An Economy Pricing strategy involves setting low prices for products with minimal production costs. The aim is to capture the interest of the most price-sensitive users who respond best to offer and promotion-related calls to action. Economy pricing is normally associated with generic products or basic services. These products or services can be enhanced by increasing the buying price, for example, generic medicines or own-brand supermarket products. From Minderest, we explain the pros and cons so that you can assess whether you should implement it in your overall pricing strategy.
How to apply an Economy Pricing strategy in your e-commerce business
Economy pricing strategies share many traits with cost-based pricing. A small profit margin is added to production costs. Like this:
Production cost + profit margin = Final price
As the profit on each item will be more limited than on other products, it is necessary to maintain high attraction and conversion levels to make these prices profitable. In other words, you always need to have high customer numbers.
Advantages and disadvantages of economy pricing
Pros: a simple strategy which consumers welcome
One of the main advantages is that it is a simple strategy to implement, which does not require analysing wide-ranging factors before defining a price. Cost is the main influential factor. An Economy Pricing strategy also helps improve users’ brand awareness, as noticeably low prices will attract them.
Low prices are such an attractive selling point that no investment in advertising and marketing is necessary to attract leads. Therefore the client acquisition cost is reduced and the e-commerce’s expenditure will be lower. This is why it can also be a good idea to use economy pricing to launch new products. You can use low prices so that a product sells itself fast to compensate for the initial costs of putting new items on the market.
Cons: less-loyal customers
On the other hand, economy pricing can attract volatile customers, will little brand loyalty, who move with offers and market changes. It is harder to gain this customer type’s loyalty, as emotional messages do not sway them and they do not identify with the brand’s values. Their final purchase decision is money driven. In addition to this disadvantage:
- Low-quality products:
- Customer perception: the corporate image can also be affected if users equate low prices with low quality.
- Real impact on the quality of goods or services: faced with the need to maintain low prices constantly, companies can find themselves forced to make cuts, for example, by using low-quality materials or recruiting less-experienced employees or suppliers. These factors will impact the final product.
- Competition: many companies position themselves with low prices. Fierce competition can lead to a price war damaging the brand image and profit margin.
These pricing problems are avoidable, particularly in the fiercely competitive online market, by using competitor monitoring tools to find out about other companies’ pricing strategies. This will help you to anticipate their moves. Your goal should be to set competitive prices which boost users’ satisfaction and the profitability of your business.