Pricing Strategy: 10 Strategies & Examples to Maximize Profits

Not sure how to get pricing right? This article will teach you everything you need to know.

Table of Contents:

• What is a Pricing Strategy?
• ​Benefits of a Pricing Strategy
• How to Create a Pricing Strategy: 5 Tips
• How to Conduct a Pricing Analysis in 5 Steps
• 10 Best Pricing Strategy Examples
• Real-Life Examples of Pricing Strategies
• Attributes of a Good Pricing Strategy for Small Businesses
• Nail the Right Price
• Pricing Strategy FAQs

Part of creating a rock-solid business plan is setting your pricing. No matter what you’re selling, the price you set for your product or service can make or break your company’s financial goals. Of course, the right price won’t just come to you overnight. A thorough pricing strategy is a must when you want your customers to buy, without sacrificing a great profit margin.

There’s no universal answer for how high your markup should be. Some companies make millions charging mere dollars, while others may find success with grossly inflated prices. In the end, consumers will only choose the products or services with prices that match their perceived value.

So how do you determine the actual value of what you’re selling, beyond production costs? With the right pricing strategy, you’ll be able to account for all the factors that impact a shopper’s willingness to buy.

What is a Pricing Strategy?

The term “pricing strategy” encompasses all the methods that a business owner uses to determine how much to charge for a product or service. In order to put a great strategy into action, you’ll typically end up doing some math, performing market research, or collecting consumer insights first.

Of course, not every pricing strategy is thorough. Some business owners prefer to keep it simple by using set markups (sometimes known as cost-plus pricing) or manufacturer-suggested retail prices (MSRPs). If you use any consistent process to set your prices, you already have a pricing strategy in place. However, when you build a strategy that better accounts for market conditions and other factors that impact consumer behavior, you’ll be able to take a competitive advantage in your industry.

​Benefits of a Pricing Strategy

For consumers, having the ability to compare different prices is the second most important benefit of purchasing online. As e-commerce continues to grow, price comparison is becoming easier by the day, which means consumers will increasingly seek the best value they can find.

Having a strong pricing strategy in place can help you better meet customer expectations by putting reason behind your higher or lower prices. Your strategy will create a repeatable process that encourages you to consider how your target audience—and perhaps even your competitors—will react to your pricing decisions. As you refine your tactics, you’ll be able to convert even the most price-sensitive shoppers.

Paired with a great marketing strategy, your pricing strategy may even help you transform the perceived value of your products or services in the long run.

How to Create a Pricing Strategy: 5 Tips

Feeling overwhelmed? Don’t worry, you’ve got this. Here are a few best practices and steps to follow to ensure you pick the right strategy.

1. Keep your business goals in mind.

Setting the right pricing strategy starts with understanding your business goals. What are you trying to achieve? Are you looking to sell as many products as possible, achieve a specific revenue target, or increase your market share? Understanding these goals will help you find the right balance between volume and price.

If your primary goal is sales volume, you might opt for a lower-price strategy to encourage more purchases. If you’re looking to maximize revenue and boost your bottom line, you might choose a premium pricing strategy that emphasizes the value of your products or services.

2. Conduct a thorough market analysis.

Before you can set your pricing strategy, you need to understand the competitive landscape. Conducting a thorough market analysis will help you identify your competitors, assess their pricing strategies, and determine where your offerings fit in.

Knowing what your competitors are charging will give you insight into what price point is reasonable and what pricing strategies are viable. It will also help you identify any discounts or perks your competitors are offering that can be incorporated into your pricing model.

3. Consider your target audience.

Pricing should be based on the value that your product or service represents to your target audience. You could have the best product in the world, but if it’s priced too high or too low, your target audience may not be interested. Take the time to understand your target audience’s unique characteristics, preferences, and pain points. 

Put yourself in their shoes and ask yourself if you’d be willing to pay the price you’ve set for your product or service. Consider what aspect of your offering is the most desirable to your target audience and focus on using that to justify the price.

4. Know your options.

Pricing strategies vary based on factors such as the type of product/service, target audience, and desired revenue. It’s essential to research your options and weigh the pros and cons of each strategy to know what will work best for your business. Strategies such as cost-plus pricing, value-based pricing, and penetration pricing are popular options to consider.

