, but supply is low – meaning prices are often higher than usual.
Companies that use Discount Pricing in their Business Model
Many companies offer discounts through coupons, loyalty programs and promotional codes such as Amazon, Starbucks, and Walmart – all three of which have built their business models around offering discounted prices on various products and services. Other companies like Groupon have made discounting their entire business model by offering deep discounts on goods and services from local merchants all over the world.
Is Discount Pricing a Good Strategy for Cannabis Companies?
Yes. Especially on ecommerce sites selling CBD, Hemp, or THC products. If you are not utilizing discounts, coupons, specials, and loyalty rewards, you are not maximizing your profits and losing out on potential customers. It is a necessity in this industry.
Conclusion
Overall, discount pricing can be a great way for businesses to attract new customers while increasing sales. It should be used carefully so that it doesn’t devalue your product or service.
Understanding different types of discounting strategies can help businesses better plan their marketing efforts and ensure that they are making the most out of every sale opportunity available to them while still maintaining profitability margins that keep them afloat long-term. By carefully considering each option based upon its potential impact on both customer acquisition costs and customer retention rates it should be possible to create an effective mix between these two strategies that will result in maximum returns with minimal effort expended along the way!
The cannabis industry has also adopted this strategy due its need for high taxes associated with selling these goods legally – making them more expensive than most other products/services we buy regularly – so if you’re looking for ways save money on your next purchase then checking out what kind of discounted rates different dispensaries might offer could help you do just that! Thanks for reading!
Dynamic Pricing
Maximizing Profits by Changing Prices in Real Time Based on a Variable
When you hear the term “dynamic pricing”, you may think of a complex algorithm that adjusts prices in response to market fluctuations. While this is one aspect of dynamic pricing, it’s important to understand that dynamic pricing isn’t just about adjusting prices, it’s about adjusting them in response to specific variables. Understanding how these variables impact prices can help you determine if dynamic pricing is best for your business. But what are the pros and cons of dynamic pricing? Let’s look at this pricing strategy and some of the best industries for its implementation.
What is Dynamic Pricing?
Dynamic pricing is a pricing strategy that adjusts the price of a product or service in response to changing variables. In the age of modern technology, dynamic pricing has become increasingly popular as businesses strive to maximize their profits while still providing customers with competitive prices. Some good examples of Dynamic Pricing are Uber which adjusts rates based on the number of available drivers and Airlines, which adjusts pricing based on how many seats are left on the plane and how many days before the flight.
What are the advantages of using a Dynamic Pricing Strategy?
Dynamic pricing allows businesses to adapt their prices quickly and easily in response to different variables such as demand, competitor prices, seasonality, location, etc. This helps businesses stay competitive in their industry by offering customers fair prices based on current market conditions. Additionally, dynamic pricing can help businesses maximize their profits by charging more when demand is high and less when demand is low.
What are the disadvantages of using a Dynamic Pricing Strategy?
A major downside of dynamic pricing is that it can lead to customer dissatisfaction if not implemented correctly. Customers may feel like they are being taken advantage of if the price for a product or service changes drastically without warning. Additionally, companies need to have reliable data on competitors’ prices in order to adjust their own prices; accordingly, otherwise they risk undercutting themselves or overcharging customers. There is also the potential for unethical business practices such as “price gouging” during times of high demand or crisis situations.
PROS
- Maximizes Profits for business
- Uses Current Market Conditions to Price Product or Service
- Rewards Customers to buy in advance
CONS
- Hard to implement in most industries.
- Can lead to Price Gouging in times of crisis.
- Punishes customers who wait until the last minute
Example
United Airlines’ dynamic pricing algorithm is set to markup the flight price 20% once the flight is half full and another 10% when it reaches 70% booked with an additional 1% increase for each remaining seat left. Plus, prices increase 1.5% per day each day starting 30 days from the flight date if the occupancy rate is equal to or greater than their yearly average. If the occupancy rate for those time periods is less than the opposite occurs, and prices are reduced by 1.5% per day until it goes the other way.
As you can see, dynamic pricing can get extremely complicated, but it is one of the best ways to maximize profits.
Industries for this Pricing Strategy
Dynamic pricing works best for industries where there are frequent changes in demand or supply such as travel and hospitality, retail, ecommerce, entertainment, healthcare, food delivery services, etc.
Companies that use Dynamic Pricing in their Business Model
Companies that use dynamic pricing are all airlines, Uber, Lyft, Airbnb, Hotels, and most other businesses where there are huge fluctuations with supply and demand.
Is Dynamic Pricing a Good Strategy for Cannabis Companies?
Yes! The cannabis industry is one sector that has embraced dynamic pricing on a much smaller scale than airlines or big tech companies. Simple dynamic pricing, if planned properly, will work well for hemp extract and biomass wholesalers and all CBD and THC ecommerce sites. Companies in this sector understand that they need a flexible approach when setting prices so they can remain competitive while still making a profit from fluctuating market conditions, which are huge in this industry.
Conclusion
Dynamic Pricing can be an effective tool for businesses looking to optimize their profits while staying competitive in volatile markets. It requires careful planning and implementation to ensure customers don’t feel taken advantage of due to constantly changing prices; however, when done right it can lead to increased profits and better customer engagement over time. If your business operates within a volatile industry such as travel/hospitality or ecommerce/retail, then implementing a dynamic pricing strategy could be beneficial for your bottom line. Implementation is the tricky part, especially in ecommerce businesses. If planned out correctly, it can have a huge impact on your profits. If it is done incorrectly, then it could just as easily cost you sales and customers alike.
Penetration Pricing
Capture Customers with Temporary Low Prices
The goal of this pricing strategy is that businesses can capture the largest market share possible in the shortest amount of time. It’s important to note that while this strategy can be effective, it also has its drawbacks. In this blog post, we’ll discuss the pros and cons of penetration pricing as well as which industries are best suited for this strategy and which companies use it.
What is Penetration Pricing?
Penetration pricing is a pricing strategy used by businesses to attract customers by initially offering their products at a low price. Thus, capturing customers or a market share. Then raising prices to normal levels. The goal is to build a customer base quickly, get them to try your products or use your services to the point they are committed to your brand. Then the company raises prices knowing that most of the customers are now loyal and will stay, even though prices have risen.
