Essential Pricing Methods & Strategies for SMEs in Nigeria

Essential Pricing Methods & Strategies for SMEs in Nigeria

These are 10 essential pricing strategies you need to know as a small business owner. Essential Pricing Methods & Strategies for SMEs in Nigeria is a benchmark for SMEs performance in Nigeria. It’s an element of strategic management in small and medium enterprises in Nigeria. Therefore, if you are about to start a new business, this is for you. This is because you’ll have to put a lot of thought into how you re going to price your products and/or services. In fact, it takes more than calculating your cost of sales. It’s an approach that requires research in understanding consumers and the market.

Essential Pricing Methods & Strategies for SMEs in Nigeria

Essential Pricing Methods & Strategies for SMEs in Nigeria – The Effective Pricing:

As a matter of fact, for you to fix an effective price, you have to consider certain basic factors. These include:

  • The production/procurement cost.
  • Distribution costs
  • The consumers price for your product/service
  • Attitude of competitors
  • Market conditions – economic conditions
  • Your mark-ups – profit margin

With these, there re different pricing strategies available to you. These will impact on your business status. That is, if you are a start-up, growing or expansionary. Any of the factors listed above will make different meaning to you. Therefore, the pricing strategies we have here are going to be leveraged on these factors at different stages and environments.

Essential Pricing Methods & Strategies for SMEs in Nigeria – Pricing Strategy:

So, if you must get your wares off your stalls, you need a pricing strategy. Pricing strategy is simply an approach or method by which you can fix a competitive price for your goods and services. A right pricing strategy will help you attract and retain customers, build your clientele and large turnover, and thereby maximize your profit. There are 10 as such strategies here for you choose. Sometimes, you need a combination of them to achieve a gaol.

As a matter of fact, these Pricing Strategy may apply.

  • Market penetration Pricing
  • Psychological pricing
  • Premium pricing
  • Economy pricing
  • Price skimming
  • Bundle/product line pricing
  • Value-based pricing
  • Promotional pricing
  • Geographical pricing
  • Captive pricing

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Fair Description of the Concepts:

Pricing for market penetration

A new business will always have a big challenge of convincing consumers to patronize. This is because, they are some other businesses customers. They’ve been buying from for sometimes now. If you encounter this, market penetration pricing will help you create brand awareness and gain some market share. This involves setting a lower price than your competitors. You may also be providing some free services until you earn a considerable customer base. These may include a giveaway offer and free delivery as a way of introducing yourself to the market.

In fact, adopting this pricing strategy may mean you have to endure some initial income loss.  But, then, it will help draw attention to your product, set up a customer base, and gain some consumer loyalty. Applying this simple small profit quick returns may even boost your profit over time due to increase in sales.

Psychological pricing

This type of pricing attacks buyers emotions. Yes, it’s more emotional than logical. A price setting at N199 instead of N200 will create an illusion of a cheaper price, although the difference is just only N1. This often works. Do you know that buyers notice the first number on a price tag more than the last.

This pricing approach makes consumers feel they’ve saved money or received greater value. You can also achieve this by keeping your price stable or reduced when competitors are increasing prices. This will tell good story about your human feelings.

Premium pricing

In addition, when you have a unique product/service in which case no competitors, this pricing techniques comes to play. In this connection, you set a high price which tends to create an impression of high value in the minds of consumers. However, high quality, fresh experience, packaging, and marketing strategy should all combine to support the premium price.

This is a type often used for luxury cars, 5-star hotels, precious stones and jewellery. Others are for fancy restaurants and pleasure cruises, etc. For these, the higher the price set the higher the perceived value amongst consumers.

Value-based pricing:

This has to do with the ay people see your goods or services.

Setting your prices in recognition of this is known as value-based pricing. The perceived value, therefore, to a consumer depends on how he/she sees the product or service meets his/her wants and needs.

Promotional pricing

In fact, this is a very popular pricing technique. Notwithstanding, it remains successful till date. This is where you need to promote a new or existing product/service by offering some discounts. It has always been very effective in driving sales.

If you have a time deadline or limited stock, it works. It’s to motivate buyers to act fast by playing on their fear of missing out. In addition, this creates excitement for your product/service. In fact, you may even gain some customer loyalty.

Essential Pricing Methods & Strategies for SMEs in Nigeria

Geographical pricing:

As a matter of fact, this is a locationally based pricing. For this, you can change the price of your product when you expand your business to a new state or country. As you know, location affects prices due to factors like shipping costs, nature of market, availability of raw materials, tax incentives, currency exchange rate, and so on.

Supply and demand factors also plays great role in geographical pricing. When you move to a location where your product is scarce, certainly your prices will go up.

Captive pricing

Furthermore, this pricing strategy is applicable where you sell products that customers have to update or renew regularly.

If that happens, the buyer has no other option than to keep purchasing the item. Thus, manufacturer take hostage of the customers (captive). This will only stop when the consumer stops using the item.

You can keep on increasing the price of the product as long as it does not get to the point where the customer is forced to replace the item with an alternative item.

Economy pricing:

On this aspect, your production and marketing costs are kept as low as possible.  The intention is to arrive at a comparatively lower price and yet one that will enable you make some profit. This method is good to attract price-conscious consumers.

However, this pricing strategy can be used by large businesses. It’s in fact not advisable for start-ups and small businesses.  As you can see this pricing strategy relies more on volume – for turnover or production. It’s an aspect of scale economies.  In another way, economy pricing often involves forgoing branding. But, a start-up or small business, cannot forgo branding. Start-ups need branding to create awareness and differentiation for products.

Price skimming

For this aspect of pricing, a new product enters market with high price facing no competitors, but the price is such that it’s adjustable to a lower level when competitors begin to enter the market. If you ar lucky, your product can stay on this ground for a long time before competition begins. This is what we see when new models of smart phones, TVs, cars, and so on are introduced in the market.

As you can see, it’s like a pioneer strategy that tends to cover cost of production from the onset of the product launch. So, it provides the benefit of maximizing profit on early adopters before substitutes and supplementary products are introduced into the market. Therefore, this method enables you to recoup the cost of developing the product. Afterwards, you can lower the price so as to attract more price-sensitive consumers.

As a matter of fact, price skimming creates a sense of exclusivity, quality and luxury when the product first enters the market.

Bundle/ product line pricing

Another strategy is that of bundle or package model. A bundle of products can be sold at a cheaper price than what it would cost the consumer to purchase each item individually. Think of when you buy both hair cream and hair brushes together as a bundle instead of buying them separately.  This gives a lower total price for the items. Therefore, to push out inventory fast, you can offer bundle prices for your goods.

In fact, this pricing strategy helps improve the perceived value of your offers. It makes customers feel like they are getting more value for their money. On the other hand, it’s also helpful in increasing sales volume for a slow-selling product by offering it alongside another that sells fast.

Essential Pricing Methods & Strategies for SMEs in Nigeria – Conclusion:

In summary, the bottom line is what matters. Every effort must be geared towards price manipulations which aims at generating high turnover which in returns increases the bottom line – your net profit.

Overall, considering your production/procurement cost, distribution costs, consumer’s price for your product/service, attitude of competitors, market conditions – economic conditions and your mark-ups – profit margin, manipulate your product/service prices to remain relevant in the market and thereby win good market share.

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Essential Pricing Methods & Strategies for SMEs in Nigeria

Our Business Support Services:

If you need business support services in respect of your goods/services cost analysis and pricing, why not contact us. Complete Full Marks Consultants Limited is a firm of economists, chartered accountants, and business consultants who will always help you.

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