Pricing Strategy

pricing strategy

Price is generated by judgments made by sellers about what to give their consumers, how to convey their offers, how to price differently among customers or applications, and how to manage customer pricing expectations. Making these judgments wisely and effectively in order to optimize revenue is what we refer to as “strategic pricing.”

The goal of strategic pricing is long-term profitability. Achieving extraordinary profitability needs careful consideration of factors other than pricing levels. It ensures that goods and services have just those features that customers are prepared to pay for, rather than those that increase costs more than they provide value.

Despite the fact that diverse methods can provide lucrative outcomes even within the same industry, almost all effective pricing strategies adhere to three criteria. They place a premium on value, are proactive, and are profit-driven.

Prices are the pivots of a market economy. Consider this: every dollar of sales and profit generated by a firm is the direct or indirect outcome of a price decision. Each spending in your personal budget yields something in return, implying that you paid a cost each time. Prices are at the center of everything.

Most people generally conceive of “price” in its most basic form: the number of monetary units required to purchase a goods or service. To keep things basic and round, a gallon of petrol costs around $4, a large normal coffee costs about $2, and a movie ticket costs about $10. Most goods and services we encounter on a daily basis have that feature.

As a buyer or seller, you will never make ideal selections all of the time. The more we learn about prices and how they function, the more likely we are to use pricing to develop a more successful business or to filter through the tsunami of price information to get a better bargain.

Price is price, no matter what you name it. We are always deciding if something is worth our money or attempting to persuade others to part with their money. That is the core of price, regardless of how we refer to money or the mechanism by which the parties complete the transaction. Everything has a cost.

New Product Pricing Strategy

Pricing methods typically evolve as a product progresses through its life cycle. The first stage is extremely difficult. Companies that launch a new product have the problem of establishing prices for the first time. They have two major pricing strategies to select from market-skimming pricing and market-penetration pricing.

Market-Skimming Pricing

Setting a high price for a new product in order to earn maximum profits from groups ready to pay the high price; the firm generates fewer but more lucrative sales.

Skimming the market makes sense only in particular circumstances. First, the product’s quality and image must justify its higher price, and a sufficient number of consumers must desire the goods at that price. Second, the expenses of manufacturing a lower volume cannot be so great that the benefit of charging more is negated. Finally, rivals should be unable to quickly enter the market and undercut the high price.

Market-Penetration Pricing

Choosing a low price strategy for a new product to attract a big number of consumers and a significant market share.

Several requirements must be satisfied for this low-cost technique to be effective. To begin, the market must be very price-sensitive, such that a reduced price results in increased market growth.

Second, as sales volume grows, production and distribution costs must drop. Finally, the low price must help keep the competitors at bay, and the penetration pricer must retain its low-price position. Otherwise, the pricing advantage would be lost.

Product Mix Pricing

When a product is part of a product mix, the pricing strategy must frequently be modified. In this scenario, the business seeks a set of pricing that optimizes its profitability across the whole product mix. Pricing is challenging because different goods have varied demand and prices and experience varying levels of competition.

Product line Pricing

Setting price steps between various goods in a product line based on cost disparities between the products, consumer ratings of specific features, and rivals’ prices.

Optional-Product Pricing

Pricing of extra or supplementary items in addition to a core product. When you buy a new laptop, for example, you may choose from a confusing assortment of CPUs, hard drives, docking systems, software options, and service contracts.

Captive-Product Prices

Setting a price for goods that must be used in conjunction with the main product, such as blades for a razor.

By-Product Pricing

By-products are frequently generated when products and services are manufactured. If the by-products have little value and getting rid of them is expensive, the pricing of the primary product will suffer. Using by-product pricing, the firm finds a market for these by-products in order to offset the expenses of disposal and make the primary product’s price more competitive.

Item Bundle Pricing

Combining multiple goods and selling the bundle at a discount. Fast-food establishments, for example, charge a “combo” pricing for a burger, fries, and a soft drink.

Price Adjustment Strategy

Companies typically modify their fundamental pricing of goods and services under this strategy to cater to different client preferences and changing circumstances.

Discount and Allowance Prices

A direct price decrease on purchases made within a specified time period or in bigger quantities. For example, early bill payment, bulk purchases, and off-season purchasing.


Manufacturers pay promotional money to distribution channel members in exchange for an agreement to showcase the manufacturer’s products in some form in their warehouse and store.

Segmented Prices

Companies frequently modify their pricing to account for variations in consumers, goods, and regions. In segmented pricing, a firm offers a product or service at two or more pricing rates, even if the price difference is not based on cost differences.

Psychological Pricing

When employing psychological pricing, merchants take into account the psychology of prices as well as economics. Consumers, for example, typically consider higher price items to be of greater quality and value. They use priceless to assess quality when they can judge the quality of a product by studying it or drawing on previous experience with it.