What are the advantages of using a Penetration Pricing Strategy?
One of the main advantages of penetration pricing is that it helps businesses gain market share quickly. By offering their products at a lower-than-average price point, businesses can entice more potential customers to try out their product or service. This can help them gain more loyal customers in a shorter amount of time than if they were using a more traditional pricing model. Additionally, some studies have shown that consumers often associate lower prices with higher quality because they perceive the company to be established enough to offer such deals. So, it's possible businesses may be able to benefit from an improved reputation for quality too.
What are the disadvantages of using a Penetration Pricing Strategy?
While penetration pricing can help businesses gain market share quickly, there are several drawbacks associated with this type of pricing strategy. One major downside is that it requires deep discounts to be effective, which means businesses need to make up for lost profits elsewhere or risk not making enough money on their products or services in the long run. Additionally, once customers become accustomed to the lower prices, they may be less likely to pay full price when the promotional period ends. Finally, if other competitors start offering similar discounts during the promotional period, then your business may have trouble standing out from the crowd.
PROS
- Gain Market share with a quick Customer Base
- Customers will be able to try your products
- If your customers like your products, you’ll Establish Customer Loyalty
CONS
- Less Initial Profits (maybe even huge losses)
- Customers get used to the low prices and you may lose them when prices rise.
- May cause huge industry fluctuations with competitors jumping on the bandwagon
Example
A new Streaming Service offers unlimited premium TV and Movies for $4.99/month. Then increases their monthly subscription to $15 per month once they’ve reached 1 million subscribers.
Industries for this Pricing Strategy
Penetration pricing is typically most effective when used by new companies entering an existing industry or launching into a new region/market. Examples include Subscription Services, Technology, Web Hosting, Domain Registrars, and all Streaming Services.
Companies that use Penetration Pricing in their Business Model
Some notable examples of businesses that have successfully implemented penetration pricing include Amazon (retail), Uber/Lyft (ride-hailing services), Netflix, Disney+ Hulu, Apple TV, and Prime Video (streaming services) and Dollar Shave Club (grooming products). These companies have all gained competitive advantages through their use of this technique, which has allowed them to capture significant market shares in their respective industries over time.
Is Penetration Pricing a Good Strategy for CBD Companies?
Yes! Especially if you sell effective products. Many CBD, Hemp, Delta 8 and other cannabis companies use penetration pricing strategies in order to attract more customers and gain greater market share in their local areas or regions. It's very simple. If you sell quality products then at whatever cost to you, get customers to try your products, even if you must give them away or have the customer just pay for shipping. By using these strategies new CBD companies can entice potential customers who may have been hesitant due purchasing cannabis products due cost concerns or unfamiliarity with brands/products available on dispensary shelves.
How to implement a Penetration Pricing Strategy?
As a good rule of thumb. Select a target audience and a fixed budget or number of products to sell at a huge discount. Make the pool large enough for at least a few hundred customers. Offer a huge discount or give the product away to this group only. Track the number of repeat customers from this group that repurchase a 2nd time within the following 30-60 days. Once you can gauge your repeat customer rate and your customer acquisition cost, you can easily scale this business model up nationwide or to larger pools of potential customers.
Conclusion
Penetration pricing is an effective strategy for businesses looking to enter new markets or industries with limited resources available for advertising/marketing purposes. By setting initial prices below those charged by competitors, businesses are able increase demand while building brand recognition among potential consumers.
However, there are some risks associated with this technique including lowered profits margin due to discounting prices too heavily too early in the business lifecycle. Additionally, its important bear mind that while certain industries lend themselves better than other towards utilizing this technique effectively such as ecommerce businesses, any company considering implementing this type of strategy should carefully weigh pros cons before doing so.
Freemium Pricing
Try for Free in Hopes Customers will Upgrade
Freemium pricing is a great way for businesses to increase their customer base and grow their profits by giving away a free version of a software or membership and offering upgrades for a price. In addition, some companies also offer free trials or limited memberships as part of their freemium offering. Let’s break down the pros and cons of this pricing strategy so you can decide if it’s right for your business.
What is Freemium Pricing?
This pricing strategy allows companies to offer a basic version of their product for free, with the hope that users will eventually pay to upgrade or access more features. Some great examples are iPhone apps with in-app purchases, SAAS Companies, and WordPress Plugins. These are extremely popular for products or services that customers need to use before they can appreciate the value they bring. At which time, they can upgrade to the paid premium version.
What are the advantages of using a Freemium Pricing Strategy?
The main benefit of using a freemium pricing strategy is that it allows businesses to bring in more customers without having to commit them to a full subscription immediately. By offering the basic version of their product for free, they can increase their customer base and get more people interested in their offerings. Additionally, since users are already familiar with the product, they are more likely to upgrade when given the chance.
This type of pricing also works well for businesses that rely on network effects and user-generated content. For example, social media platforms such as Facebook or Twitter require many active users to maximize their value proposition. By offering a freemium model, these companies can attract more users without having to charge them upfront.
What are the disadvantages of using a Freemium Pricing Strategy?
One downside of using a freemium pricing strategy is that not all customers will upgrade after using the basic version for free. This means that businesses need to make sure that their products have enough features and benefits to entice users into paying for an upgraded version. Additionally, if customers don’t feel like they are getting value out of the free version, they may never become paying customers at all.
Another potential issue is that businesses may not be able to generate enough revenue from this model due to the high cost associated with providing the basic version for free. As such, it is important for companies to carefully weigh the costs vs benefits before deciding if this type of pricing strategy is right for them.
PROS
- Quick Customer Base
- Customers Get to Try the product or service
- Customers become committed after using the free version that they pay for the premium version to avoid spending the time configuring another solution.
CONS
- Low initial revenue
- Free Product must have enough free option to gain popularity
- You will tarnish your brand reputation if the upgrades are not properly disclosed, making a poor customer experience.
