19 most commonly used pricing strategies in business (with 3 examples of each) - Complete Pricing Strategy Guide

Pricing is one of the most important aspects of any business, as it can greatly affect a company's profitability and competitiveness. There are many different pricing strategies that businesses can use, each with their own advantages and disadvantages.

19 most commonly used pricing strategies in business (with 3 examples of each) - Complete Pricing Strategy Guide
Do not index
Do not index
Canonical URL
Hide CTA
Hide CTA

Introduction

Pricing is one of the most important aspects of any business, as it can greatly affect a company's profitability and competitiveness.
There are many different pricing strategies that businesses can use, each with their own advantages and disadvantages.
But before we get into them, you should keep 8 factors in mind when pricing your products.

Pricing Factors

When setting prices for your products or services, there are several factors to consider in order to make sure you are pricing them correctly:
  1. Production costs: The cost of producing your product or delivering your service should be taken into account when setting the price. You need to cover your costs and make a profit, so you should include a markup on top of your costs.
  1. Target market: Your target market will have a big impact on your pricing strategy. If you are targeting high-end customers, you can charge a higher price for your product or service. On the other hand, if you are targeting budget-conscious customers, you may need to offer lower prices.
  1. Competition: Researching the prices of similar products or services offered by your competitors will help you to determine an appropriate price point. You don't want to price your products or services too high or too low in comparison to your competitors.
  1. Value: The perceived value of your product or service is an important consideration when setting prices. Customers are often willing to pay more for a product or service that they perceive as high-quality or unique.
  1. Market conditions: The overall state of the economy, consumer demand, and other external factors will also affect your pricing strategy. For example, if the economy is in a recession, consumers may be more price-sensitive, and you may need to lower your prices.
  1. Your Business Objectives: Your business objectives will guide you on how to price your products. For example, if your objective is to penetrate the market quickly, you may choose to adopt a penetration pricing strategy.
  1. Distribution channels: The distribution channels you use to sell your products can also affect your pricing strategy. For example, if you sell your products through a distributor, you'll need to account for their markup when setting your prices.
  1. Flexibility: Finally, it's important to keep in mind that prices are not set in stone and can be adjusted as needed. It's a good idea to regularly review your prices and make adjustments as necessary based on market conditions, competition, and other factors.
It's worth noting that pricing is a complex task and it's not always easy to find the perfect price point. It's important to test different pricing options and gather feedback from customers to make sure you are pricing your products or services correctly.

Now with that said, let’s look at the most common pricing strategies you can use.
Here are 19 of the most commonly used pricing strategies in business (with examples):

Most Common Pricing Strategies:

1. Cost-plus pricing:

This strategy involves setting the price of a product or service by adding a markup to the cost of producing it. Examples:
  • A bakery adding a 20% markup to the cost of ingredients when selling a loaf of bread.
  • A carpenter charging a customer a fee that includes the cost of materials plus an additional hourly rate for labor.
  • A clothing company setting a retail price for a shirt by adding a markup to the cost of manufacturing the shirt.

2. Competitive pricing:

This strategy involves setting the price of a product or service based on the prices of similar products or services offered by competitors. Examples:
  • A restaurant setting menu prices based on the prices of similar restaurants in the area.
  • An online retailer setting the price of a product based on the prices offered by other online retailers for the same product.
  • A gas station adjusting its fuel prices based on the prices offered by other gas stations in the area.

3. Value-based pricing:

This strategy involves setting the price of a product or service based on the perceived value it provides to the customer. Examples:
  • A luxury car manufacturer charging a higher price for a vehicle because of its superior engineering and craftsmanship.
  • A personal trainer charging a premium for one-on-one training sessions because of the customized workout plans and personal attention provided.
  • A software company charging a higher price for its enterprise version of a software because it includes additional features and support.

4. Psychological pricing:

This strategy involves setting the price of a product or service in a way that appeals to the customer's emotions or subconscious. Examples:
  • A store setting a price of $9.99 instead of $10 for a product in order to make it seem more affordable.
  • A car dealership pricing a vehicle at $29,999 instead of $30,000 for the same reason.
  • A restaurant listing menu prices with a 9 in them.