However, when individuals are unable to assess quality due to a lack of knowledge or expertise, pricing becomes an essential quality indicator. For example, which lawyer is preferable, one who costs $50 per hour or one that charges $500 per hour?

Promotional Pricing

Pricing items temporarily below the advertised price, and occasionally even below cost, in order to promote short-run sales. Sellers also utilize special-event pricing to attract more customers during particular seasons under this strategy.

Geographical Prices

Setting pricing to clients according to the regions of the country or world.

Dynamic Pricing

Continually adjusting pricing to match the characteristics and demands of specific consumers and scenarios. Most pricing is now established in this manner. Many businesses, however, are already reversing the set price tendency. They use dynamic pricing, which means that rates are constantly adjusted to match the characteristics and demands of specific consumers and situations.

International Pricing

Companies that sell their products on a global scale must decide how much to charge in each country. In some situations, a corporation can set consistent global pricing.

The price a firm should charge in a given nation is determined by a variety of factors, including economic conditions, competitive situations, rules and regulations, and the nature of the wholesale and retailing system. Consumer views and tastes may also fluctuate from nation to country, necessitating a separate pricing strategy.

Psychological Pricing Strategy

Psychological pricing strategies are not new, and savvy marketers have utilized these measures to influence consumer behavior for a long time.

The price psychology of numbers may be perplexing. People don’t seem to make reasonable decisions. Every decision, however erroneous, is based on reasoning.

The great majority of businesses take advantage of this lack of interest in the math of customers. It allows marketers to offer another pricing strategy in the market popularly known as psychological pricing.

Artificial Time- Quantity Constraints

We’ve seen retail stores or online shopping websites state just 5 things remaining or available till next week to demonstrate the urgency of the goods to consumers. A consumer having urgency of such product can not wait for a long time and buy immediately.

Odd Even Pricing

Odd-even pricing is a psychological pricing strategy that leverages the power of number psychology to compel customers to take action. The odds and evens refer to the price numbers: “odd” retail prices have primarily odd digits. $99, but “even” pricing includes primarily even amounts such as $100.

Odd pricing is successful for price-sensitive customers, but even pricing is effective for quality-aware customers because a greater price implies a better level of quality to the client.

‘BOGOF’: Buy One, Get One Free

This is a pricing strategy in which clients pay full price for one product or service in order to receive another free of charge.

Greed is the psychological approach at work here. When a consumer sees the offer, rationality is thrown out the window, and the main focus is on making a purchase to obtain the free gift.

Price Appearance

Your pricing strategy may also have a significant influence on how clients perceive the worth of your goods. Take a peek at the pricing the next time you go to a nice restaurant. They will most likely be in a smaller font and will not have the extra zeroes at the end. They will seem to be “99” rather than “$99.00.”

There is a purpose behind this design. Even though they reflect the same amount, longer prices appear to be more expensive to customers than shorter prices. This is because lengthier prices take longer to read subconsciously.

Visually Highlight the Different Prices

When you offer a sale with an old price next to a new one, you generate more purchases because buyers believe they are receiving a good deal and are not interested in studying the price decrease.

Use the psychological technique of altering the font, size, and color of the new price to make the new pricing approach operate successfully.

Frequently Asked Questions (FAQs)

What is a competitive pricing strategy?

Competitive pricing is a pricing strategy in which a company sets market prices for its goods that are comparable to market prices for related competitor products. When numerous businesses sell the same sort of product or service, the purpose of competitive pricing is to maintain profit margins.

What is amazon’s pricing strategy?

Amazon’s pricing strategy relies around giving customers the best deal possible. Due to intense rivalry among sellers and fluctuating customer demand, a price can vary every few minutes. More pricing adjustments result from a more dynamic market.

What is a skimming pricing strategy?

When there is a strong price-perceived quality link, a skimming pricing would be the best strategy for a marketer to price their product. It charges a relatively high initial price for a new product or service that targets pioneers, and early adopters who are priced insensitive. A first-mover with little or no competition frequently employs this pricing strategy. Price skimming is not a long-term price strategy because competitors will ultimately produce competing products, putting pricing pressure on the first.

How to develop a pricing strategy?

When it comes to pricing, you have a variety of options, including tactics based on costs, competition, perceived value, and product. Keep your complete marketing strategy in mind when deciding on your pricing strategy to ensure that your methods complement one another.

What is a premium pricing strategy?

The technique of setting a high price to make the impression that a product is of especially high quality is known as premium pricing. Premium pricing provides the advantages of generating better profit margins, erecting higher barriers to entry for competitors, and raising the brand’s value across the board.

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