High-Low Pricing

Table of contents

What is High-Low Pricing?

Businesses use different pricing strategies to gain a competitive advantage and make their products and services stand out on the market. Working out the most balanced pricing strategy to get the optimal price point discerns a successful company from a failed one. High-low pricing is one of the approaches firms use. At this point, there is a reasonable question - what is high low pricing in the first place?

High-low pricing is a pricing strategy focused on sale promotion with a primary objective of changing consumers' perceptions and encouraging purchases. In simple terms, high-low pricing is all about manipulating the price by tweaking the initial price along with the final sale price. How does it happen? Easy. The firm boasts the initial price and later decreases the price point to make the product more appealing to consumers.

Breaking Down High-Low Pricing

How and why does a high-low pricing strategy work? The approach's core stems from the combination of loss leader pricing and price skimming. As a pricing strategy, high-low pricing fully releases on sales promotion. Essentially, the company uses an initial aggressive marketing strategy known as loss leader pricing. It entails a decrease in prices through sales promotion to later increase the price when the promotion strategy is over. The approach is called to generate additional sales and establish what consumers will perceive as an optimal price for the product.

A high-low pricing strategy works because of several key factors:

• The consumers receive a particular vision of the promotion as a bargain. At this point, clients are willing to change their purchasing behaviors and engage in purchasing the product in order not to miss the bargain. The shift in purchasing behavior generate additional sales and establishes a correct price point.
• The promotional strategy based on a high-low pricing approach focuses on showing the consumers a particular, appealing period for making a shift in purchasing action. The urgency of the potential action boosts excitement and makes a consumer more likely to purchase the target product and additional ones.

These are the factors that drive high-low pricing. Essentially, it attempts to generate additional sales, establish an optimal price with a correct price point, and boost consumer excitement.

High-Low Pricing and Reference Price

High-low pricing does not work without a reference price. What does it mean? It means that the promotional strategy must have the price buyers can compare to the discounted price of the product. Such an element makes the high-low pricing seem like a bargain and helps establish an appealing price point for clients.

How does it work? To illustrate, consider a product with an optimal price of $10. In promotional strategy, a company applies a fifty percent discount, which makes a lower price point of $5. In such a case, the initial $10 is the reference price.

Pros and Cons of High-Low Pricing

Getting the most of high-low pricing is a big deal. It is crucial to understand that high-low pricing is not a one-fits-all solution. What is more, there are particular advantages and disadvantages of the strategy.

When it comes to the pros, there are several key elements to consider:

• Generation of additional revenue. Offering lower prices and creating a bargain directly boosts sales and makes the optimal price appealing to consumers.
• High-low pricing is about increasing traffic to the stores. Increased traffic means greater exposure and brand recognition, which creates the foundation for future deals, including an optimal price.

As in every story and situation, there are also particular cons to high-low pricing:

• Marketing promotion is a costly endeavor. Additional marketing expenses need to be considered to get the most of high-low pricing.
• Changing the perception of quality. The incorrect promotional strategies can create a perspective among consumers that discounted products are of substandard quality.

Conclusions

High-low pricing is not a panacea. However, when used correctly, it can generate additional sales, establish an appealing optimal price, and boost purchasing excitement. When using high-low pricing, it is crucial to consider potential obstacles and be ready for them. By using high-low pricing correctly, the business ensures steady growth of sales and revenue generation.

Tags:

• High-Low Pricing

• Reference Price

Marina Dias,

Pricing Solution Consultant at Competera