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15.3 Pricing Strategies

Learning objectives.

• Understand introductory pricing strategies.
• Understand the different pricing approaches that businesses use.

Once a firm has established its pricing objectives and analyzed the factors that affect how it should price a product, the company must determine the pricing strategy (or strategies) that will help it achieve those objectives. As we have indicated, firms use different pricing strategies for their offerings. And oftentimes, the strategy depends on the stage of life cycle the offerings are in currently. Products may be in different stages of their life cycle in various international markets. Next, we’ll examine three strategies businesses often consider when a product is first introduced and then look at several different pricing approaches that companies utilize during the product life cycle.

Introductory Pricing Strategies

Think of products that have been introduced in the last decade and how products were priced when they first entered the market. Remember when the iPhone was first introduced, its price was almost $700. Since then, the price has dropped considerably even for new models. The same is true for DVD players, LCD televisions, digital cameras, and many high-tech products. As mentioned in Chapter 7 “Developing and Managing Offerings” , a skimming price strategy is when a company sets a high initial price for a product. The idea is to go after consumers who are willing to pay a high price (top of the market) and buy products early. This way, a company recoups its investment in the product faster.

The easy way to remember a skimming approach is to think of the turkey gravy at Thanksgiving. When the gravy is chilled, the fat rises to the top and is often “skimmed” off before serving. Price skimming is a pricing approach designed to skim that top part of the gravy, or the top of the market. Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering.

In contrast to a skimming approach, a penetration pricing strategy is one in which a low initial price is set. Often, many competitive products are already in the market. The goal is to get as much of the market as possible to try the product. Penetration pricing is used on many new food products, health and beauty supplies, and paper products sold in grocery stores and mass merchandise stores such as Walmart, Target, and Kmart.

Another approach companies use when they introduce a new product is everyday low prices . That is, the price initially set is the price the seller expects to charge throughout the product’s life cycle. Companies like Walmart and Lowe’s use everyday low pricing. Lowe’s emphasizes their everyday low pricing strategy with the letters in their name plus the letter “t” (Lowest).

Figure 15.3

New flavors of snacks, candy, cereal, and shampoo sold in grocery stores and by mass merchandisers similar to the one in this picture are priced using a penetration pricing strategy to get consumers to try the products.

Rex Roof – Cereal Aisle – CC BY 2.0.

Pricing Approaches

Companies can choose many ways to set their prices. We’ll examine some common methods you often see. Many stores use cost-plus pricing , in which they take the cost of the product and then add a profit to determine a price. Cost-plus pricing is very common. The strategy helps ensure that a company’s products’ costs are covered and the firm earns a certain amount of profit. When companies add a markup , or an amount added to the cost of a product, they are using a form of cost-plus pricing. When products go on sale, companies mark down the prices, but they usually still make a profit. Potential markdowns or price reductions should be considered when deciding on a starting price.

Many pricing approaches have a psychological appeal. Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. For example, instead of being priced $10.00, a product will be priced at $9.99. Likewise, a $20,000 automobile might be priced at $19,998, although the product will cost more once taxes and other fees are added. See Figure 15.4 for an example of odd-even pricing.

Figure 15.4

The charcoal shown in the photo is priced at $5.99 a bag, which is an example of odd-even pricing, or pricing a product slightly below the next dollar amount.

Mike Mozart – Kingsford, Charcoal – CC BY 2.0.

Prestige pricing occurs when a higher price is utilized to give an offering a high-quality image. Some stores have a quality image, and people perceive that perhaps the products from those stores are of higher quality. Many times, two different stores carry the same product, but one store prices it higher because of the store’s perceived higher image. Neckties are often priced using a strategy known as price lining , or price levels . In other words, there may be only a few price levels ($25, $50, and $75) for the ties, but a large assortment of them at each level. Movies and music often use price lining. You may see a lot of movies and CDs for $15.99, $9.99, and perhaps $4.99, but you won’t see a lot of different price levels.

Remember when you were in elementary school and many students bought teachers little gifts before the holidays or on the last day of school. Typically, parents set an amount such as $5 or $10 for a teacher’s gift. Knowing that people have certain maximum levels that they are willing to pay for gifts, some companies use demand backward pricing . They start with the price demanded by consumers (what they want to pay) and create offerings at that price. If you shop before the holidays, you might see a table of different products being sold for $5 (mugs, picture frames, ornaments) and another table of products being sold for $10 (mugs with chocolate, decorative trays, and so forth). Similarly, people have certain prices they are willing to pay for wedding gifts—say, $25, $50, $75, or $100—so stores set up displays of gifts sold at these different price levels. IKEA also sets a price for a product—which is what the company believes consumers want to pay for it—and then, working backward from the price, designs the product.

Leader pricing involves pricing one or more items low to get people into a store. The products with low prices are often on the front page of store ads and “lead” the promotion. For example, prior to Thanksgiving, grocery stores advertise turkeys and cranberry sauce at very low prices. The goal is to get shoppers to buy many more items in addition to the low-priced items. Leader or low prices are legal; however, as you learned earlier, loss leaders , or items priced below cost in an effort to get people into stores, are illegal in many states.

Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids. Companies must submit their bids by a certain time. The bids are later reviewed all at once, and the most desirable one is chosen. Sealed bids can occur on either the supplier or the buyer side. Via sealed bids, oil companies bid on tracts of land for potential drilling purposes, and the highest bidder is awarded the right to drill on the land. Similarly, consumers sometimes bid on lots to build houses. The highest bidder gets the lot. On the supplier side, contractors often bid on different jobs and the lowest bidder is awarded the job. The government often makes purchases based on sealed bids. Projects funded by stimulus money were awarded based on sealed bids.

Figure 15.5

When people think of auctions, they may think of the words, “Going, going, gone.” Online auctions use a similar bidding process.

Wikimedia Commons – CC BY-SA 3.0.

Bids are also being used online. Online auction sites such as eBay give customers the chance to bid and negotiate prices with sellers until an acceptable price is agreed upon. When a buyer lists what he or she wants to buy, sellers may submit bids. This process is known as a forward auction . If the buyer not only lists what he or she wants to buy but also states how much he or she is willing to pay, a reverse auction occurs. The reverse auction is finished when at least one firm is willing to accept the buyer’s price.

