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What Is a Low-Pricing Strategy?

Maggie Worth
Maggie Worth

A low-pricing strategy is a sales and marketing strategy based on price point. The goal is to be priced lower than comparable products, even if the margin of difference is very slight. This means careful competitor research and often involves adjusting prices frequently, particularly on consumables. A successful low-pricing strategy usually requires a high volume of sales in order to meet profit goals.

Ultimately, a low-price strategy depends on customers who make buying decisions based solely or predominantly on price. It usually does not appeal to brand buyers, who purchase their preferred brands even if they cost a bit more than others. Such a strategy is rarely effective when marketing luxury items.

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A wide range of offerings might utilize a low-pricing strategy. This includes service-based offerings such as salons, tax preparation services, or even attorneys. It also includes product-based offerings such as canned foods, office supplies, and cosmetics. Manufacturers, distributors, or retailers can use such a strategy.

In a retail environment, a low-pricing strategy may not require the store to sell every item for less than its competitors. Usually, the low-price leader is significantly less expensive on a few high-visibility items and only marginally cheaper on many others. Other, less-frequently purchased items may sell at or above another retailer’s prices.

In some cases, use of a low-pricing strategy means frequent price adjustments. This is particularly true of high-volume products such as gasoline and items with very limited shelf lives, such as milk. Prices of services are also easy to adjust as they seldom require an automated system.

Low-pricing strategies are volume dependent. This means that the seller must successfully sell a substantial amount of product in comparison to a seller using a different type of strategy. A high-value brand, sometimes called a luxury or status brand, intentionally prices its products quite high and often has significant profit margins built into each item. Even midpoint brands usually include more profit into their pricing strategies than do those using a low-pricing strategy.

Tough economic times often benefit a low-pricing strategy as people are more conscious of how they spend their money. Consumers are also, however, much more interested in durability and effectiveness and may be unwilling to invest in an inferior product, especially if the quality difference is high and the cost difference is low. In addition, because low-price manufactures must sell more product to make equal profit, they must also produce more product. This can increase up-front labor and materials costs as well as shipping expenses.

Marketing messages for low-price sellers often focus almost exclusively on how much the customer can save. In some cases, a manufacturer, service provider, or retailer might also stress the benefits received for the low price. This, however, is often referred to as a value or value-proposition strategy.

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