Remember to assess each strategy’s long-term viability, and ensure it can generate revenue to meet your business goals. For instance, cost-plus pricing may not be the best option if you’re looking to expand your customer base through greater volume sales.

5. Test and adjust as needed. 

Finally, it’s important to test and adjust your pricing strategy continuously. Even after you’ve done a thorough analysis and decided on the most effective pricing strategy, it does not mean it’s a fixed decision. It’s essential to keep an eye on consumer behavior, market trends, and competitors’ pricing regularly.

If you find that your sales volume is lower than expected, or customers are showing resistance to the perceived value, reconsider your prices and adjust accordingly. Research tells us that smaller price adjustments can often lead to significant results.

How to Conduct a Pricing Analysis in 5 Steps

Conducting a pricing analysis is a vital part of getting your pricing right. Here are five steps you can follow to get the job done. 

Step 1: Define your pricing objectives.

First, you need to identify specific pricing objectives that align with your overall business strategy. Pricing objectives can vary from boosting sales volume, increasing profit margins or market share, or maintaining consistent pricing. 

Step 2: Analyze your costs.

Next, you’ll need a clear understanding of your fixed and variable costs, direct and indirect costs, and any sunk costs that could impact pricing Taking a deep dive into your costs will help you identify opportunities to optimize pricing to maximize profits.

Step 3: Understand the market and competition.

The next step is to conduct thorough market research and analyze competitors’ pricing strategies. It is essential to understand how pricing is impacting consumer buying decisions in your target customers. You should also consider how price-sensitive your customers are and evaluate your competitor’s offerings to identify any unique selling points.

Step 4: Conduct a price sensitivity analysis.

Once you’ve gathered essential data on pricing objectives, cost structures, and market research, the next step is to conduct a price sensitivity analysis. This analysis will help you determine how small changes in price could impact consumer behavior. Understanding how price increases or decreases could impact sales volume or revenue can guide you in setting the most appropriate pricing level.

Step 5: Develop a pricing strategy.

The final step in conducting a pricing analysis is developing a comprehensive pricing strategy that aligns with your pricing objectives, cost structures, market research, and price sensitivity analysis. A pricing strategy will help you determine the most effective pricing approach for the different products or services you offer and identify opportunities for promotional pricing, differentiated pricing approaches, or bundling offers.

10 Best Pricing Strategy Examples

By learning about the pricing strategies that other business owners are using today, you can start brainstorming how you can use price to increase your market share. Below, we’ll share seven pricing methods you may use to capture and convert more leads.

As you read through these examples, keep in mind that you’re never limited to a single pricing strategy in the long term. Many business owners will rotate strategies over time or blend different tactics together. Sometimes, one product or service will call for a different pricing strategy than another. All it takes is a little experimentation with the following tactics before you know exactly what works for your business.

1. Price skimming

When you use a price skimming strategy, you’re launching a new product or service at a high price point, before gradually lowering your prices over time. This is a great way to attract consumers—especially high-income shoppers—who consider themselves early adopters or trendsetters.

From a business owner’s perspective, price skimming can be extremely helpful in helping you break even faster. This strategy provides an ample amount of security—granted that your initial price isn’t too extreme—before making your product or service more accessible to the greater market. As long as you’re keeping up with your online reputation management during the initial release period, the greater market will be keeping an eye out for lower prices.

Price skimming can be particularly useful for business-to-consumer (B2C) brands that rely on fast-moving trends. Think about how fashion retailers almost always launch product lines at a higher price, then put them on sale as soon as new, trendier clothes come in. Electronics retailers also frequently use price skimming, starting with premium pricing when phones or laptops with new features launch.

2. Penetration pricing

A penetration pricing strategy is the opposite of price skimming. Instead of starting with high prices, you start with low prices and gradually increase them as they gain traction. While this does put you at risk for limited or zero profit in the beginning, depending on how low you actually go, it also quickly converts. In the same way that a free sample can encourage a customer to make a purchase, you’re providing a discounted experience to create customer loyalty.