Going-rate pricing occurs when buyers pay the same price regardless of where they buy the product or from whom. Going-rate pricing is often used on commodity products such as wheat, gold, or silver. People perceive the individual products in markets such as these to be largely the same. Consequently, there’s a “going” price for the product that all sellers receive.

Price bundling occurs when different offerings are sold together at a price that’s typically lower than the total price a customer would pay by buying each offering separately. Combo meals and value meals sold at restaurants are an example. Companies such as McDonald’s have promoted value meals for a long time in many different markets. See the following video clips for promotions of value meals in the United States, Greece, and Japan. Other products such as shampoo and conditioner are sometimes bundled together. Automobile companies bundle product options. For example, power locks and windows are often sold together, regardless of whether customers want only one or the other. The idea behind bundling is to increase an organization’s revenues.

McDonald’s Introduced Value Meals in 1985

(click to see video)

Look at the cost and the amount of food in the original value meal.

McDonald’s Uses Humor in Greece to Sell Big Macs

McDonald’s in Japan

McDonald’s is popular around the world.

Captive pricing is a strategy firms use when consumers must buy a given product because they are at a certain event or location or they need a particular product because no substitutes will work. Concessions at a sporting event or a movie provide examples of how captive pricing is used. Maybe you didn’t pay much to attend the game, but the snacks and drinks were extremely expensive. Similarly, if you buy a razor and must purchase specific razor blades for it, you have experienced captive pricing. The blades are often more expensive than the razor because customers do not have the option of choosing blades from another manufacturer.

Pricing products consumers use together (such as blades and razors) with different profit margins is also part of product mix pricing . Recall from Chapter 6 “Creating Offerings” that a product mix includes all the products a company offers. If you want to buy an automobile, the base price might seem reasonable, but the options such as floor mats might earn the seller a much higher profit margin. While consumers can buy floor mats at stores like Walmart for $30, many people pay almost $200 to get the floor mats that go with the car from the dealer.

Most students and young people have cell phones. Are you aware of how many minutes you spend talking or texting and what it costs if you go over the limits of your phone plan? Maybe not if your plan involves two-part pricing. Two-part pricing means there are two different charges customers pay. In the case of a cell phone, a customer might pay a charge for one service such as a thousand minutes, and then pay a separate charge for each minute over one thousand. Get out your cell phone and look at how many minutes you have used. Many people are shocked at how many minutes they have used or the number of messages they have sent in the last month.

Have you ever seen an ad for a special item only to find out it is much more expensive than what you recalled seeing in the ad? A company might advertise a price such as $25*, but when you read the fine print, the price is really five payments of $25 for a total cost of $125. Payment pricing , or allowing customers to pay for products in installments, is a strategy that helps customers break up their payments into smaller amounts, which can make them more inclined to buy higher-priced products.

Promotional pricing is a short-term tactic designed to get people into a store or to purchase more of a product. Examples of promotional pricing include back-to-school sales, rebates, extended warranties, and going-out-of-business sales. Rebates are a great strategy for companies because consumers think they’re getting a great deal. But as you learned in Chapter 12 “Public Relations, Social Media, and Sponsorships” , many consumers forget to request the rebate. Extended warranties have become popular for all types of products, including automobiles, appliances, electronics, and even athletic shoes. If you buy a vacuum for $35, and it has a one-year warranty from the manufacturer, does it really make sense to spend an additional $15 to get another year’s warranty? However, when it comes to automobiles, repairs can be expensive, so an extended warranty often pays for itself following one repair. Buyers must look at the costs and benefits and determine if the extended warranty provides value.

We discussed price discrimination , or charging different customers different prices for the same product, earlier in the chapter. In some situations, price discrimination is legal. As we explained, you have probably noticed that certain customer groups (students, children, and senior citizens, for example) are sometimes offered discounts at restaurants and events. However, the discounts must be offered to all senior citizens or all children within a certain age range, not just a few. Price discrimination is used to get more people to use a product or service. Similarly, a company might lower its prices in order to get more customers to buy an offering when business is slow. Matinees are often cheaper than movies at night; bowling might be less expensive during nonleague times, and so forth.

Price Adjustments

Organizations must also decide what their policies are when it comes to making price adjustments , or changing the listed prices of their products. Some common price adjustments include quantity discounts , which involves giving customers discounts for larger purchases. Discounts for paying cash for large purchases and seasonal discounts to get rid of inventory and holiday items are other examples of price adjustments.

A company’s price adjustment policies also need to outline the firm’s shipping charges. Many online merchants offer free shipping on certain products, orders over a certain amount, or purchases made in a given time frame. FOB (free on board) origin and FOB delivered are two common pricing adjustments businesses use to show when the title to a product changes along with who pays the shipping charges. FOB (free on board) origin means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges. FOB (free on board) destination means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges.

Uniform-delivered pricing , also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located. If you mail a letter across town, the postage is the same as when you mail a letter to a different state.

Recall that we discussed trade allowances in Chapter 12 “Public Relations, Social Media, and Sponsorships” . For example, a manufacturer might give a retail store an advertising allowance to advertise the manufacturer’s products in local newspapers. Similarly, a manufacturer might offer a store a discount to restock the manufacturer’s products on store shelves rather than having its own representatives restock the items.

Reciprocal agreements are agreements in which merchants agree to promote each other to customers. Customers who patronize a particular retailer might get a discount card to use at a certain restaurant, and customers who go to a restaurant might get a discount card to use at a specific retailer. For example, when customers make a purchase at Diesel, Inc., they get a discount coupon good to use at a certain resort. When customers are at the resort, they get a discount coupon to use at Diesel. Old Navy and Great Clips implemented similar reciprocal agreements.

A promotion that’s popular during weak economic times is called a bounce back. A bounce back is a promotion in which a seller gives customers discount cards or coupons (see Figure 15.6 ) after purchasing. Consumers can then use the cards and coupons on their next shopping visits. The idea is to get the customers to return to the store or online outlets later and purchase additional items. Some stores set minimum amounts that consumers have to spend to use the bounce back card.

