What is Contextual Pricing?

Limited Company, Planning, Sole Trader,

There’s been flurry of media articles recently that talk about ‘Contextual Pricing’. In summary, the articles have been extolling the virtues of this ‘new’ way for businesses to set their prices, that encourages owners to change their prices for different customers, different times of day, and a variety of other reasons.

Sound complicated? It’s not really…

In this post, we’ll take a look at what Contextual Pricing really means and apply it to some examples. (Clue – it’s not as ‘new’ as you might think!)

What is Contextual Pricing?

It’s a flexible way to set prices for your products or services based on various external factors. Unlike traditional fixed pricing, where prices remain the same over time, contextual pricing adjusts to reflect changes such as customer habits, economic conditions, or what competitors are doing.

What does it matter?

Contextual Pricing is all about staying nimble and responsive. It helps you adapt to market shifts swiftly, ensuring you stay competitive and relevant. This approach is especially useful in industries where demand can change rapidly, like travel, retail, or services.

Personalisation is key

One of the biggest advantages of Contextual Pricing is enabling you to personalise your prices. Businesses who use it analyse data like shopping patterns and customer preferences to offer special deals tailored to individual customers. For instance, a regular customer might receive discounts that aren’t available to new customers. This not only makes them feel valued but can also boost their loyalty, reinforcing your relationship with them.

Think here about repeat customers and offering them an extra product or service at a reduced rate. This is Contextual Pricing in action!

Strategic positioning

During tough economic times, business owners might lower prices to attract cost-conscious consumers, helping them retain or even grow their market share. Conversely, by keeping an eye on what competitors charge, a business can decide whether to position itself as a budget-friendly option or as a luxury brand.

Focusing on value

Contextual Pricing also involves value-based pricing, where prices are set according to the perceived worth of a product or service in the eyes of the consumer. This means that pricing aligns more closely with the benefits the product provides, rather than just covering costs.

Is Contextual Pricing just for online businesses?

Absolutely not! Contextual Pricing can be used in a wide range of small business settings just as easily. Here are a couple of examples:

Example 1 – In a Cafe or Restaurant:

Imagine a small, independent café. It might offer morning specials on weekdays to attract local workers or reduce prices on baked goods after a certain time to ensure they sell their fresh products every day. They could also adjust their prices based on seasonal ingredients’ availability or introduce special pricing during local events to attract more foot fall. This strategy not only manages stock efficiently but also caters to the customer’s desire for good deals and fresh offerings.

This is no different to Supermarkets reducing perishable food just before it goes out of date; a perfect example of Contextual Pricing!

Example 2 – In a Service-Based Business:

Consider a small gardening business. They could implement Contextual Pricing by offering discounts during slower seasons to keep their team busy or adjust prices for services where demand is higher during the spring and summer months. 

Pricing could increase based on the client’s location if the travel significantly affects the cost of providing the service. This approach ensures pricing reflects the true cost of delivering that service.

In both examples, Contextual Pricing allows small businesses to stay competitive and attractive to customers by adapting to both external market conditions and internal business needs. Hopefully they show that Contextual Pricing isn’t a ‘new’ or complicated theory but is probably already in use in a lot of businesses! 

What about your business?

If you’re not yet using any element of Contextual Pricing in your business, it’s certainly worth thinking about, as it can be really helpful to enhance your customer relationships while also improving resilience. It might also be worth giving some thought to whether you could be using it in more ways than you already do to increase profits fairly quickly.

As with so many ‘new’ ideas, once you scratch the surface, they’re not that new!

If you have any questions about how to use or increase your use of Contextual Pricing, do get in touch. We’d love to chat it through with you and see how it might help.

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