The Disadvantages of an Optimum Selling Pricing Strategy

Optimum pricing strategy can lower revenue.
Optimum pricing strategy can lower revenue. (Image: Thinkstock/Comstock/Getty Images)

Optimum selling pricing strategy seeks to find the best price to sell a maximum of products. Even though there are many different approaches to pricing, they all typically involve comparing your product to that of your competitors, which results in being confined in your pricing possibilities and a limitation in overall profits. Psychological pricing may be a stronger approach for some products and services.

Limitations in Price

Optimum selling price strategy uses a comparison of the product to other products on the market. For example, if all similar products on the market range from $1 to $2, you will need to sell that product within this range to earn a profit. However, this also ignores the perceived value of the product to customers.

Market Value Limitations

Once a product has entered the market with a certain price, raising the product's price is difficult. In essence, the product is stuck in the same price range in which it starts. Psychologically, customers will not want to pay more for a product that is known to have a certain price because its value has not changed. To raise the price, the product must be significantly altered.

Price Not Associated With Cost

At times a product might be worth less than the cost or it may not have a significant profit margin to make production feasible. Using a optimum selling strategy can limit the ability to use cost and profit as a method for valuing the product. Using a cost approach may afford the opportunity to secure a strong revenue stream.

Price Not Associated With Psychological Value

Customers may perceive a product as having more value than similar products on the market. For example, there are average priced sunglasses and there are glasses made in Italy, like Gucci. The higher end glasses may be of similar quality but retail for a much higher price because customers psychologically value the name.

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