Key Takeaway

Both external and internal factors affect pricing decisions. Companies use many different pricing strategies and price adjustments. However, the price must generate enough revenues to cover costs in order for the product to be profitable. Cost-plus pricing, odd-even pricing, prestige pricing, price bundling, sealed bid pricing, going-rate pricing, and captive pricing are just a few of the strategies used. Organizations must also decide what their policies are when it comes to making price adjustments, or changing the listed prices of their products. Some companies use price adjustments as a short-term tactic to increase sales.

Review Questions

• Explain the difference between a penetration and a skimming pricing strategy.
• Describe how both buyers and sellers use sealed bid pricing.
• Identify an example of each of the following: odd-even pricing, prestige pricing, price bundling, and captive pricing.
• What is the difference between FOB origin and FOB destination when paying for shipping charges?
• Explain how trade allowances work.

Principles of Marketing Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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• Administering Pricing

Assign Pricing Strategy According to Business Unit

Create a strategy assignment that assigns your pricing strategy according to the pricing segment that you assign to your customer and the business unit on the sales order header.

Assume you already set up profiles, segments and strategies for two of your customers.

For details, see How Profiles, Segments, and Strategies Work Together .

But you want to assign a different strategy for each customer according to business unit.

If the segment is Tier 1 and the business unit is Vision Operations, then assign the Commercial pricing strategy.

If the segment is Tier 1 and the business unit is Vision Services, then assign the Commercial pricing strategy.

If the segment is Tier 2 and the business unit is Vision Operations, then assign the Corporate pricing strategy.

Summary of the Set Up

Modify the matrix class.

Modify the strategy assignment.

Modify the pricing algorithm.

Test your set up.

Modify Matrix Class

Modify the matrix class so you can set the business unit in the strategy assignment.

Go to the Pricing Administration work area, then click Tasks > Manage Matrix Classes .

On the Manage Matrix Classes page, in the Name column, click Sales Pricing Strategy Assignment .

On the Edit Matrix Class page, in the Condition Columns area, click Actions > Add Row , then set the values.

To set the Domain, click the pencil in the Domain column, then set the values. Set them in the same sequence that this table displays them.

Leave all other attributes empty. Don't add a bind variable.

In the Result Columns area, click Actions > Add Row , set the values, then click Save .

Modify Strategy Assignment

Next, modify the strategy assignment.

Click Tasks > Manage Pricing Strategy Assignments .

On the Manage Pricing Strategy Assignments page, click Actions > Add Row , set the values, then click Save .

Click Create Assignment Matrix .

In the Create Assignment Matrix dialog, in the Select Optional Condition Columns area, set the values, then click OK .

In the Pricing Strategy Assignment Rules area, create 5 rows.

Pricing uses the view object that you set up earlier in the matrix class to populate the list of values that you use to select the business unit. The list contains all the business units that you have set up in you organization.

The fourth row captures the condition where you haven't set up a pricing segment and you set the business unit on the order header to Vision Operations.

The fifth row captures the condition where you haven't set up a pricing segment and you don't set the business unit on the order header to any value.

Baseline Strategy can be any strategy that you use when no conditions apply. This way, Pricing can still price the item and avoid an error condition.

Modify Pricing Algorithm

Modify the pricing algorithm so it examines the rules you just set up in the assignment matrix according to the pricing precedence you set in the matrix.

Click Tasks > Manage Algorithms .

On the Manage Algorithms page, filter the Name column for Get Sales Pricing Strategy.

Click the row that has the highest published version of Get Sales Pricing Strategy, then click Actions > Create Version .

Click the link in the Name column of the row that has the highest, In Progress version.

On the Edit Algorithm page, on the Algorithm tab, expand the Retrieve Header Strategy step, then, in the Name column, click Get Header Strategy .

In the Data Sets area, in the row that contains Matrix in the Name column, set the value.

Click Save and Close .

On the Manage Algorithms page, click Actions > Publish .

Test Your Set Up

Open another browser window and sign into Order Management with the privileges that you need to manage sales orders.

Go to the Order Management work area, create a sales order, then set the values.

Click Actions > View Pricing Strategy and Segment , then verify the values.

Reset values.

Related Topics

• How Profiles, Segments, and Strategies Work Together

The Ultimate Guide to Pricing Strategies & Models

Discover how to properly price your products, services, or events so you can drive both revenue and profit.

FREE SALES PRICING CALCULATOR

Determine the best pricing strategy for your business with this free calculator and template.

Updated: 08/16/23

Published: 08/16/23

Pricing your products and services can be tough. Set prices too high, and you miss out on valuable sales. Set them too low, and you miss out on valuable revenue.

Thankfully, pricing doesn’t have to be a sacrifice or a shot in the dark. There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals.

That’s why we’ve created this guide.

Whether you’re a business beginner or a pricing pro, the tactics and strategies in this guide will get you comfortable with pricing your products. Bookmark this guide for later and use the chapter links to jump around to sections of interest.

Pricing Strategy

Types of pricing strategies, how to create a pricing strategy, pricing models based on industry or business.

Conducting a Pricing Analysis

Pricing Strategy Examples

A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand.

If only pricing was as simple as its definition — there’s a lot that goes into the process.

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS) , consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy.

The best pricing strategy maximizes your profit and revenue.

Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use.

Free Sales Pricing Strategy Calculator

• Cost-Plus Pricing
• Skimming Strategy
• Value-Based Pricing

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Click this link to access this resource at any time.

Determine the Best Pricing Strategy For Your Business

Fill out this form to access the free template., price elasticity of demand.

Price elasticity of demand is used to determine how a change in price affects consumer demand.

If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic .

On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets).

You can calculate price elasticity using the formula:

% Change in Quantity ÷ % Change in Price = Price Elasticity of Demand

The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate.

Cost, Margin, & Markup in Pricing

To choose a pricing strategy, it’s also essential to understand the role of cost, margin, and markup — especially if you’d like your pricing to be cost-based . Let’s dive into the definition for each.