Penetration pricing is designed to put the spotlight on your brand. Because of this, your prices will always start lower than what your competitors are charging. Once you’ve successfully achieved market penetration, you can rise to an equivalent price or even higher, depending on how positive your customer feedback is.

3. Competitive pricing

Competitive pricing is extremely similar to penetration pricing in that your goal is to drive your target audience away from your competitors and toward your brand. However, instead of making price increases later on, you’ll continue to track what your competitors are charging and beat them out. Many stores, like Walmart and Dick’s Sporting Goods, will even offer price matching to ensure they never miss a beat.

Although this strategy can be hard to sustain—hence why many business owners stick with a penetration pricing strategy—competitive pricing can be useful if limiting production costs is one of your strengths. It will keep price-sensitive customers loyal to your brand for reliably helping them stay within budget.

Closely related to competitive pricing is economy pricing, which relies on low production costs to keep consistently low prices, regardless of what competitors are charging.

4. Premium pricing

Low prices aren’t always the most attractive offer. When your target audience seeks quality over a good deal, you need to demonstrate the advantages that your brand can provide. A premium pricing strategy can help you build the perceived value of your product or service, straight from your initial launch. Your prices may drop slightly over time, but they should still give your buyers a feeling of exclusivity and, in many cases, luxury.

Still, while the idea of premium prices is often associated with luxury brands like Fendi and Mercedes-Benz, any brand can take this approach. For example, Advil always sets a premium price for its products, even when generic pain relievers are equally as effective. As a result, many consumers choose to purchase Advil—and may even think it works better—when they’re really just paying more for a trusted brand name.

5. Loss leader pricing

Many retailers, both online and offline, attract potential customers by offering one major discounted product or product line while encouraging them to purchase more. The end result is greater profit for your business per transaction.

Though this pricing strategy is often associated with promotional pricing, which utilizes short-term sales, it can be long-term. Long-term loss leader pricing is often seen in the form of bundle pricing, in which you offer greater savings when consumers buy more. Although offering discounts for bundling won’t increase your profit margin immediately, the idea is that you’ll get more consistent sales, which eventually surpass what you would have sold by only pricing items individually.

6. Psychological pricing

The numbers you see can influence you more than you think. Instead of changing consumer perceptions about a product, psychological pricing uniquely aims to change perceptions about what the price even is in the first place. A few common examples of this strategy that are proven to work include:

• Ending a price with an odd number to make a customer feel like they’re spending much less ($5.99 instead of $6, or 97 cents instead of $1). This is often known as charm pricing.
• Using larger font sizes for dollar amounts and smaller font sizes for cents. Paired with charm pricing, you can further emphasize a customer’s feelings that they’re paying significantly less.
• Placing an original price next to a sale price to show customers how much they’re saving. This is sometimes known as anchor pricing.

A psychological pricing strategy is best used for brands that are targeting price-sensitive customers, as it provides a perceived deal that customers with an affinity for luxury may not want.

7. Value pricing

Value pricing is perhaps the most important pricing strategy of all. This takes into account how beneficial, high-quality, and important your customers believe your products or services to be. Value pricing is what makes a wedding dress worth thousands more than a prom dress and what makes high-end salon haircuts worth more than speedy Great Clips services.

In order to set value-based prices, you must have a deep understanding of your target audience’s needs, pain points, and motivations, as well as your brand’s own reputation. You’ll also need to take into account how the state of the market affects how people perceive value. For example, the value of a non-necessity like a Netflix subscription may decrease during a recession.

While we are highlighting value pricing as its own strategy, we always recommend taking value into account, even if it’s not the primary method you’re using. This can help you decrease risk by ensuring you don’t start with a price that’s too high when price skimming or underselling yourself with competitive pricing.

8. Competitor-based pricing

Competitor-based pricing is a pricing strategy in which a business sets a price based on the prices of its competitors. This pricing strategy is common in industries where the products or services are similar, and there is a high level of competition. The benefits of competitor-based pricing are that it keeps the business competitive in the market and helps to customer retention. However, the downside is that it may lead to a price war if all the competitors use the same strategy, and the business’s profits may reduce as they try to match the prices of their competitors.

