One of the biggest challenges for companies and entrepreneurs is to determine how to price their product or service. There are many methods to choose from, depending on the industry, business size, and what they're selling.
Two parents planned to go out for dinner on a Friday night, but they needed someone to take care of their toddler. They reached out to local friends and family to see if anyone was available to watch their child. A close neighbor was free that evening and agreed to babysit for the family.
They searched online and found the suggested hourly price for a babysitter in their area was $16.00. The search results were based on the family's location, the babysitter's years of experience, and the number of children that needed to be watched.
This is an example of going rate pricing -- the price of the service was based on the rates of other babysitters in the same market. If the family's babysitter charged $16.00 each time they babysat, the sitter would be using going rate pricing strategy.
So, how does this pricing method work for companies and corporations?
What does 'going rate' mean?
The going rate for a product or service is based on its market price -- what competitors with similar offerings are selling their products for. But, how do you find the market price?
Most often, the largest player, or leader, in the market for a product or service moves first. And the smaller businesses follow their lead and adjust their prices based on the leader's prices.
When there isn't a clear leader, a business can calculate the mean price for all the competitors in the market.
Going Rate Pricing
Going rate pricing is when a business sets the price of their product or service based on the market price. This pricing strategy is often used to price similar products, like commodities or generic items, that have little variation in design and function.
A going rate pricing strategy is most often used to price products or services that are homogenous and don't vary in design. Businesses that choose a going rate pricing strategy often set their prices based on the leader of the market.
Since competitor prices tend to be similar, it's challenging to differentiate your product or service from the competition. Businesses that excel with this pricing strategy benefit from a strong branding and marketing strategy. Creating a positive brand perception and communicating the value it provides can help your business stand out from the crowd.
Going Rate Pricing Examples
Thinking of pursuing a going rate pricing strategy? These are a few of the products and services that can be priced using a going rate pricing strategy.
If you're selling a product or service that similar to the offerings above, then a going rate pricing strategy could be a good fit for your business. And to learn more about pricing, check out this guide to prestige pricing next.
Originally published Mar 1, 2019 8:55:50 AM, updated May 13 2020