Cost refers to the fees you incur from manufacturing, sourcing, or creating the product you sell. That includes the materials themselves, the cost of labor, the fees paid to suppliers, and even the losses. Cost doesn’t include overhead and operational expenses such as marketing, advertising, maintenance, or bills.

Margin (in this case, gross margin) refers to the amount your business earns after you subtract manufacturing costs.

Markup refers to the additional amount you charge for your product over the production and manufacturing fees.

Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services.

• Competition-Based Pricing
• Dynamic Pricing
• High-Low Pricing
• Penetration Pricing
• Skimming Pricing
• Psychological Pricing
• Geographic Pricing

Now, let's dive into the descriptions of each pricing strategy — many of which are included in the template below — so you can learn about what makes each of them unique.

Discover how much your business can earn using different pricing strategies with HubSpot's free sales pricing calculator so you can choose the best pricing model for your business.

Download Template

1. competition-based pricing strategy.

Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate ) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand.

Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers.

With competition-based pricing , you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software , and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers.

Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic.

Competition-Based Pricing Strategy in Marketing

Consumers are primarily looking for the best value which isn’t always the same as the lowest price. Pricing your products and services competitively in the market can put your brand in a better position to win a customer’s business. Competitive pricing works especially well when your business offers something the competition doesn’t — like exceptional customer service, a generous return policy, or access to exclusive loyalty benefits .

2. Cost-Plus Pricing Strategy

A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS . It’s also known as markup pricing since businesses who use this strategy “markup” their products based on how much they’d like to profit.

To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%.

Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them.

Cost-Plus Pricing Strategy in Marketing

Cost-plus pricing works well when the competition is pricing using the same model. It won’t help you attract new customers if your competition is working to acquire customers rather than growing profits. Before executing this strategy, complete a pricing analysis that includes your closest competitors to make sure this strategy will help you meet your goals.

3. Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand.

Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Dynamic Pricing Strategy in Marketing

Dynamic pricing can help keep your marketing plans on track. Your team can plan for promotions in advance and configure the pricing algorithm you use to launch the promotion price at the perfect time. You can even A/B test dynamic pricing in real-time to maximize your profits.

4. High-Low Pricing Strategy

A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy.

High-low pricing is commonly used by retail firms that sell seasonal items or products that change often, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular.

High-Low Pricing Strategy in Marketing

If you want to keep the foot traffic steady in your stores year-round, a high-low pricing strategy can help. By evaluating the popularity of your products during particular periods throughout the year, you can leverage low pricing to increase sales during traditionally slow months.

5. Penetration Pricing Strategy

Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time.

This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices.

(Another tangential strategy is loss leader pricing , where retailers attract customers with intentionally low-priced items in hopes that they’ll buy other, higher-priced products, too. This is precisely how stores like Target get you — and me.)

Penetration Pricing Strategy in Marketing

Penetration pricing has similar implications as freemium pricing — the money won’t come in overnight. But with enough value and a great product or service, you could continue to make money and scale your business as you increase prices. One tip for this pricing strategy is to market the value of the products you sell and let price be a secondary point.

6. Skimming Pricing Strategy

A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different from high-low pricing in that prices are lowered gradually over time.

Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered.

Skimming Pricing Strategy in Marketing

Skimming pricing strategy can work well if you sell products that have products with varying life cycle lengths. One product may come in and out of popularity quickly so you have a short time to skim your profits in the beginning stages of the life cycle. On the flip side, a product that has a longer life cycle can stay at a higher price for more time. You’ll be able to maintain your marketing efforts for each product more effectively without constantly adjusting your pricing across every product you sell.

7. Value-Based Pricing Strategy

A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if it can charge more for a product, the company decides to set its prices based on customer interest and data.

If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service.

On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices based on those differences.

Value-Based Pricing Strategy in Marketing

Marketing to your customers should always lead with value, so having a value-based pricing model should help strengthen the demand for your products and services. Just be sure that your audiences are distinct enough in what they’re willing to pay for — you don’t want to run into trouble by charging more or less based on off-limits criteria .

8. Psychological Pricing Strategy

Psychological pricing is what it sounds like — it targets human psychology to boost your sales.

For example, according to the " 9-digit effect ", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price.

Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling . Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on.

And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales.

Psychological Pricing Strategy in Marketing

Psychological pricing strategy requires an intimate understanding of your target market to yield the best results. If your customers are inclined to discounts and coupons, appealing to this desire through your marketing can help this product meet their psychological need to save money. If paying for quality is important to your audience, having the lowest price on the shelf might not help you reach your sales goals. Regardless of the motivations your customers have for paying a certain price for a product, your pricing and marketing should appeal to those motivations.

9. Geographic Pricing Strategy

Geographic pricing is when products or services are priced differently depending on geographical location or market.

This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to).

Geographic Pricing Strategy in Marketing

Marketing a geographically priced product or service is easy thanks to paid social media advertising. Segmenting by zip code, city, or even region can be accomplished at a low cost with accurate results. Even as specific customers travel or permanently move, your pricing model will remain the same which helps you maintain your marketing costs.

Download our free guide to creating buyer personas to easily organize your audience segments and make your marketing stronger.

Like we said above, these strategies aren’t necessarily meant to stand alone. We encourage you to mix and match these methods as needed.

Below, we cover more specific pricing models for individual products.

Pricing Models

While your pricing strategy may determine how your company sets fees for its offerings overall , the below pricing models can help you set prices for specific product lines. Let's take a look.

1. Freemium

A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features.

Unlike cost-plus, freemium is a pricing model commonly used by SaaS and other software companies. They choose this model because free trials and limited memberships offer a peek into a software’s full functionality — and also build trust with a potential customer before purchase.

With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits.

Freemium Pricing in Marketing

Freemium pricing may not make your business a lot of money on the initial acquisition of a customer, but it gives you access to the customer which is just as valuable. With access to their email inboxes, phone number, and any other contact information you gather in exchange for the free product, you can nurture the customer into a brand loyal advocate with a worthwhile LTV .

2. Premium Pricing

Also known as prestige pricing and luxury pricing, a premium pricing model is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.

