Setting the right prices for your products and services is crucial. Set the prices too high, and you won’t attract more customers. Set them too low, and you won’t generate a high profit. That is why you can not just “guess” the prices you will set for your offerings; there’s a lot of technical thinking involved. We need to keep all these factors in mind to determine the demand and supply pattern of the market and then set up the prices for your products and services accordingly. And one of the most important parts of this process is the consumer price index. It refers to the changes in prices paid by customers for a specific group of products over a fixed period of time, and it tracks the inflation and deflation of a country’s economy. There are around 11 different pricing strategies, and all eleven take the pricing index into account to set prices in the best way possible.

What are Pricing Strategies?

The simple definition of a pricing strategy is:

“Pricing strategies are how you decide to charge your customers and how you set prices for your products and services.”

The goal of a pricing strategy is to maximize profit for the company, which is why it's important for companies to consider their customers' buying habits and their own business goals when crafting a pricing strategy.

Types of Pricing Strategy

Given below are eleven different price strategies that businesses use depending on their needs:

1. Competition-Based Pricing

Competition-based pricing works like this: You have two competitors. They both have the same product or service, but each has different prices for it. So you compete with your competitors and use the prices set by them as a benchmark to set the prices for your own products and services.

2. Cost-Plus Pricing

Cost-plus pricing strategy (also known as markup pricing) is a pricing model that bases the price of a product or service on its cost + markup.

3. Dynamic Pricing

Dynamic pricing is a strategy that companies use to change prices based on supply and demand without waiting for the market to adjust. In this strategy, you can change the price of an item quickly in response to changes in what consumers are willing to pay for your product or service.

4. Freemium Pricing

Freemium pricing is a strategy that involves offering users a free version of your product and then charging them to upgrade for additional features.

5. Hourly Pricing

The hourly pricing strategy is a method of selling services at prices that are based on hourly rates for the time it takes to complete a task.

6. Skimming Pricing/High-Low Pricing

The skimming pricing strategy and the high-low pricing strategy somewhat come under the same bracket. Companies who use these pricing strategies charge the highest possible price for a new product and gradually lower the prices over time as the product penetrates in the market.

7. Premium Pricing

In a premium pricing strategy, companies set high prices to create an image that their products and services are very high in value.

8. Project-Based Pricing

The project-based pricing strategy is the opposite of hourly pricing. In this pricing strategy, you set a fixed rate for your services.

9. Value-Based Pricing

The value-based pricing strategy is a very customer-centric approach where companies price their products and services based on the needs and budget of the customer.

10. Psychological Pricing

It’s a strategy that influences the customer’s psychology to spend more.

11. Geographical Pricing

As the name suggests, a geographical pricing strategy is based on the business's location. The prices for the products and services vary according to the location from where the purchase is being made.

Pricing Strategy Examples

Now that you know about different pricing strategies, let’s exemplify each one for a better understanding.

1. Competition-Based Pricing — Tecno Mobile Phones

Tecno is a well-known mobile phone company that uses a competitive pricing strategy to generate sales. When Tecno came into existence, it introduced mobile phones with the lowest market prices. The company was successful in its goal, and according to global market intelligence company IDC, Tecno's sales volume exceeded 25 million units, up 45%, and revenue exceeded 15 billion.

2. Cost-Plus Pricing — Mcdonalds' Soft Drink & French Fries

The soft drink and french fries offered by Mcdonald's have the highest profitability ratio with a markup of 90% for every sale made. This means that if McDonald's sells you a drink for $1, McDonald's makes a profit of 90 cents while the remaining 10 cents are the production cost they have to bear for the drink.

3. Dynamic Pricing — Four Seasons Resort Hualalai

The Four Seasons Resort Hualalai is one of the best hotels in the U.S. that uses the dynamic pricing strategy. The hotel increases its prices during the holiday season when the visitor rate is high to generate the maximum revenue.

4. Freemium Pricing — Slack

Slack is a widely-used business messaging app, and it uses the freemium pricing strategy. It offers a free version at first, and users can get access to more features if they start paying.

5. Hourly Pricing — Freelancers on Upwork

Upwork makes a good hourly pricing strategy example. Many freelancers worldwide use it as a medium to sell their services online at hourly rates.

6. Skimming Pricing/High-Low Pricing — iPhones by Apple

The Apple iPhones are among the most popular mobile phones. Every year in September, Apple releases a new generation of its iPhone series. The initial prices for the new iPhone are very high, but it gradually drops over the year until the new iPhone is released.

7. Premium Pricing — Mach & Mach Shoes

Mach & Mach has been gaining popularity for its luxury shoes, and many people see them as a symbol of exclusivity. This brand's single pair of sandals can cost you around $1500!

8. Project-Based Pricing — Fiverr

On Fiverr, freelancers create project-based gigs and get paid once they finish the project.

9. Value-Based Pricing — Zenefits

Zenefits is a people operations platform that manages HR, payroll, time, attendance, etc. It allows you to pick up the base plan and then add on the services you want to acquire based on your business needs and budget.

10. Psychological Pricing — Bath and Body Works

Bath and Body Works uses compelling packaging and offers like “buy three, get three free” to impact the human mind to make impulsive purchases.

11. Geographical Pricing — ExxonMobil

ExxonMobil is a multinational oil and gas company in the U.S. This uses the geographical pricing method by charging different prices for its products based on the location they are supplying them.

Pricing Strategy of a Product

Now, you may have an idea that choosing pricing strategies for new products should be done carefully. We suggest that you keep in account internal factors such as:

The attributes of your products
The position of your brand
The audience you want to target
The profit you aim to generate

This way, your products are much likely to perform better in the market.

Pricing Strategy in Business

Once you have figured out the internal factors while choosing a strategy to price your products, don’t forget to run some final checks and consider the external factors like:

Consumer demand
Competitor pricing
Economic conditions
Market trends

No matter what the challenge is, if you have all these factors in the loop, your business is more likely to flourish, grow and scale.

What is Pricing Strategy in Marketing?

The pricing strategy in marketing depends on the pricing strategy you have in place. However, all these strategies have one thing in common — they present the products in a specific way that convinces your prospects to make a purchase. For example, the psychological pricing strategy targets the audience using human psychology by using the 9-digit effect. Instead of pricing the products and services at $100, they’ll set a price at $99.9 to win over customers. And this actually works! So be wise and choose the best suitable pricing strategy for your business.

Best Pricing Strategies

By now you must be familiar with 11 different types of pricing strategies (discussed above). Here’s the last section that focuses on examples of pricing strategies that are BEST FOR different business models.

Pricing Strategy	BEST FOR
Competition-Based Pricing	Businesses that have a price-sensitive audience.
Cost-Plus Pricing	All Businesses
Dynamic Pricing	Hotels, Airlines, Marquees
Freemium Pricing	SaaS/Software Companies
Hourly Pricing	Consultants, Freelancers, Contractors
Skimming Pricing/High-Low Pricing	Technology Products/New Businesses
Premium Pricing	High-end Fashion and Technology brands
Project-Based Pricing	Consultants, Freelancers, Contractors
Value-Based Pricing	Service based businesses
Psychological Pricing	Retail stores
Geographical Pricing	Mostly steel, gasoline, and agricultural companies.

To Sum Up

Hopefully, this guide has served as a helpful way to understand pricing strategies better. The strategies above represent most of the options available, so be flexible and willing to improvise based on what works best for you and your audience.

The Ultimate Guide to Pricing Strategies in 2023