Economy Pricing: What It Is and How to Use It

Tags – Economy Pricing

 

Depending on the kind of business you have: Economy Pricing is a great way to increase your profits while still providing a fair price to your customers.

It can be used in a number of different ways, as long as some key considerations are met.

Learn more by continuing to read.

 

What is Economy Pricing

A volume-based pricing model, economy pricing is a way to price items low and earn money based on the number of customers who buy your product.

It’s most commonly used for commodities, such as generic-brand items or drugs, which don’t have the name-brand versions‘ marketing and advertising expenses.

 

How to Use Economy Pricing

At its essence, an economy pricing strategy is similar to a cost-plus pricing method. You charge a product with low manufacturing costs at a price that allows you to make a little profit.

With such a low cost, economy pricing is essentially a volume business. The only way you’ll make money is if you constantly attract a large number of clients.

This is another reason why acquiring new customers is so crucial in this pricing model: because you won’t be able to rely on current ones to drive income over time.

 

Examples

 

Budget Airlines

Many airlines will offer economy fares to fill seats in their planes, with reduced rates for the first seats purchased and then increasing pricing as demand decreases.

 

Supermarket Brands

Every grocery store has its own version of famous names.

Companies like Tesco and Aldi, for example, produce their own versions of a fair few everyday items and use cost cutting to propel their growth.

 

Pros of Economy Pricing

For bigger, more established firms, economy pricing has some intriguing advantages.

It’s simple to execute, and it keeps expenses low. It also appeals to buyer personas who are particularly interested in “getting a bargain.”

Customer acquisition costs (CAC) are generally lower than with other pricing models, and you may acquire consumers faster for a specific product because, chances are, these people were already buying from you or needed your product for other reasons, e.g. lower costs.

 

Cons of Economy Pricing

When you’re looking at bargain rates, keep in mind that it’s only applicable under very specific market circumstances.

Companies without a market presence or brand recognition will find it difficult to sustain low operational costs in order for this pricing strategy to function.

If you’re just getting started, low pricing may harm your brand’s value to begin with.

The strategy relies on low-cost pricing and a steady stream of new consumers to keep income high.

Pricing your product or service too low makes it hard for potential consumers to relate the value of the product with its price and makes it more difficult to raise prices in the future.

 

Concluding Remarks

If you are an SME, chances are that Economy Pricing is not going to work for you.

This is because, in most cases, small and medium businesses do not have the production capacity to compete on price, or they cannot deliver their services at a sustained pace with high levels of internal efficiency.

The one exception to this statement above is software businesses with the ability to go mass market, while operating with smaller overheads.

For example, if you are a digital recruitment platform that services one specific sector with high churn rate, if you are able to sign up enough candidates and employers, you can go for an economy pricing model.

For instance, if you are providing labour covers and charging a percentage of each salary, chances are that with enough sign ups, even if the overall percentage is low to remain competitive, you will make a profit that will add up over time.

So, in short, you need to be able to conduct enough transactions continually to make economy pricing work, as being price competitive will be your only true advantage.

 

To learn more, get in touch with us today.

 

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