Prestige pricing is a direct function of brand awareness and brand perception. Brands that apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this model because they can be marketed as luxurious, exclusive, and rare.

Premium Pricing in Marketing

Premium pricing is quite dependent upon the perception of your product within the market. There are a few ways to market your product in order to influence a premium perception of it including using influencers, controlling supply, and driving up demand.

3. Hourly Pricing

Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency.

Hourly Pricing in Marketing

If your business thrives on quick, high-volume projects, hourly pricing can be just the incentive for customers to work with you. By breaking down your prices into hourly chunks, customers can make the decision to work with you based on a low price point rather than finding room in their budget for an expensive project-based commitment.

4. Bundle Pricing

Bundle pricing is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.

This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster.

Bundle Pricing in Marketing

Marketing bundle deals can help you sell more products than you would otherwise sell individually. It’s a smart way to upsell and cross-sell your offerings in a way that is beneficial for the customer and your revenue goals.

5. Project-Based Pricing

Project-based pricing is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services.

Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing model may also create a flat fee from the estimated time of the project.

Project-Based Pricing in Marketing

Leading with the benefits a customer will derive from working with your business on a project can make project-based pricing more appealing. Although the cost of the project may be steep, the one-time investment can be worth it. Your clients will know that they’ll be able to work with you until the project is completed rather than until their allotted hours are depleted.

6. Subscription Pricing

Subscription pricing is a common pricing model at SaaS companies, online retailers, and even agencies who offer subscription packages for their services.

Whether you offer flat rate subscriptions or tiered subscriptions, the benefits of this model are endless. For one, you have all but guaranteed monthly recurring revenue (MRR) and yearly recurring revenue. That makes it simpler to calculate your profits on a monthly basis. It also often leads to higher customer lifetime values .

The one thing to be wary of when it comes to subscription pricing is the high potential for customer churn . People cancel subscriptions all the time, so it's essential to have a customer retention strategy in place to ensure clients keep their subscriptions active.

Subscription Pricing in Marketing

When marketing your subscription products, it's essential to create buyer personas for each tier. That way, you know which features to include and what will appeal to each buyer. A general subscription that appeals to everyone won't pull in anyone.

Even Amazon, which offers flat-rate pricing for its Prime subscription, includes a membership for students. That allows them to market the original Prime more effectively by creating a sense of differentiation.

Now, let’s discuss how to build a pricing strategy of your own liking.

1. Evaluate pricing potential.

You want to make a strategy that is optimal for your unique business. To begin, you need to evaluate your pricing potential. This is the approximate product or service pricing your business can potentially achieve in regard to cost, demand, and more.

Some factors that can affect your pricing potential include:

• Geographical market specifics
• Operating costs
• Inventories
• Demand fluctuations
• Competitive advantages and concerns
• Demographic data

We’ll dive deeper into demographic data in the next step.

2. Determine your buyer personas.

You have to price your product on the type of buyer persona that’s looking for it. When you look at your ideal customer, you’ll have to look at their:

• Customer Lifetime Value
• Willingness to Pay
• Customer Pain Points

To aid in this process, interview customers and prospects to see what they do and like, and ask for your sales team’s feedback on the best leads and their characteristics.

3. Analyze historical data.

Take a look at your previous pricing strategies. You can calculate the difference in closed deals, churn data , or sold product on different pricing strategies that your business has worked with before and look at which were the most successful.

4. Strike a balance between value and business goals.

When developing your pricing strategy, you want to make sure the price is good to your bottom line and your buyer personas. This compromise will better help your business and customer pool, with the intentions of:

• Increasing profitability
• Improving cash flow
• Market penetration
• Expanding market share

5. Look at competitor pricing.

You can’t make a pricing strategy without conducting research on your competitors’ offerings. You’ll have to decide between two main choices when you see the price difference for your same product or service:

• Beat your competitors’ price - If a competitor is charging more for the same offering as your brand, then make the price more affordable.
• Beat your competitors’ value - Also known as value-based pricing , you can potentially price your offering higher than your competitors if the value provided to the customer is greater.

To see the competition’s full product or service offering, conduct a full competitive analysis so you can see their strengths and weaknesses, and make your pricing strategy accordingly.

So we’ve gone over how to create a pricing strategy, now let’s discuss how to apply these steps to different businesses and industries.

Not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS companies. Here are examples of some common pricing models based on industry and business.

Product Pricing Model

Unlike digital products or services, physical products incur hard costs (like shipping, production, and storage) that can influence pricing. A product pricing strategy should consider these costs and set a price that maximizes profit, supports research and development, and stands up against competitors.

👉🏼 We recommend these pricing strategies when pricing physical products : cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.

Digital Product Pricing Model

Digital products, like software, online courses, and digital books, require a different approach to pricing because there’s no tangible offering or unit economics (production cost) involved. Instead, prices should reflect your brand, industry, and overall value of your product.

👉🏼 We recommend using these pricing strategies when pricing digital products: competition-based pricing, freemium pricing, and value-based pricing.

Restaurant Pricing Model

Restaurant pricing is unique in that physical costs, overhead costs, and service costs are all involved. You must also consider your customer base, overall market trends for your location and cuisine, and the cost of food — as all of these can fluctuate.

👉🏼 We recommend using these pricing strategies when pricing at restaurants: cost-plus pricing, premium pricing, and value-based pricing.

Event Pricing Model

Events can’t be accurately measured by production cost (not unlike the digital products we discussed above). Instead, event value is determined by the cost of marketing and organizing the event as well as the speakers, entertainers, networking, and the overall experience — and the ticket prices should reflect these factors.

👉🏼 We recommend using these pricing strategies when pricing live events: competition-based pricing, dynamic pricing, and value-based pricing.

Services Pricing Model

Business services can be hard to price due to their intangibility and lack of direct production cost. Much of the service value comes from the service provider’s ability to deliver and the assumed caliber of their work. Freelancers and contractors , in particular, must adhere to a services pricing strategy.

👉🏼 We recommend using these pricing strategies when pricing services: hourly pricing, project-based pricing, and value-based pricing.