5. Bundle pricing:

This strategy involves offering several products or services together at a discounted price. Examples:
  • A cable company offering a bundle of television, internet, and phone services at a discounted price.
  • A hotel offering a package deal that includes a room, meals, and activities at a lower price than if each were purchased separately.
  • A software company offering a bundle of different software programs at a discounted price.

6. Penetration pricing:

This strategy involves setting a low price for a new product or service to quickly attract customers and gain market share. Examples:
  • A new smartphone brand launching with a low price point to attract customers and gain market share.
  • A new restaurant offering a special promotion for a limited time to attract customers and create buzz.
  • A new online store offering free shipping for the first month to attract customers and gain market share.

7. Skimming pricing:

This strategy involves setting a high price for a new product or service and gradually lowering it as competition increases. Examples:
  • A new video game console launching with a high price point, then gradually lowering the price as competition increases.
  • A new book launching with a high price point, then gradually lowering the price as more copies are printed.
  • A new car model launching with a high price point and gradually lowering the price as new models are released.

8. Premium pricing:

This strategy involves setting a high price for a product or service to convey its exclusivity or luxury. Examples:
  • A luxury fashion brand charging a high price for its clothing and accessories because of their exclusivity and high-quality materials.
  • A high-end restaurant charging a premium price for its food because of the unique dining experience and gourmet ingredients.
  • A private jet charter service charging a high price for its flights because of the exclusivity and luxury of the service.

9. Loss leader pricing:

This strategy involves setting a low price for one product or service in order to attract customers who will then purchase other, more profitable products or services. Examples:
  • A grocery store offering a loss leader pricing on milk to attract customers who will then purchase other items.
  • A electronics store offering a loss leader pricing on a popular game console to attract customers who will then purchase other electronics.
  • A department store offering a loss leader pricing on a popular clothing item to attract customers who will then purchase other clothing items.

10. Freemium pricing:

This strategy involves offering a basic version of a product or service for free, while charging for advanced features or additional usage. Examples:
  • A cloud storage service offering a free version with limited storage space, but charging for additional storage space.
  • A productivity software offering a free version with basic features, but charging for advanced features and integrations.
  • A dating app offering a free version with basic features, but charging for additional features such as seeing who liked your profile.

11. Dynamic pricing:

This strategy involves adjusting prices based on real-time market conditions, such as supply and demand. Examples:
  • An airline adjusting ticket prices based on the number of seats remaining on a flight.
  • An e-commerce site adjusting prices based on the time of day, day of the week, or other factors that affect demand.
  • A ride-sharing service adjusting prices based on the time of day, location, and other factors that affect demand.

12. Personalized pricing:

This strategy involves offering different prices to different customers based on factors such as their purchase history or demographics. Examples:
  • An online retailer offering different prices to different customers based on their purchase history.
  • A hotel offering different prices to different customers based on their loyalty status.
  • A car dealership offering different prices to different customers based on their credit score.

13. Time-limited pricing:

This strategy involves offering a product or service at a discounted price for a limited time. Examples:
  • A clothing store offering a sale on a certain item for a limited time.
  • A restaurant offering a special promotion on a certain menu item for a limited time.
  • A spa offering a special promotion on a certain service for a limited time.

14. Geographical pricing:

This strategy involves charging different prices for the same product or service based on the customer's location. Examples:
  • A restaurant charging different prices for the same menu items based on the location of the restaurant.
  • An online store charging different prices for the same products based on the customer's shipping address.
  • A software company charging different prices for the same software based on the location of the customer.

15. Volume pricing:

This strategy involves offering a lower price for larger quantities of a product or service. Examples:
  • A wholesaler offering a lower price for a larger quantity of a product.
  • A printing company offering a lower price for larger print runs.
  • A car rental company offering a lower price for renting a car for a longer period of time.