Example
You offer a free membership to your new Cannabis Website Builder Software and Charge an upgraded price for using a Custom domain, SEO Functionality, and integrated Credit Card Processing.
Industries for this Pricing Strategy
Freemium pricing works best in industries where there is a large potential customer base and where customers are willing to pay for additional features or services once they become familiar with the product or service being offered. Examples include software-as-a-service (SaaS) providers, game developers, streaming services, and even retail stores with digital components such as mobile apps or websites. Companies such as Dropbox and Evernote have successfully used this model in order to grow their customer base while still generating revenue from paid upgrades or additional features offered by premium plans.
Companies that use Freemium Pricing in their Business Model
Some popular examples of companies that use freemium pricing strategies include Dropbox (which offers both free and paid plans), Evernote (which offers an ad-supported free tier), Spotify (which offers both paid and ad-supported music streaming plans), Amazon Prime (which offers both paid and ad-supported video streaming plans), Hulu (which offers both paid and ad-supported streaming plans), and many others.
Is Freemium Pricing a Good Strategy for Cannabis Companies?
Speaking to the cannabis industry, yes. But, not necessarily with products. Freemium works very well with an online service that someone needs to try before they can appreciate it and want to pay for the upgrades. Services that the Cannabis Industry does use is Web Hosting, Web Design platforms, social media, and any Cannabis-specific online service.
Conclusion
Freemium pricing strategies can be very effective tools when used correctly by businesses looking to increase customer acquisition while still generating revenue from premium options. The key is finding industries where there is ample opportunity for growth, where customers are willing to pay extra money once they become familiar with what you have to offer. Software-as-a-service providers, game developers, streaming services, mobile apps, and WordPress plugins all stand to benefit from implementing a freemium approach.
Value-Based Pricing
Perceived Value Pricing: What does the Customer think its worth?
When it comes to pricing products and services, there are a variety of strategies that businesses can use. One of the most popular methods is value-based pricing. Value-based pricing considers the customer’s perceived value of a product or service, rather than its cost or market rate. Let’s take a deeper look at this strategy, as well as some of its pros and cons and best industries for implementation.
What is Value-Based Pricing?
Value-based pricing is when you set your prices based on what the customer perceives as being valuable instead of what the product costs to make. The idea here is that people will pay more for a product or service if they perceive it as having high quality and value (whether it does or not) This type of pricing strategy considers factors such as brand equity, customer loyalty, competitive positioning, and more.
What are the advantages of using a Value-Based Pricing Strategy?
One of the most significant advantages of using a value-based pricing strategy is that it allows you to align your prices with customer expectations. This helps create a better customer experience and builds trust between you and your customers. Another advantage is that it enables you to set higher prices for superior products or services. This allows you to capture more market share as well as increase profit margins because customers are willing to pay extra when they perceive added value in what they are buying.
What are the disadvantages of using a Value-Based Pricing Strategy?
The biggest disadvantage of value-based pricing is that it requires an in-depth understanding of customer needs and preferences. Without this knowledge, it can be difficult to set prices that accurately reflect what customers perceive as valuable. Additionally, there’s always the risk that customers may not recognize or appreciate the added value of your product or service, resulting in lower-than-expected sales.
PROS
- Higher Sales Price
- Higher Demand
- Loyal Customers
CONS
- Must have an established brand with a premium, extremely unique, or customizable product
- If done too soon, customers may not see the benefit of higher prices and you may lose them.
Examples
- A company custom formulates Cannabinoids for every customer based on their profile which no one is doing so you charge a premium.
- A Company sells a product that has 1000’s of amazing reviews and it’s an established brand so you charge more for your products.
- You sell designer purses with diamond inlayed handles that A-list celebrities have been seen wearing so you charge a premium for your handbags.
Industries for this Pricing Strategy
Value-based pricing strategies are best suited for industries where there’s an emphasis on customization or personalization such as fashion, luxury goods, and services like consulting or coaching. In these industries, customers are willing to pay more if they feel they’re getting something unique that’s custom tailored specifically for them or they are buying something superior that comes with status or feeling of superiority and exclusivity.
Companies that use Value-Based Pricing in their Business Model
Some notable companies that use a value-based pricing strategy include Apple Inc., Tesla Motors Inc., Nordstrom Inc., Louis Vuitton S.A., Lululemon Athletica Inc., among others. All these brands have perfected the art of creating high quality products with features and benefits far beyond their competitors, which helps them command premium prices from their target markets.
Is Value-Based Pricing a Good Strategy for Cannabis Companies?
Yes! Cannabis companies have been increasingly adopting this strategy due to its effectiveness in helping differentiate their product offering from competitors while also allowing them to charge premium prices for higher quality products. To be effective using the Value-Based Pricing Model, you need to be established and have a superior product. A good example is Hemp Lively's Whole Plant Hemp Gummies which are far superior to most CBD Company's Full Spectrum CBD Gummies because they're infused with Whole Plant Hemp Extract and have hundreds of amazing reviews.
Conclusion
Value-based pricing strategies can be highly effective when used correctly in the right industry, with an established brand, and a unique and quality product. This allows businesses to increase profits while providing customers with something superior, unique, or customized specifically for them at a premium price point.
Price Skimming
Start with High Pricing & Skim the Over-Payers
Price skimming is a pricing strategy that involves charging a high price for a new product or service to maximize short-term profits. This strategy can be beneficial for businesses looking to make the most of their initial investment, but there are some risks involved as well. To help you decide if price skimming is right for your business, let’s look at some of the pros and cons, best industries for this pricing strategy, and companies that use it.
What is Price Skimming?
Price skimming is a pricing strategy used by companies to generate higher, short-term profits. This pricing strategy works by setting a high initial price for an item or service that can be lowered over time as demand decreases.
What are the advantages of using a Price Skimming Pricing Strategy?
The primary benefit of price skimming is an increase in short-term profits. By charging a higher price than competitors, businesses can gain an advantage over other companies in their industry and potentially increase their market share. Additionally, this type of pricing strategy allows businesses to recoup their initial investment faster than they would with other strategies, such as cost-plus pricing.
What are the disadvantages of using a Price Skimming Pricing Strategy?