Nonprofit Pricing Model

Nonprofits need pricing strategies, too — a pricing strategy can help nonprofits optimize all processes so they’re successful over an extended period of time.

A nonprofit pricing strategy should consider current spending and expenses, the breakeven number for their operation, ideal profit margin, and how the strategy will be communicated to volunteers, licensees, and anyone else who needs to be informed. A nonprofit pricing strategy is unique because it often calls for a combination of elements that come from a few pricing strategies.

👉🏼 We recommend using these pricing strategies when pricing nonprofits: competitive pricing, cost-plus pricing, demand pricing, and hourly pricing.

Education Pricing Model

Education encompasses a wide range of costs that are important to consider depending on the level of education, private or public education, and education program/ discipline.

Specific costs to consider in an education pricing strategy are tuition, scholarships, additional fees (labs, books, housing, meals, etc.). Other important factors to note are competition among similar schools, demand (number of student applications), number and costs of professors/ teachers, and attendance rates.

👉🏼 We recommend using these pricing strategies when pricing education: competitive pricing, cost-based pricing, and premium pricing.

Real Estate Pricing Model

Real estate encompasses home value estimates, market competition, housing demand, and cost of living. There are other factors that play a role in real estate pricing models including potential bidding wars, housing estimates and benchmarks (which are available through real estate agents but also through free online resources like Zillow ), and seasonal shifts in the real estate market.

👉🏼 We recommend using these pricing strategies when pricing real estate: competitive pricing, dynamic pricing, premium pricing, and value-based pricing.

Agency Pricing Model

Agency pricing models impact your profitability, retention rates, customer happiness, and how you market and sell your agency. When developing and evolving your agency’s pricing model, it’s important to take into consideration different ways to optimize it so you can determine the best way to boost the business's profits.

👉🏼 We recommend using these pricing strategies when pricing agencies: hourly pricing, project-based pricing, and value-based pricing.

Manufacturing Pricing Model

The manufacturing industry is complex — there are a number of moving parts and your manufacturing pricing model is no different. Consider product evolution, demand, production cost, sale price, unit sales volume, and any other costs related to your process and product. Another key part to a manufacturing pricing strategy is understanding the maximum amount the market will pay for your specific product to allow for the greatest profit.

👉🏼 We recommend using these pricing strategies when pricing manufacturing: competitive pricing, cost-plus pricing, and value-based pricing.

Ecommerce Pricing Model

Ecommerce pricing models are how you determine the price at which you’ll sell your online products and what it'll cost you to do so. Meaning, you must think about what your customers are willing to pay for your online products and what those products cost you to purchase and/or create. You might also factor in your online campaigns to promote these products as well as how easy it is for your customers to find similar products to yours on the ecommerce sites of your competitors.

👉🏼 We recommend using these pricing strategies when pricing ecommerce: competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing.

Pricing Analysis

Pricing analysis is a process of evaluating your current pricing strategy against market demand. Generally, pricing analysis examines price independently of cost. The goal of a pricing analysis is to identify opportunities for pricing changes and improvements.

You typically conduct a pricing analysis when considering new product ideas, developing your positioning strategy, or running marketing tests. It's also wise to run a price analysis once every year or two to evaluate your pricing against competitors and consumer expectations — doing so preemptively avoids having to wait for poor product performance.

How to Conduct a Pricing Analysis

1. determine the true cost of your product or service..

To calculate the true cost of a product or service that you sell, you’ll want to recognize all of your expenses including both fixed and variable costs. Once you’ve determined these costs, subtract them from the price you’ve already set or plan to set for your product or service.

2. Understand how your target market and customer base respond to the pricing structure.

Surveys, focus groups, or questionnaires can be helpful in determining how the market responds to your pricing model. You’ll get a glimpse into what your target customers value and how much they’re willing to pay for the value your product or service provides.

3. Analyze the prices set by your competitors.

There are two types of competitors to consider when conducting a pricing analysis: direct and indirect.

Direct competitors are those who sell the exact same product that you sell. These types of competitors are likely to compete on price so they should be a priority to review in your pricing analysis.

Indirect competitors are those who sell alternative products that are comparable to what you sell. If a customer is looking for your product, but it’s out of stock or it’s out of their price range, they may go to an indirect competitor to get a similar product.

4. Review any legal or ethical constraints to cost and price.

There’s a fine line between competing on price and falling into legal and ethical trouble. You’ll want to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis in order to steer clear of these practices.

Analyzing your current pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy.

Next, let’s look at some examples of pricing strategies that you can use for your own business.

Dynamic Pricing Strategy: Chicago Cubs Freemium Pricing Strategy: HubSpot Penetration Pricing Strategy: Netflix Premium Pricing: AWAY Competitive Pricing Strategy: Shopify Project-Based Pricing Strategy: Courtney Samuel Events Value-Based Pricing Strategy: INBOUND Bundle Pricing: State Farm Geographic Pricing: Gasoline

Pricing models can be hard to visualize. Below, we’ve pulled together a list of examples of pricing strategies as they’ve been applied to everyday situations or businesses.

1. Dynamic Pricing Strategy: Chicago Cubs

I live in Chicago five blocks away from Wrigley Field, and my friends and I love going to Cubs games. Finding tickets is always interesting, though, because every time we check prices, they’ve fluctuated a bit from the last time. Purchasing tickets six weeks in advance is always a different process than purchasing them six days prior — and even more sox pricing at the gate.

This is an example of dynamic pricing — pricing that varies based on market and customer demand. Prices for Cubs games are always more expensive on holidays, too, when more people are visiting the city and are likely to go to a game.

(Another prime example of dynamic pricing is INBOUND , for which tickets get more expensive as the event nears.)

2. Freemium Pricing Strategy: HubSpot

HubSpot is an example of freemium pricing at work. There's a free version of the CRM for scaling businesses as well as paid plans for the businesses using the CRM platform that need a wider range of features .

Moreover, within those marketing tools, HubSpot provides limited access to specific features. This type of pricing strategy allows customers to acquaint themselves with HubSpot and for HubSpot to establish trust with customers before asking them to pay for additional access.

