September 30, 2023

Pricing Strategies

Pricing Strategies

5 Most Common Practices

 Pricing is the first principle of the 4P’s of Marketing – Price, Promotion, Placement, and People.

The price you offer must be consistent with “how would you like to be seen and consistent with your promotional messages”.

There are two sides to all pricing strategies, and you cannot be all things to all people. The pricing strategy you use must be appropriate for your target market.

Let’s look at the Basic 5 -

1 Cost-Plus Pricing

It is simple and used by most retailers, manufacturers, restaurants, distributors, and others. It is a time-saving way to price. 

Take the price you paid for an item, double it, and add shipping costs (if any).

2 Competitive Pricing

Knowing what your competition is charging and matching it.

There are three ways to achieve competitive pricing.

  • Aggressive Pricing
  • Dismissive Pricing
  • Co-Operative Pricing

Aggressive pricing is not for everybody. A business that is pricing aggressively needs to be flying above the competition with healthy margins.

S station and Love’s at the I-15 exit 62 interchange. Maverik lowers their prices and Love’s matches it. Maverik goes lower yet and so on.

Dismissive Pricing requires you price as you wish and do not react to your competition. You must know your target market very well to succeed. You’re basing your prices on what you know they’ll pay.

Co-Operative Pricing is playing the match game. Your competition goes up and you follow. This method leaves you vulnerable because your decision are based on price matching and not what is best for your business.

3 Price Skimming

 Price Skimming is used by companies when introducing a new product. Prevalent in the Pharmaceuticals, they charge a premium to introduce a new drug. No insurance, no coupons, no discounts, no Dr. samples. Just the highest price they can justify.

            As the “Early-Adopter” market becomes saturated and sale dip, the manufacturer lowers the price to reach a new market segment.

4 Penetration Pricing

Penetration pricing makes sense when you’re setting a low price early on to quickly build a large customer base.

For this strategy to bring financial success, your margins must be high.

5. Value-Based Pricing

The perceived value to the customer is primarily based on how well it is suited to the needs and wants of each customer.

Unlike Price-skimming and Penetration pricing, when a price doesn’t work, the answer isn’t just to raise or lower the price. The solution will come when you determine how it can better match the customers’ perceived value.

If you offer products that stand out in the market rather than competing on low costs and low prices, value-based pricing will help you better convey the uniqueness of your products.

How to set a Value-Based Price
  • Pick a product that is comparable to yours and find out what the customer pays.
  • Find ways your product is different.
  • Place a financial value on the difference.
  • Make sure the value to your customer is greater than your costs.

Closing Thoughts –

Don’t be afraid to use different strategies during the life of your product.

Don’t be afraid to use different strategies for different products. Your loss leaders may work best with cost-plus pricing, while your high-end products may sell better to the value-based customer. The key? Watch closely what your sales are and adjust accordingly.

Remember, keep your business journal humming with sales notes, customer comments and recommendations, and pricing information. You’ll be glad you did.


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