The eternal struggle of man is what kind of a person is right to be, high-principled and consistent or yet flexible and adaptable. Do you stick with your decisions, whether on a personal or business level or are you the one open to negotiating?
We are going to give you the explanation and examples through pricing strategies. This article will help you realize which approach is better for your business and maybe inspire you to decide which one you should apply in your personal life.
Flexible pricing is one of many pricing strategies that could be applied to setting up prices for goods and services. In the case of flexible pricing, a final price is negotiable, meaning that sellers and consumers can discuss prices, to either lower it or push it up from the original price. Yet, in most cases, it serves the management to simulate demand and bump prices up to increase profit or drop the prices to increase sales.
This pricing strategy allows retailers to set different prices for the same product depending on a customer. Whether it is an agreement established through negotiation or a personal assessment of the seller, prices can fluctuate. Also, the prices of a product may differ in different geographical locations.
We all compare prices from the country where we live to prices from foreign countries when we travel and very often we notice the difference. You have to know that behind this phenomenon is the flexible pricing strategy. Prices will differ based on a country, sometimes even regions within one country. Also, sellers set prices based on a segment. For example, in raw material industries, the iron price will be lower when sold to the steel industry than to a bicycle chains manufacturer.
When considering the perceived value of a good or service, sellers can decrease the prices of an overpriced product or increase the prices of products they consider valuable to their clients. Of course, such decisions are made based on thorough research and analysis of the target market.
Also, there is room for a price adjustment when sellers are in a position to cut costs that don’t bring value to an individual client. For example, a flower company charges a certain price per arrangement that includes delivery by default. In case the client insists on picking up the flower arrangement in person, the company can lower the final price.
When a manufacturer improves the production process by implementing technological solutions or improving the existing ones, the production costs will increase, which will affect the final price. In this case, sellers decide on price adjustments. Especially if there is a significant time difference between production and delivery of a good and the entire process improves in the meantime, clients should be aware of the price fluctuation possibilities.
The main advantage of this strategy is negotiation because it allows clients to pay for what they need and not the dime more. From the client’s perspective, this strategy maximizes value due to the ability to reduce costs that bring no value and create prices for the customizability of a service or product per request.
On the other hand, sellers have the freedom to adjust prices based on market forces and clients’ needs while striving to increase sales and profit. By lowering prices, when a client can not afford a product or service at the original price, a seller can keep the sale, instead of letting a client buy from a competitor. When knowing how to utilize the flexible pricing strategy, sellers can increase prices for clients who are willing to pay more, and therefore profit will rise.
In general, this strategy is beneficial if implemented well, but some sellers can enormously benefit, such as sellers of perishable goods. We all notice across retail stores that when the expiration date comes closer, the prices go lower and lower prices increase sales.
In addition to the undeniable benefits that this strategy offers to all parties, both seller and buyer, it has certain disadvantages. Companies that implement flexible pricing should be cautious about their image. Charging every person differently for the same product could cause clients’ dissatisfaction. Those who were charged more can feel robbed, while those who were charged less can question the product quality. Either way, if realizing price inconsistency, every client can feel deceived. Price fluctuation can negatively affect a company’s image and eventually result in losing loyal clientele and sales.
There is a risk of losing profit when sales representatives are not trained well for negotiation or when lowering prices becomes a habit. It can be risky if a company decides to change its pricing strategy and stop adjusting prices for its clients who expect price flexibility by default.