3. Penetration Pricing Strategy: Netflix

Netflix is a classic example of penetration pricing : entering the market at a low price (does anyone remember when it was $7.99?) and increasing prices over time. Since I joined a couple of years ago, I’ve seen a few price increase notices come through my own inbox.

Despite their increases, Netflix continues to retain — and gain — customers. Sure, Netflix only increases their subscription fee by $1 or $2 each time, but they do so consistently. Who knows what the fees will be in five or ten years?

4. Premium Pricing: AWAY

There are lots of examples of premium pricing strategies … Rolex, Tesla, Nike — you name it. One that I thought of immediately was AWAY luggage .

Does luggage need to be almost $500? I’d say no, especially since I recently purchased a two-piece Samsonite set for one-third the cost. However, AWAY has still been very successful even though they charge a high price for their luggage. This is because when you purchase AWAY, you’re purchasing an experience. The unique branding and the image AWAY portrays for customers make the value of the luggage match the purchase price.

5. Competitive Pricing Strategy: Shopify

Shopify is an ecommerce platform that helps businesses manage their stores and sell their products online. Shopify — which integrates with HubSpot — has a competitive pricing strategy.

There are a number of ecommerce software options on the market today — Shopify differentiates itself by the features they provide users and the price at which they offer them. They have three thoughtfully-priced versions of their product for customers to choose from with a number of customizable and flexible features.

With these extensive options tailored to any ecommerce business' needs, the cost of Shopify is highly competitive and is often the same as or lower than other ecommerce platforms on the market today.

6. Project-Based Pricing Strategy: Courtney Samuel Events

Anyone who's planned a wedding knows how costly they can be. I'm in the midst of planning my own, and I've found that the bundled, project-based fees are the easiest to manage. For example, my wedding coordinator Courtney charges one flat fee for her services. This pricing approach focuses on the value of the outcome (e.g., an organized and stressless wedding day) instead of the value of the time spent on calls, projects, or meetings.

Because vendors like Courtney typically deliver a variety of services — wedding planning, day-of coordination, physical meetings, etc. — in addition to spending time answering questions and providing thoughtful suggestions, a project-based fee better captures the value of her work. Project-based pricing is also helpful for clients and companies who'd rather pay a flat fee or monthly retainer than deal with tracked hours or weekly invoices.

7. Value-Based Pricing Strategy: INBOUND

While INBOUND doesn't leave the ultimate ticket price up to its attendees, it does provide a range of tickets from which customers can choose. By offering multiple ticket "levels," customers can choose what experience they want to have based on how they value the event.

INBOUND tickets change with time, however, meaning this pricing strategy could also be considered dynamic (like the Cubs example above). As the INBOUND event gets closer, tickets tend to rise in price.

8. Bundle Pricing: State Farm

State Farm is known for its tongue-in-cheek advertisements and its bundle deals for home and auto insurance. You can receive a quote on one or the other, but getting a quote on both can save you money on your premiums.

State Farm benefits from bundle pricing by selling more policies, and consumers benefit by paying less than they normally would if they used two different insurance providers for home and auto coverage.

9. Geographic Pricing: Gasoline

Gasoline is notorious for having a wide range of prices around the world, but even within the United States, prices can vary by several dollars depending on the state you live in. In California for example, gas prices have consistently hovered around $3 in the summer months for the past 10 years. On the other hand, gas prices in Indiana have been in the $2 range during the same time period. Laws, environmental factors, and production cost all influence the price of gasoline in California which causes the geographic disparity in the cost of the fuel.

Get Your Pricing Strategy Right

Thinking about everything that goes into pricing can make your head spin: competitors, production costs, customer demand, industry needs, profit margins … the list is endless. Thankfully, you don’t have to master all of these factors at once.

Simply sit down, calculate some numbers (like your COGS and profit goals), and figure out what’s most important for your business. Start with what you need, and this will help you pinpoint the right kind of pricing strategy to use.

More than anything, though, remember pricing is an iterative process. It’s highly unlikely that you’ll set the right prices right away — it might take a couple of tries (and lots of research), and that’s OK.

Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.

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Module 7: Product Pricing

Assignment: product pricing.

In 2011, Netflix changed its pricing plans introduced a new hybrid-plan. Research this and answer the questions below in your initial post. In your reply posts, you can add information about Netflix or discuss other companies that have changed their pricing strategies.

• What changes did Netflix implement to its pricing strategy?  Which customers does this change primarily impact? Answer these questions using the pricing strategies discussed in your readings.
• What pricing objectives did Netflix considering? Is the demand elastic or inelastic?
• From a business and consumer perspective, do you support their pricing decision? Why or why not?
• Based on Netflix’ financial performance and strategic direction, what pricing strategy would you recommend for Netflix? (Saying that what they are doing is fine is not a good answer.)

• Assignment: Product Pricing. Authored by : John Russo. Provided by : Santa Ana College. Located at : http://sac.edu . Project : Project Kaleidoscope. License : CC BY: Attribution
• Netflix envelope. Authored by : Marit & Toomas Hinnosaar. Located at : https://flic.kr/p/53Cefq . License : CC BY: Attribution

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17 Pricing Strategies to Establish Your Market Positioning

When thinking about how to differentiate yourself from your competitors, pricing typically isn’t the first thing to come to mind. More often, you think about how your solution is different, how your brand sets you apart or even how your business is more convenient or easy to find. 

But pricing is one of the 4 Ps too, and how you price your product or service doesn’t just impact your profitability — it impacts how you compare to competing solutions and how customers perceive you. 

Pricing Strategy vs. Pricing Model

Your pricing model is dictated by your product. Your pricing strategy is based on the market your product is in. While there are some pricing models and strategies that won’t align, the two don’t have to be related at all. 

Three companies could offer similar products but use completely different pricing models and strategies. For example, one could use a price skimming strategy with a flat rate model. Another could use a tiered pricing model with a penetration pricing strategy, and the third could use a freemium strategy with a pay-as-you-go model. 

Your pricing model should be built around the core offering of your product or service, and your pricing strategy is based on how your product compares to your competitors and the demand for it.

