High-Low Pricing for Small Businesses

The right pricing strategy for your unique business will depend on your industry, the product or service you sell, and the overall goals of your business.  Here are some tips on how you can effectively use high-low pricing to improve your bottom line.

Types of pricing for a small business

Pricing in business is the process of placing a value on a service or product offered by the business. Pricing products and services is essential to your organization’s success and should be done using a solid pricing strategy. By pricing your goods or services effectively, you increase your products’ ability to sell and thus contribute to the growth of your company. Here are several pricing strategies used in business:

Penetration pricing – used by businesses to attract customers to a new product or service by offering a lower price during its initial offering.

Skimming pricing – a business charges the highest initial price that customers will pay and then lowers it over time.

Premium pricing – a seller sets artificially high prices for a product or service.

Psychological pricing – setting prices lower than a whole number. The idea behind psychological pricing is that customers will read the slightly lowered price and treat it lower than the price is. (Like charging $9.99 instead of $10.00.)

Bundle pricing – retailers offer several different products as a package deal, then offer that package to consumers at a lower price than it would cost to purchase those items separately.

Competitive pricing – businesses take competitor prices into account while setting their own prices.

Cost-plus pricing – also called markup pricing, is the practice of determining the cost of the product to the company and then adding a percentage on top of that price to determine the selling price to the customer.

That brings us to high-low pricing. Here’s more about this pricing strategy along with some pros and cons to consider.

Definition of high-low pricing

High-low pricing is similar to skimming (outlined above), except the price drops at a different rate. With the high-low pricing method, the price of a product significantly drops all at once rather than at a gradual pace. Retail businesses that sell seasonal products typically use a high-low strategy. Everyone knows the best deals on seasonal products, such as Christmas decor, will be the “after Christmas” sales.

High-low pricing isn’t just for the little guys. Big brand retailers like Macy’s® and Nordstrom® and specialty companies such as Adidas® and Nike® set prices high but then periodically offer consumers lower prices through sales, promotions, or coupons.

Goals of high-low pricing

The goal of high-low pricing is the same as most business strategies – to increase revenues, grow the customer base, and improve a company’s profits. When considering a pricing strategy, keep some of the following goals in mind:

  • Generate additional sales
  • Generate excitement, drive traffic to the store, and stimulate the sale of other products
  • Sell inventory that would otherwise be unsellable at the initial price

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