Use Creative Pricing Strategies to Increase Profits

Photo courtesy of doctorhandshake.

We marketers often treat pricing with the same disdain as we do exercise. We know that actively working pricing strategy is one of the most efficient ways to increase profitability, but, it’s just not nearly as much fun as creating fun promotional content or communication strategy, so we avoid it.

Take a look at this wonderful post by Rafi, at Pricing for Profit. He’s writing about Southwest Airlines and their new strategy to give their customers more of what they want; choice and control, while getting a little more of what Southwest wants; money. Their tool was pricing. Southwest is now offering the business traveler a little more control over their seat, by charging a nominal premium. It still keeps them in the low-cost airline category, while giving their customers what they want most.

At Hyper-Passionate Entrepreneurs, they’re talking about skimming. (Bet you forgot what that was)  Skimming is where you segment your markets and charge a higher price for a short time to collect early profit reward for being first.  Apple did this with the iPhone.  You’d want to do this a little better than they did.

There’s also psychological pricing; where the price of your product is linked to a strong emotional response or benefit to the buyer.  I always think of FedEx or Starbucks when I think of Psychological pricing.  Most people don’t think about the little bits of priceless value they can offer their customers for which they could charge a premium. 

Back to the Southwest example.  They are charging a premium against a customer deep emotional benefit – the need to choose a seat.  Yet, this upcharge doesn’t really cost them anything.  That’s smart pricing strategy.