What It Is & Tips on how to Leverage It

Pricing is likely one of the trickier, extra delicate processes nearly each enterprise has to take care of. Demand and shopper preferences are unstable — and what you cost to your providing has direct implications on its perceived worth and gross sales figures.

Some corporations attempt to match the ebbs and flows of demand for his or her merchandise by leveraging one thing referred to as Excessive-Low pricing technique — a way that basically pegs a product’s costs to customers’ waning curiosity in it.

Right here, we’ll discover that idea a bit additional, see some examples of what it seems to be like in apply, and evaluation a few of the apply’s benefits and drawbacks. Let’s dive in.

Excessive-Low pricing is commonly conflated with some related pricing methods. Let’s take a fast have a look at a few of these different methods and the way they differ from high-low.

Excessive-Low Pricing vs. On a regular basis Low Pricing

On a regular basis Low Pricing (EDLP) is a technique the place a enterprise focuses on preserving all of its costs significantly low as an extension of its model identification. The technique works for companies that need to challenge themselves as “low cost manufacturers.”

Not like Excessive-Low pricing, on a regular basis low pricing rests on an organization beginning low and staying low with costs — versus beginning excessive and step by step lowering.

Excessive-Low Pricing vs. Loss Chief Pricing

With Loss Chief pricing, a enterprise intentionally and sometimes drastically reduces the price of sure merchandise to generate shopper curiosity. The excellence between this methodology and high-low pricing largely has to do with how abruptly and precipitously a enterprise drops its costs — Excessive-Low pricing leans on a gradual decline whereas Loss Chief pricing is a bit faster and extra radical.

Excessive-Low Pricing vs. Market Penetration

Market Penetration happens when a enterprise intentionally lowers its costs to undercut its opponents and enhance its market share. It sometimes includes a broad effort and collective value decreases throughout a product suite — whereas high-low pricing is much less concerned and extra particular to particular person merchandise.

Excessive-Low Pricing Technique Examples

Nike Courtroom Legacy

Nike employed a high-low pricing technique with its Courtroom Legacy sneaker. The shoe got here in three shade schemes — black, all-white, and white and orange. Demand for the white and orange sneaker wasn’t fairly as excessive because it was for the black and all-white variations. To assist transfer its stock of the white and orange model, Nike lowered its value level, relative to the opposite shade schemes.

Picture Supply: Nike

iPhone

With every new iPhone launch, Apple presents the earlier mannequin at a cheaper price than it was offered for initially.

Picture Supply: Apple

NBA 2K Collection

2K Leisure releases a brand new iteration of the NBA 2K franchise yearly. As soon as that new version hits the market, the price of the earlier model is marked down.

Picture Supply: Amazon

Now that we have now a really feel for what Excessive-Low Pricing is and what it may appear like, let’s evaluation a few of the technique’s professionals and cons.

Benefits of Excessive-Low Pricing Technique

You may generate shopper curiosity with promotional costs.

Discounting of any form can typically generate shopper enthusiasm on a dime, and a well-structured high-low pricing technique is consistent with that development. Funds-conscious customers love offers — particularly ones on merchandise with greater perceived worth. So providing value cuts on once-expensive merchandise could be an efficient approach to seize and capitalize on customers’ consideration.

You may unload stock that may not be shifting.

Leveraging a high-low pricing technique is likely one of the higher methods to promote stock that is not shifting. Coming down from a once-high value level is perhaps compelling sufficient to entice consumers into buying merchandise that have not offered.

It might probably provide the area to land on an optimum value level for sure merchandise.

Touchdown on an optimum value level for a product generally is a finicky course of. By beginning at and step by step shifting down from a excessive value, you can provide your self some room to experiment and discover a value customers are prepared to pay to your providing.

Disadvantages of Excessive-Low Pricing Technique

It might probably take a toll on a product’s perceived high quality.

A product’s status and repute are sometimes intently related with its value. By providing too radical a reduction on a once-expensive product, you run the danger of casting it as low cost or low-quality.

You would possibly skew shopper expectations.

Like the purpose above, this one rests on how customers tie their perceptions of sure manufacturers to their costs. Should you routinely leverage aggressive high-low pricing, you would possibly wind up framing your enterprise as a “low cost model” — customers will come to anticipate reductions from you and be disenchanted should you do not provide them persistently.

It might probably eat into income.

Clearly, charging decrease costs naturally eats into your revenue margins — so should you get too gung-ho together with your high-low pricing technique, you possibly can undermine your enterprise’s skill to make as a lot cash as you would possibly wish to.

Although it takes some finesse and has some related dangers, a Excessive-Low pricing technique generally is a good guess for a enterprise making an attempt to get as a lot mileage out of an providing because it turns into much less fashionable. If your organization desires to accommodate shifting demand for a product or transfer extra stock, contemplate trying into the strategy.