16. Negotiated pricing:

This is a pricing strategy where the final price is determined through negotiation between the buyer and seller. The price may be based on factors such as the scope of the project, materials used, and the buyer's budget or ability to pay. This strategy is often used in industries such as construction, legal services, and consulting. Examples:
  • A construction company negotiating a final price with a client based on the scope of the project and materials used.
  • A lawyer charging a final price based on the complexity and amount of work involved in a case.
  • A graphic designer charging a final price based on the number of revisions and complexity of the design.

17. Tiered pricing:

This is a pricing strategy where a company offers different levels of a product or service at different price points. The different levels may have varying features, access, or perks and are intended to appeal to different segments of the market. This strategy is often used in industries such as software, fitness, and cable services. Examples:
  • A software company offering different levels of service at different price points.
  • A gym offering different membership plans at different price points, with varying levels of access and perks.
  • A cable company offering different packages at different price points, with varying channels and services included.

18. Subscription pricing:

This is a pricing strategy where a company charges a recurring fee for access to a product or service. The fee may be charged on a monthly or annual basis, and the customer is typically given continuous access to the product or service as long as they continue to pay the fee. This strategy is often used in industries such as media, streaming services, and software. Examples:
  • A magazine offering a subscription at a discounted rate, with automatic renewals and continuous delivery.
  • A streaming service charging a monthly fee for access to their content.
  • A software company charging a recurring fee for access to their software.

19. Auction pricing:

This is a pricing strategy where a product or service is sold to the highest bidder. Bids may be made in a physical setting or through an online platform, and the final price is determined by the highest bid received by a certain deadline. This strategy is often used in industries such as art, antiques, and online marketplaces. Examples:
  • A website or application that allows customers to bid on a product or service, with the highest bidder winning the item or service at their bid price.
  • An auction house selling items to the highest bidder.
  • An art gallery that allows customers to bid on pieces of art.

Pricing Strategy in Marketing

Pricing strategy plays a crucial role in the overall marketing plan of a business. It helps businesses to achieve their marketing goals and objectives, such as increasing sales, market share, and profits. Some of the key roles of pricing strategy in marketing include:
  1. Attracting customers: Pricing strategy can be used to attract customers by offering low prices or discounts, which can make a product or service more affordable and appealing to price-sensitive customers.
  1. Differentiation: Pricing strategy can be used to differentiate a product or service from competitors. For example, by charging a premium price for a high-quality or unique product, a business can create a perception of exclusivity and value that sets it apart from competitors.
  1. Building brand image: Pricing strategy can be used to create a certain image or perception of a brand. For example, by charging a high price for a product, a business can create the perception that it is a luxury brand.
  1. Generating revenue: Pricing strategy is an important part of the revenue generation process. By setting the right price point, a business can ensure that it is generating enough revenue to cover its costs and make a profit.
  1. Managing costs: Pricing strategy can be used to manage costs by setting prices that reflect the costs of producing or delivering a product or service.
  1. Increasing market share: Pricing strategy can be used to increase market share by setting prices lower than competitors and attract more customers.
  1. Flexibility: Pricing strategy allows for flexibility in terms of adjusting prices as needed based on market conditions, competition, and other factors.
  1. Enhancing customer loyalty: Pricing strategy can be used to enhance customer loyalty by offering promotions, discounts, and other incentives to customers.
In summary, pricing strategy is an essential part of the overall marketing plan, and it helps businesses to achieve their marketing goals and objectives by attracting and retaining customers, differentiating their products or services, building brand image, generating revenue, managing costs and increasing market share.

Conclusion

Choosing the right pricing strategy depends on the company's objectives, target market, and the characteristics of the product or service.
It's important to carefully consider the pros and cons of each strategy and test different pricing options before making a final decision.

Written by

Ayush
Ayush

Eternally Curious. Writing, Learning, Building in Public. Writing about Ideas + Inspiration + Insights for creators, solopreneurs and indie hackers | Simple tips and frameworks to help you build a sustainable solo business

Related posts