Price skimming can be risky because it relies on consumers being willing to pay more for your product or service than they would from other providers. If there are too many competitors in the market offering similar products or services at lower prices, then customers may choose those options instead and your business could suffer losses as a result. Additionally, high prices tend to limit demand and can lead to fewer customers overall.
PROS
- Recoup Initial Investment Faster
- Provides Perceived Product Superiority
- Customers think they’ve gotten a deal during price decreases
CONS
- Potential to Price too high
- Market must not be Saturated
- Competitors can easily beat prices
- Lower Demand and Fewer Customers
Example
A new iPhone came out and is priced 20% above market value for the first month of sales.
Industries for this Pricing Strategy
Price skimming works best when there are few competitors in the market offering similar products or services at lower prices. Industries such as technology (e.g., smartphones), luxury goods (e.g., designer clothing), and entertainment (e.g., movies) are all ideal candidates for this pricing strategy because they have high levels of brand loyalty and customers who are willing to pay more for quality products or services.
Companies that use Price Skimming in their Business Model
Companies That Use This Pricing Strategy Apple Inc., Tesla Motors Inc., Sony, and Gucci Group Ltd., are all examples of companies that use price skimming as part of their overall marketing strategy. They all offer high-quality products or services that come at a premium price but also have a strong customer base that is willing to pay these higher prices due to the perceived value of their offerings compared to competitors.
Is Price Skimming a Good Strategy for Cannabis Companies?
The cannabis industry, specifically bulk hemp extract concentrate Wholesaler, uses Price Skimming more than any other industry I've seen. This is especially true when a new extraction method produces a new type of extract or cannabinoid. Since 2016, I've seen most new cannabinoid extracts start off at around $12,000 per liter. Within 3 months it's down to $6,000. 3 months later down to $3,000. Then $1,700, $1,000, and finally around year 2 $600-$800.
Conclusion
In conclusion, price skimming can be an effective way for businesses in certain industries, particularly those reliant on novelty or scarcity to generate higher short-term profits before competitors enter the market with similar offerings at lower prices. However, businesses should consider both potential benefits and risks before implementing this type of pricing strategy due to its potential alienating effect on certain customers who cannot afford the high initial cost associated with it. All things considered; price skimming remains one of many tools available for businesses looking to maximize their profits while staying competitive in today’s rapidly changing markets.
Keystone Pricing
Double the Cost to Get the Price
For many businesses, pricing can be one of the most difficult decisions to make. Companies must consider their costs, competitors’ prices, customer expectations, and other factors when setting prices for their products or services. One popular pricing strategy that businesses have been using for years is keystone pricing. In this blog post, we will look at what keystone pricing is, how it works, its pros and cons, and how it could be used in the CBD industry.
What is Keystone Pricing?
Keystone pricing is a strategy in which an item is marked up by double its original cost price. This type of pricing doubles the gross margin of the product or service being sold. It is typically used by wholesalers and retailers who purchase goods from manufacturers at a discounted rate. The goal of this type of pricing strategy is to maximize profits while still providing competitive prices.
What are the advantages of using a Keystone Pricing Strategy?
The main advantage of keystone pricing is that it allows businesses to implement a very simple and profitable pricing strategy.
What are the disadvantages of using a Keystone Pricing Strategy?
On the downside, if competitors offer lower prices than those priced using keystone pricing then customers may go elsewhere for better deals. If you aren't buying your products for resale cheap enough, you may overprice your products and be cut out by the competition. The other disadvantage it some products allow for a much higher markup, and you will most surely miss out on potential profits.
PROS
- Simple Pricing Strategy
- Widely Used
- Easy to Implement
- Consistent Pricing Structure
- Profitable Margins
CONS
- Does not take into consideration your Competitor’s Prices
- If you overpay for inventory, your final price will be too high
- Miss out on Potential Profits on products that allow higher margins
Example
Industries for this Pricing Strategy
Keystone pricing is most used in industries such as automotive parts and accessories; clothing; jewelry; home improvement supplies; furniture; electronics; sporting goods; toys; books and music; cosmetics/beauty supplies; health/fitness products; food/beverage items; pet supplies; office supplies/equipment; and garden supplies/accessories.
Companies that use Keystone Pricing in their Business Model
Some major companies that use keystone pricing include Walmart, Home Depot, Best Buy, Nordstrom Rack, Target, Lowe’s Home Improvement Center, Costco Wholesale Club Store, Kmart Corporation Stores Groupon Goods Marketplace LLC., Macy’s Department Stores Inc., Amazon Marketplace LLC., Kroger Grocery Stores Inc., PetSmart Pet Products Inc., Apple Inc., Sam’s Club Warehouse Store Chain Walgreens Pharmacy Stores Group Inc., JCPenney Department Stores Co., TJ Maxx Retail Stores LLC., Toys R Us Retailer LLC., Zappos Online Shoe Retailer LLC., Gap Clothing Retailers LLC., Bed Bath & Beyond Retailer LLC., Sears Department Store Chain LLC . These companies all use keystone pricing as part of their overall pricing strategy.
Is Keystone Pricing a Good Strategy for CBD Companies?
Yes! Keystone Pricing can be a great tool for CBD companies looking to maximize profits while staying competitive in the marketplace! By doubling their cost price, they can offer lower prices than competitors while still making a profit on each sale! However, it's important to research competitor's prices before implementing this strategy as you don't want your prices too far out of line with what other CBD companies are offering!
Conclusion
Keystone Pricing can be an effective strategy for businesses looking to maximize profits while staying competitive with other companies in their industry or market space. While there are some drawbacks such as potential customer pushback due to perception that products will be overpriced, overall, it’s a great way for companies looking to increase profits without having to raise costs significantly for customers or vendors alike! In addition, this type of strategy works very well in highly competitive markets like CBD where multiple companies are vying for consumer attention so leveraging Keystone Pricing can help your business stand out from the crowd!