If you are relatively new in the market and do not have established brand recognition, you may use this strategy to build a customer base and compete with more established brands. This strategy may also be useful if you want to penetrate a new market or revive your presence after a lull in sales.

9. Dynamic pricing

Dynamic pricing, also known as demand-based pricing, is a pricing strategy where the price of a product or service is not fixed. It fluctuates based on real-time supply and demand and market conditions. This strategy is common in industries such as hospitality, airlines, and concerts, where the consumer demand fluctuates frequently, and prices change accordingly. The pros of dynamic pricing are that it enables businesses to maximize revenue during peak periods, and it reflects market demand. However, some cons of dynamic pricing are that it can be complicated for businesses to implement, and it may create pricing confusion among customers.

If your business experiences high traffic or demand in peak periods, you might use dynamic pricing to increase revenue during these periods. 

10. Bundle pricing

Bundle pricing is a pricing strategy where a business offers a package deal that includes multiple products or services at a reduced price. The benefits of bundle pricing are that it increases sales and customer loyalty, and it offers more value to consumers. The downside of bundle pricing is that a business may face difficulty in assigning a fair price to each product, and it may reduce profitability if not executed well.

Bundle pricing can be beneficial for businesses that have a range of complementary products or services. This strategy may encourage customers to purchase more items by offering them a package deal, which results in increased sales. It can also help businesses to clear out stock that has low demand or is not selling well.

Real-Life Examples of Pricing Strategies

So, what do different pricing strategies look like in the real world? Here are a few examples.

Examples of premium pricing: Car companies like Tesla or designer brands like Gucci use a premium pricing strategy.

Examples of promotional pricing: Take a look at just about any retail store on Black Friday—that’s promotional pricing at its finest.

Dynamic pricing: Dynamic pricing is when a company charges different prices depending on the timing of the purchase or demand for that product. The perfect example of this is Ticketmaster charging different prices for concert tickets depending on the demand for specific dates/seats.

Competitive pricing: Have you ever noticed that Amazon always seems to offer the lowest price for just about any product? That’s because they use a competitive pricing strategy.

Attributes of a Good Pricing Strategy for Small Businesses

So, what makes a pricing strategy good or bad? Here are a few basics.

A winning pricing strategy:

• Portrays value
• Convinces customers to buy
• Gives your customers confidence in your product

A weak pricing strategy:

• Doesn’t accurately portray the value of your product
• Makes customers feel uncertain about buying
• Targets the wrong customers

Nail the Right Price

When you use a pricing strategy that’s well-tailored to your business, you can rest assured that you’re setting prices your customers want to see. Using a logical approach to set the price of a product or service will help you maximize your profits and your sales volume all at once.

As you consider the prices that customers are willing to pay for your brand, remember that opinions can change over time. Learn how to build a customer experience strategy that increases perceived value so you can up your prices and profit even more. Next, offer convenient payment options, so you can get paid faster.

Pricing Strategy FAQs

Which pricing strategy is best? There isn’t a one-size-fits-all solution to pricing. Different strategies will work better for different businesses. That being said, competitive pricing and value pricing are two common ones you might try if you’re just starting out.

How do you determine the selling prices of a product? This depends on the pricing strategy you use. The most important thing to ensure is that you’re charging customers more than what you’re paying to produce a product.

What is the simplest pricing strategy? Cost-plus pricing is a simple pricing strategy that involves calculating the cost it takes to make your product and adding a flat percentage on top of that.

Can you combine pricing strategies? Yes! As we’ve already mentioned, there is no one-size-fits-all solution to pricing. Don’t be afraid to experiment with a few strategies to see what works best for you.

How does pricing strategy fit into your marketing strategy? If low pricing is going to be a main selling point in your marketing campaigns, it’s important to choose a pricing strategy that allows for competitive pricing. It’s also important to mention that your pricing strategy can greatly impact the buyer’s journey.

Should I charge more or less than my competitors? Again, since there isn’t a one-size-fits-all solution when it comes to pricing, this depends. If you offer the exact same product as your competitors, it’s good to aim for pricing in a similar range. If your product is more premium or offers additional features, charging more might make sense.

What is a pricing curve? A pricing curve or a cost curve is a graphical representation of the relationship between your output and the cost measures involved in producing that output.