pricing models

Posted on April 11, 2018 in Marketing Thoughts

Five Pricing Models Businesses Often Use

Whether you are a farmer considering how much to sell a box of tomatoes at the market or a software executive creating a new app, you will spend time on the difficult decision determining what and how you will charge for your product or service. You obviously often want to make a profit, but not so much that you are pricing yourself out of customer reach. In an earlier blog, we have discussed differentiating your business on value, not price however the price of something can’t be completely disregarded for most companies because it still does matter.

In order to keep the customers engaged there are different types of pricing models used by various businesses  The companies have to assure that they select the payment method that would be comfortable for their customers and will allow them to generate enough profit that can be used for further development of the business. Here are five of the most popular ones.

Fixed price

It is the most commonly used method in the business industry and organizations have different payment plans for their products that makes it easy for the customers to buy the products that they want. Some of the benefits of paid payment method are.

  1. Fixed price model helps the business to stabilize and helps them generate enough profit that can be used for development of the business
  2. It is stable and predictable and within the few sales the company will be able to make up for the cost it has spent for the production.
  3. Fixed price methods give the impression that the company is trustworthy.

The only drawback of the fixed price method is that most of the customers will go for the services that are cheaper, free or those that provide them the chance to negotiate the services.

Free

It is a payment method in which the services are given for free. It is commonly used in the application development business where most of the apps are available free online. The biggest benefit of this technique is that it will help to attract more customers. There is nothing that can stop the customers from buying the products that you have because they are free. However, you might have to deal with consumer skepticism.  Also, your rivals might have the same services and so your customers will get different options and features with no real perceived benefit increase.  This model works best when you have something truly unique. Often this model is used when acquisition is the goal.

Freemium

It is the payment method that works just like the free system the only difference is that the business will only offer a few services free. It is like the trial offer that you give. The benefit of freemium is that it will help you grab the attention of more customer. You will get a chance to attract the customers to buy the paid versions. It will help in building a relationship of trust with the customers. However, the only drawback of the freemium is that customers might use the free version and never come back to invest in the paid ones. The free services available are limited and will not give customers the exact idea that how the system works.

Add-ons

There are many business companies that use the strategy of add-on in which they give the customer what they expect, however then show how buying an additional product or service will help the customers enhance their experience. A popular example is if a customer wants to buy a phone. A phone company ay also offer a charger, case, etc.

Levels (Ex. Silver, Gold, Diamond)

Many companies choose offering varying levels of service or products, with varying levels of cost and features.  The idea behind this is that the customer gets to determine what is most appropriate for them.

It is important for every business organization to wisely select their payment method. They have to pay attention to what their customers want so that they can select the technique that would be beneficial for the company and will allow them to generate more profit. At BirdSeed, we offer a free for life model. We want our customers to experience the difference in what our software can do. Leads, customers conversion increasing and better positive sentiment are just a few ways we confirm this model works well for us.

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