Psychological Pricing
99 Cents on Sale from a Dollar is a much Bigger Savings than 1 Penny
Psychological pricing, also known as charm pricing and odd-even pricing, is a marketing strategy used by businesses to increase sales. This type of pricing uses certain psychological triggers to make customers think they’re getting a good deal, even though the price may be higher than they would otherwise pay. In this blog post, we will explore the details of psychological pricing, discuss its pros and cons, look at some industries that use this pricing strategy, and answer the question: Is this a good pricing strategy for CBD companies?
What is Psychological Pricing?
Psychological pricing is the practice of setting prices based on customer perceptions rather than actual costs or market values. It considers factors like customer emotions, expectations, and psychology to make pricing decisions that will optimize sales and profits. This type of pricing strategy can also help businesses stay competitive in their markets by offering lower prices than their competitors.
How does Psychological Pricing work?
Psychological pricing works by manipulating the customer’s perception of value. It does so by using specific numbers or prices that evoke an emotional response from the customer. For example, prices ending in .99 are often used because customers perceive them as being “cheaper” than prices ending in .00. Additionally, many businesses use bundles or packages that offer multiple items for one low price. They do this because customers perceive the overall value of the bundle as being greater than if they were to buy each item separately.
What are the advantages of using a Psychological Pricing Strategy?
One of the biggest benefits of psychological pricing is that it can help increase sales. By offering lower (but perceived) prices on certain items or bundles, businesses can entice more customers to buy their products or services.
What are the disadvantages of using a Psychological Pricing Strategy?
The downside is that while these prices may appear cheaper, they are often higher than what customers would be willing to pay if presented with an accurate price tag. Additionally, using psychological strategies can create distrust between businesses and their customers if it is not done in an ethical manner.
PROS
- Prices Appear Cheaper
- Harder for the Customer to add in their head how much they are spending
- Beat out the competitive product that’s a penny or a dollar more.
CONS
- Creates distrust with Customers
- Harder to implement a uniform markup for ecommerce when it must be rounded up or down to the nearest .99
Example
Instead of pricing a TV for $500, you price it at $499 which seems much less than $500.
Industries for this Pricing Strategy
Psychological pricing strategies are used across many different industries including retail stores, online shops, grocery stores, restaurants and more. One example of a company that uses psychological pricing is Walmart who prices everything at $x.99.
Companies that use Psychological Pricing in their Business Model
Nearly every company in the world uses Psychological Pricing. Walmart and other retail chains all use it. If you’ve seen a product for sale that ends in .99 instead of rounded off to the nearest dollar, then they use Psychological Pricing.
Is Psychological Pricing a Good Strategy for CBD Companies?
The short answer is yes! While there are certain ethical considerations to keep in mind when implementing any type of marketing strategy—including psychological pricing—CBD companies can benefit significantly from using this approach to increase sales and build customer loyalty. With thoughtful research into customer psychology and careful implementation of discounts and bundles, CBD companies can use psychological pricing strategies effectively to boost their profits without sacrificing trust with their target audience.
Conclusion
Psychological pricing strategies offer a powerful way for businesses, including those selling CBD products, to gain an edge over competitors by appealing directly to customer psychology when setting prices for goods and services they offer. With careful planning and implementation of these strategies along with dynamic personalization techniques where appropriate, businesses can maximize their profits while still providing great value for products or services that meet customer needs every time!
Volume Pricing
Buy in Bulk and Save
Have you ever heard of volume pricing? It is a pricing strategy that many businesses use to increase their sales. This strategy can be beneficial for both customers and the companies who offer it. Let’s take a closer look at what volume pricing is, its pros and cons, the best industries for this pricing strategy, and some companies that use this approach.
What is Volume Pricing?
Volume pricing is a business model where companies offer discounts to customers when they purchase large quantities of products or services at once. This type of pricing structure encourages customers to buy in bulk and rewards them with lower prices than they would get if they purchased smaller amounts of items individually. Volume discounts are typically offered in tiers, with larger orders receiving larger discounts. For instance, you might offer a 5% discount for orders over $500, a 10% discount for orders over $1,000, and a 15% discount for orders over $2,500.
What are the advantages of using a Volume Pricing Strategy?
One of the biggest advantages of volume pricing is that it allows businesses to increase their sales by encouraging customers to purchase more than they normally would. This also helps businesses save on costs as they do not need to spend as much on marketing or advertising when offering volume discounts. Additionally, since customers are receiving discounts for purchasing in bulk, they are likely to become repeat customers, which further increases sales and profits.
What are the disadvantages of using a Volume Pricing Strategy?
The downside of volume pricing is that it can be difficult for businesses to manage as there are often complex rules associated with this type of pricing structure. Additionally, it can be difficult for businesses to maintain profitability when offering large discounts as the price per item decreases with each additional item purchased. Finally, this type of pricing structure can create confusion among customers who may not understand why some products are priced differently depending on the quantity purchased.
PROS
- Increase sales volume
- Save money on advertising
- Bulk Discounted purchases equal repeat customers.
- Big Discounts turn ordinary customers into small resellers
CONS
- Can be complicated for the customer if not setup and disclosed correctly
- Less money per product
- Discount Tiers can be complicated to implement on a website
- Customers buy less frequently when they buy in bulk
Example
Save 5% when you buy 3
Save 10% when you buy 5
Save 15% when you buy 7
Save 20% when you buy 10
Industries for this Pricing Strategy
Volume pricing works best in industries where there are high volumes of sales such as retail stores or ecommerce sites selling consumer products like apparel or electronics.
It’s also commonly used by wholesalers who sell goods directly to retailers in bulk quantities at discounted prices so they can pass those savings along to their own customers.
Hemp Lively uses this strategy for both our Wholesale Discount Tiers and our Bulk Gummy Pricing Tiers.
Companies that use Volume Pricing in their Business Model
Popular companies that use volume pricing include Alibaba, Costco Wholesale Corporation, Walmart, the most successful ecommerce retailers like Vape Juice Depot.
Is Volume Pricing a Good Strategy for CBD Companies?
Absolutely. Whether you sell Wholesale or Retail, and especially if you sell CBD or other hemp products online, you must offer incentives for bulk purchases. It builds customer loyalty, offers something that other companies don't, and makes for an amazing customer experience with great reviews.
Conclusion
volume pricing is a great way for businesses to increase their sales while providing customers with an incentive to purchase more than they normally would in one transaction. While there are some potential downsides such as managing complex rules and maintaining profitability when offering large discounts, these issues can be managed with careful planning and strategic thinking. If your business operates within an industry where products are sold in bulk or have long shelf lives, then implementing a volume-based discount system could prove beneficial for your bottom line!
Bundle Pricing
Buy Multiple Products at a Perceived Discount
Bundle pricing is an effective strategy used by many companies and industries to increase sales. It involves packaging multiple products or services together and offering them at a discounted price as compared to buying each item individually. Let’s look at what bundle pricing is, the pros and cons of using this strategy, which industries use it, and examples of companies that have implemented it successfully.
What is Bundle Pricing?
Bundle pricing is when a company groups together multiple items or services into one package and in most cases, offers it at a discounted price. Bundle pricing can be effective if the discount is large enough that it entices customers that don't necessarily want all the items in the bundle, but given the discount is so big, the item they may not want is covered in part or fully by the discount. This type of pricing strategy is common in many industries including retail, technology, hospitality, food service, travel and more. Companies like Microsoft Office, Apple Music, Uber Eats and hotels offer bundle packages as part of their marketing strategies.
What are the advantages of using a Bundle Pricing Strategy?
The benefit of using bundle pricing strategies is that customers can get more value for their money by buying two or more items together instead of purchasing them separately.
Additionally, businesses can use bundle pricing to drive more sales by creating attractive offers that customers can’t resist.
For Sellers, bundling items together for a single price prevents customers from price shopping each item. It also differentiates their bundle as most bundles are unique items giving sellers the power, in some cases, to charge more for the bundle knowing the customers can't compare the individual prices easily.
What are the disadvantages of using a Bundle Pricing Strategy?
On the downside, bundle pricing may not be suitable for all businesses since there are some risks involved in offering discounts on multiple items at once. Offering multiple items at once limits the potential customer base to those searching for all the items. It also hides any convenient way to compare prices for customers.
PROS
- Sell more products
- Get rid of inventory
- Stops price shopping
CONS
- Customers must want all items in the bundle unless significantly discounted
- Reduces the number of available buyers
- Depending on the industry, making it difficult to compare prices may also be a con as well as a pro.
Example
Microsoft Office Suite provides users with access to all its apps (Word, Excel etc.) for just $9.99 per month instead of having to purchase each app individually which would be much more expensive in the long run.
Industries for this Pricing Strategy
Bundle pricing strategies are popular in many different industries including retail stores, hospitality providers such as hotels and restaurants, technology companies such as Apple Music and Microsoft Office Suite, subscription services like Amazon Prime and streaming services like Netflix. Each industry uses bundled packages differently depending on their customer base but typically offer discounts for purchasing multiple items together rather than separately.
Another very common use of Bundle Pricing is on eBay where sellers, to differentiate their products, bundle 3-4 different products together for a single price. This stops customers from being able to price shops and offers them convenience of getting everything they are shopping for in one purchase. Beware though, some of these bundles are not deals and purposely priced higher knowing you can’t compare prices easily.
Companies that use Bundle Pricing in their Business Model
Some companies have successfully implemented bundle pricing strategies to increase sales and customer satisfaction levels. For example, Apple Music offers monthly subscriptions where customers can get unlimited access to millions of songs for just $9.99 per month with no additional cost for extra features or add-ons unlike other music streaming services. Finally, Amazon Prime offers an annual subscription which gives users access to free delivery on orders along with exclusive deals on products from its own store as well as other third-party retailers – something which would not be possible without purchasing a bundled package from Amazon Prime itself.
Is Bundle Pricing a Good Strategy for Cannabis Companies?
Bundle pricing can be an effective way for CBD companies to attract new customers while also increasing their sales volume and profits margins without having to sacrifice too much revenue per item sold individually. For example, CBD companies can offer packages of different products such as tinctures, edibles, topicals, capsules etc., all at discounted rates compared to what you would pay if you bought each product separately - thereby giving customers more value for their money while still enabling these companies to generate substantial profits from these bundled packages.
Conclusion
Bundle pricing strategy has been around for decades, but it has become increasingly popular over recent years due to its effectiveness in helping businesses generate higher sales volumes while still maintaining healthy profit margins from individual purchases made within those bundles. While there are some drawbacks associated with this type of pricing structure such as encouraging customers to purchase items they don’t necessarily need. Bundles can be extremely beneficial when used properly by companies looking to attract new customers while still generating substantial profits from those purchases made within the bundles themselves. Therefore, it can be a viable option for CBD companies looking to maximize their profits without sacrificing too much revenue per item sold individually!
Loss-Leader Pricing
Lose Money on One to Make More on Many
Do you need to get some people in the door and are looking for a great way to entice new customers to buy. Are you looking to increase the average transaction value of your business? There’s no better way to do it than utilizing a Loss-Leader Pricing Strategy in your store. Who doesn’t like to buy stuff for pennies on the dollar, or heck… maybe even Free. Read on to learn more about the Loss-Leader Pricing Strategy.
What is Loss-Leader Pricing?
Loss-leader pricing is when a business offers one or more products at prices lower than what the competitors are offering to draw in more customers. This can be used by businesses of all sizes, from small mom & pop shops all the way up to large retail chains. It’s an effective way of increasing foot traffic and gaining exposure for your brand, as well as increasing the average transaction value by getting customers to buy additional (higher priced) items while they’re already shopping.
What is a Loss-Leader?
A loss-leader is a free or highly discounted product offered at huge savings, sometimes even less than it costs to buy, or manufacture. Loss-leaders are there to get people in the door knowing ahead of time that this inexpensive product that you may even lose money on will result in the average customer buying not only the loss leader, but several products making the overall transaction profitable.
What are the advantages of using a Loss-Leader Pricing Strategy?
Loss-leader pricing can help businesses drive up sales volumes by incentivizing more people to shop. This, in turn, leads to more transactions and therefore more money for the business overall. Additionally, it can help businesses increase their customer base by introducing new people to their brand or store who may not have otherwise visited.
What are the disadvantages of using a Loss-Leader Pricing Strategy?
There are some potential drawbacks when it comes to loss-leader pricing. One risk is that the discount prices could lead customers to develop expectations that all your products will be similarly discounted, leading them away from buying full price items down the line. Additionally, if you’re offering too deep a discount you won’t be making any profit on those items, leading you into potentially dangerous territory when it comes to your bottom line.
PROS
- More Customers
- Increased Transaction Amount
- New Customer Acquisition
CONS
- Potentially can lose money if everyone only buys the loss-leader (rarely happens)
- Customers may develop expectations for these discounts (serious problem)
Example
You advertise a Blue Dream Delta 8 Vape Cartridge for sale for only $14.99. You know your average sale is about $100. You get 10 new customers who come buy this Blue Dream THC Cart but each customer also gets several other regular prices Delta 8 Vape Cart Strains for $39.99 ea.
Black Friday Deals
Another great example is the infamous Black Friday Deals where you see the half a mile line outside Best Buy to get the 60-inch TV they have for sale for only $100. That’s a Loss-Leader, or low-price leader.
Industries for this Pricing Strategy
Loss leader pricing works best in industries that have high volume sales such as retail stores and restaurants where they can make up for losses on discounts with gains from other products or services. It also works well in industries where there is competition since it allows businesses to differentiate themselves from their competitors and capture more market share. Finally, it can work well in industries where customers are looking for deals such as travel or electronics.
Companies that use Loss-Leader Pricing in their Business Model
Many companies use loss leader pricing strategies including Amazon, Walmart, Target, Costco, Best Buy and many others. These companies all use discounts strategically on certain items to drive up sales overall and attract more customers into their stores or onto their websites. Is this pricing strategy used in the cannabis industry? Yes! Cannabis retailers often use loss leader pricing strategies just like other retailers do, offering discounts on certain products or services to draw customers into their stores or onto their websites so that they can purchase higher priced items as well.
Is Loss-Leader Pricing a Good Strategy for Cannabis Companies?
Yes! Every business should have a Loss-Leader. Especially in the highly competitive hemp and CBD industries. It allows a person that normally wouldn't buy the product to try it. And once they try the product and see how much it helped or how much they loved it, they'll be sure to come back.
Conclusion
Loss leader pricing is a great way for businesses to increase average transaction value and boost sales volume overall by enticing customers with discounted prices on select items while still making a profit through higher priced items purchased at full price. While there are some potential risks associated with using this strategy such as creating customer expectations around discounted prices, these risks can be managed by carefully selecting which products are offered at discounted rates and monitoring profits closely after implementing the strategy. All types of industries including cannabis retailers can use this strategy successfully if done right!
Manufacturer Suggested Retail Price (MSRP)
Resell at Set Prices given by the Manufacturer
Manufacturer suggested retail price, commonly referred to as MSRP, is a pricing strategy used by manufacturers to set the suggested retail price for their products. This type of pricing strategy has both pros and cons and works best in certain industries. Let’s take a closer look at MSRP and the industries where this pricing strategy is most effective.
What is Manufacturer Suggested Retail Pricing?
Manufacturer Suggested Retail Pricing is a strategy used by Manufacturers to ensure retailers will display a uniform value of the product for sale. However, as we all know from buying a new car, this is simply a starting point from which discounts and negotiations can occur. MSRPs give consumers a perceived value of the product, which is increased during large sales. MSRPs are not set in stone by themselves. However, they can be if the manufacturer executes a MAP (Manufacturer Agreed Price) Agreement stating that the reseller can only sell at the MSRP.
What are the advantages of using a Manufacturer Suggested Retail Pricing Strategy?
One of the biggest advantages of using an MSRP pricing strategy is that it allows manufacturers to control pricing across different retailers. This helps keep prices consistent for consumers no matter where they purchase a product from. Additionally, this type of pricing strategy can help increase sales since retailers are likely to mark down items below the manufacturer-suggested price to entice buyers. This encourages competition between retailers which can ultimately benefit consumers who are looking for the best deal possible. Finally, MSRP is also beneficial because it provides a reference point for customers when comparing products from different brands or manufacturers.
MSRP is beneficial to both manufacturers and consumers alike. For manufacturers, it helps protect their prices from being undercut by competitors or retailers who are trying to make a larger profit margin than what was negotiated with the manufacturer. It also provides more control over pricing so that manufacturers can ensure their products are not being undervalued or sold too cheaply.
For consumers, it allows them to easily compare prices between different stores selling the same item since they will likely all be within a certain range of one another due to the MSRP rule in place. Additionally, it ensures that customers are not paying too much when shopping around since they know they will not pay more than what was specified as the MSRP by the manufacturer themselves.
What are the disadvantages of using a Manufacturer Suggested Retail Pricing Strategy?
There are some drawbacks associated with an MSRP pricing strategy as well. For starters, manufacturers generally have limited control over how much their products are sold for once they leave their hands and enter the retail market. This means that retailers can mark up prices above what was initially suggested by the manufacturer without any repercussions, leaving consumers feeling like they’ve been taken advantage of or overcharged for a product or service. Additionally, if a retailer decides to heavily discount an item below its suggested price point, then it can devalue the product in consumers’ minds by making them think that it isn’t worth what they initially thought since everyone else is selling it so cheaply.
PROS
- Control Pricing between retailers
- Maintains brand value across stores
- Encourages competition between retailers
CONS
- Retailers can still discount these products
- Limited control of the actual sale price
- Hard to Monitor retailers
Example
The car manufacturer sets the Suggested Retail Price of the vehicle to each car dealership.
New Car MSRP $30,000
Industries for this Pricing Strategy
The most notable industry that uses MSRP pricing is the automotive industry where on every car at the new car dealership, you’ll see the MSRP sticker. MSRP works best in industries where there is an established customer base and products are unique enough that brand loyalty plays an important role in purchasing decisions—think electronics, apparel and home goods stores, or automotive dealerships for example. It also works well in industries with high customer demand but low supply such as luxury goods or services like spas or salons where customer loyalty needs to be maintained at all costs to stay competitive and profitable.
Companies that use MSRP Pricing in their Business Model
Some notable companies that use MSRP include Apple Inc., Samsung Electronics Co., Volkswagen Group of America Inc., Mercedes-Benz USA LLC., LEGO Systems Inc., Amazon Inc., Nordstrom Inc., Microsoft Corporation, and many more. Is This Pricing Strategy Used in The Cannabis Industry? While this type of pricing strategy has been gaining traction within the cannabis industry recently due to increased regulation around cannabis sales, it isn’t widely used yet throughout all states due to varying laws regarding marijuana use and sale across different jurisdictions. However, given current trends taking place within the cannabis industry such as legalization efforts on both state and federal levels combined with increasing consumer demand for products made from hemp/CBD oil extracts – we expect more companies will start utilizing this type of pricing model over time as regulation continues to evolve along with consumer demand.
Can companies charge more than the MSRP?
They sure can and is extremely common in the automotive industry at car dealerships. It's become so prevalent that Car Dealerships now make it part of their ads like "No MSRP Markups".
Is Manufacturer Suggested Retail Pricing used by Cannabis Companies?
Some CBD brands do use MSRP pricing and MAP agreements, especially in areas where multiple smoke shops and other retail resellers are located.
Conclusion
Manufacturer suggested retail price (MSRP) is a common pricing strategy used by manufacturers to set the suggested retail price for their products while maintaining control over how much those products are sold for once they enter the marketplace. There are pros and cons associated with using this type of pricing model but overall, it works best in industries where there is an established customer base combined with high customer demand but low supply such as electronics stores or luxury goods.
5 Things to Consider before Implementing your Pricing Strategy
Just in case you didn’t thoroughly research and do a complete feasibility study prior to choosing your pricing strategy. Or, if you have an existing pricing strategy in place and are adding new products. You should always double check these 5 things.
Am I utilizing all possible pricing strategies?
If you are only using one pricing strategy you are making a huge mistake. Combining pricing strategies is imperative to maximizing profits in most industries.
Will I lose Customers if I Change my Pricing Structure in the Future?
There are some pricing strategies that will cause you to lose customers if you change them in the future, especially those that start out with huge discounts. When you start a brand or company and, in the beginning, offer 30% -35% discounts. Then, two months later, you change your weekly newsletter coupons to 10%-15% off. You will lose customers because you've gotten them used to bigger discounts. As a good rule of thumb, save big discounts for big events and holidays. That is, unless you are using Penetration and loss-leader pricing, which still will have some customer fall-off. But the pros far outweigh the cons.
Is my Pricing Structure Scalable?
Some pricing structures work when it’s just you work from home shipping out products. But your big discounts and low expenses may change as you grow. You may need a fulfillment center, warehouse, office space, sales manager, admin staff, and other workers. It's important to think about these things before you implement your pricing plan. Factor a future number for these items in your budget so you don't run into problems down the road when you grow.
Are my Cost of Goods Accurate?
Double check you've included all the costs you have in your COGS. Don't forget things like shipping costs to you and to the customer if you offer free shipping. Also factor in boxes for larger orders, lab testing if you sell CBD products, and figure in about a 10%-15% overhead cost just to leave room for the unexpected, especially if you are just starting out.
Can I easily Implement my Pricing Discounts into my website?
There are plenty of WordPress plugins out there if you sell using WooCommerce that can handle all sorts of dynamic pricing so implementing most pricing strategies is feasible. However, if you sell products online, you may want to seriously think about what happens when I have 100 products and need to update the COGS, Retail Price, Wholesale Price, or other figures. Do you have a pricing strategy that will easily be managed using your online platform. Spend some time or get with your web developer to make sure your pricing structure is possible and easily managed before you finalize it.
How do I Implement a New Pricing Strategy?
Implementing your new pricing strategy can be a significant amount of work. My advice: Do it now, not later (when you're busy). Here's a quick checklist of things you'll need to do or update with a new pricing strategy.
Pricing Strategy Implementation Checklist
Before implementing a new pricing strategy, it’s imperative that you do the following tasks. This will save you an immense amount of time and money if you do them now, instead of later once you’re busy.
- Download the COGS and Pricing Calculator Spreadsheets below. Customize them to your business. Use these tools to help choose the best pricing strategy for your business.
- If you have questions or would like to speak to a Consultant about reselling Hemp Lively products and buying Hemp Lively wholesale, starting your own CBD or THC Brand using our Turnkey Private Label Services, or you’re a manufacturer and are interested in Buying Bulk Hemp Gummies, call us at (850) 299-9624, Sign up for a Wholesale Account, or Sign up for a Private Label & Bulk Gummies Account (and we’ll call you).
- Choose a combination of Pricing Strategies to use and when to use them.
- Make Product Pricing Sheets for both Retail and Wholesale Customers as well as one for you with the COGS showing. Use excel or google sheets for this so you can save time by inputting your discount pricing formulas and adding a column for profit margins.
- Add all Product pricing, COGS, and dynamic pricing formulas to your website.
- Make a Coupon Calendar for the entire year. Plan out your sales and discounts now (you can always change them later)
- Add your Coupons to your Website
- Update your product list with SKU/UPC codes, prices, and COGS to your accounting software.
DOWNLOADS
Free Downloads to Help with your Business.
COGS Calculator (.xlsx)
Pricing Strategies Calculators (.xlsx)
Hemp Lively Private Label Product Pricing Sheet (.xlsx)
Conclusion
Choosing a pricing strategy is an important decision that requires careful research and consideration before implementation. Businesses should take time to identify their target market, understand their competition’s prices, measure their margins and profits against different strategies, and gain an understanding of which type of strategy works best for their situation before making any decisions about prices or discounts offered by their company. Doing this research now can save time and money down the road by ensuring that you select the right strategy for maximum success!
What should I do next?
Make sure if you are starting a new cannabis brand or business that you've read all the following Business Blog Articles. They were written specifically for the Cannabis industry by David McGinnis, one of the owners of Hemp Lively. David has decided to share step-by-step guides for his entire branding and business development process.