17 Pricing Strategies for Your B2B Business

1. price skimming.

Price skimming is when you have a very high price that makes your product only accessible upmarket. 

Price skimming is typically associated with luxury items and only works if you have a product or service that is highly valuable or perceived as highly valuable. Brands like Rolex , Mercedes-Benz , and Louboutin use a price-skimming model, and the high price reinforces their luxury perception. 

Regardless of actual quality, a higher price can be associated with a higher value, so if you have a unique, innovative product or a valued brand, a price skimming strategy can be used to gain a higher profit from fewer sales.

A price skimming strategy does limit the market segments you can appeal to, so if you want to grow and expand your business over time, you’ll probably have to eventually incorporate other pricing strategies so you can sell downmarket. 

For products, you could continue to use a price-skimming strategy with new releases and lower the price of previous versions. Or product and service providers can offer “economy” versions of their solution to appeal downmarket. 

However, if there is more demand for your solution than there is supply and you have brand equity, it is possible to grow while keeping your high price. For example, the marketing agency Ogilvy morphed a price skimming strategy into a prestige pricing strategy.

2. Penetration Pricing

Penetration pricing is the opposite of price skimming. Instead of going to market with a high price, companies using a penetration pricing strategy have a low-priced solution in order to capture as much market share as possible. 

For example, expense management software Expensify uses a penetration pricing model in combination with product-led growth . Their low price draws initial users, and then more users within a company will adopt the tool due to its functionality. 

Penetration pricing only works if the solution can achieve economies of scale since high volume has to compensate for the low per-unit price. Or, penetration pricing can be used only as part of the go-to-market strategy in hopes of gaining brand loyalty that’ll last when the price eventually rises. 

3. Freemium

Freemium is a portmanteau of “free” and “premium,” and a freemium business model involves offering a free version of your product or service and then upselling users into a paid version. 

The music streaming platform Spotify uses this model, offering a free version that allows users to listen to music, but if they want to download files to listen to offline, skip songs unlimitedly or adjust their audio quality, they have to upgrade to a paid account. 

Freemium can be a part of your go-to-market , or it can be used to break into new markets or introduce new products.  

Slack used a freemium model from the start and has had unprecedented success with a 30% conversion rate . Freemium worked well for Slack because they were able to delight users with its free version while still providing additional useful features in the upgraded paid product. 

Conversely, HubSpot did not start out using a freemium strategy. They started as a paid marketing automation tool, but as they’ve expanded their product offering into the marketing, sales, and service growth suite, they’ve added freemium features like their CRM . 

4. Price Discrimination

A price discrimination strategy is when you set a different price for the same product based on the market status of the buyer. 

For example, movie theaters sell discounted tickets for children and seniors. Even though their tickets cost less, people in those demographics can see the same movies and sit in the same seats as customers paying full price for their tickets. The purchased experience is the same, but the price is different based on their demographics. 

In B2B, you typically see price discrimination used for startups. HubSpot and Drift are both examples of software that offer their product at a heavy discount to startup companies. This enables companies who would not otherwise be able to afford those tools access, and then as the startups grow, they’ll have developed a loyalty to those tools and be willing to pay more.

This strategy does require having a way to segment your buyers based on market status and then verify that status before a sale is finalized. 

5. Value-Based Pricing

Value-based pricing is a strategy that uses the value customers gain from the product or service as the basis for the cost, ignoring the cost of production. 

This strategy works well when your product or service is innovative and can’t be easily swapped with an alternative. 

The early years of iPhones are a great example of this: the cost to manufacture the phones is significantly less than the market price, but because none of the existing smartphones at the time had similar functionality, Apple was able to set a high price and establish what the “value” of touch screen smartphones was. 

Value-based pricing can also be used when your product or service is significantly better than alternatives that can accomplish the same function. 

For example, the true cost of production for software development is really minimum wage for the developer plus the cost of the equipment and software involved in the development process. However, app programmers are paid more than that because they have a highly desirable skill set and hiring someone else to do the work is more effective and efficient than learning to code and trying to create an app by yourself.

6. Time-based pricing

A time-based pricing strategy is typically used by companies whose product or service has high seasonality or last-minute purchases. Airlines exemplify this: it’s more expensive to book flights during peak seasons and cheaper if you’re traveling during off-seasons. Additionally, the closer you book to the travel date, the more expensive the ticket will be. 

For time-based pricing to work, you need to have a system in place tracking the factors at play and adjusting prices accordingly, especially if buyers can make a purchase without talking to sales. For example, a transcription service can charge more for a same-day transcription than it does for transcribing a document within a week. Because of the immediate turnaround, the price is higher. 

Or, if you try to hire a service during a high-demand time for that service, they can charge more even if you hire them well in advance. An accounting firm can charge more for work done during tax season than they can at other times because of the high demand for accounting work at that time of year. 

7. Competition-Based Pricing

Competition-based pricing, also known as market-oriented pricing, is a strategy where you use your competitors’ prices as the basis for setting yours. This can be done by either undercutting your competitors or offering a higher-quality product at the same price. Either way, it’s important to understand your competitors’ pricing in order to not only set the right price but also make sure you can still achieve your profit margins. For example, if you’re selling an online course, you might want to look at what other courses similar to yours cost and then adjust your pricing accordingly. If most of them are priced around $50, you could price yours at $49 in order to remain competitive. Alternatively, if you think your course is better or more comprehensive than the others, maybe it’s worth setting a higher price and positioning yourself as an expert in the field who can deliver higher-value courses at a premium cost. Regardless of which strategy you pursue, Competition-Based Pricing is a great way to make sure you’re not leaving money on the table.

8. Cost-Plus Pricing

Cost-plus pricing is a simple yet effective strategy where you set the price of your product by adding a certain percentage to the cost of goods sold. It’s one of the most straightforward pricing strategies as it doesn’t involve too much market research or analysis — just add up all the costs associated with producing and marketing your product and add a markup to it. The main benefit of this strategy is that it’s fairly easy to use, but the downside is that you don’t necessarily have an understanding of what the market will bear. As such, cost-plus pricing can be used as a starting point for pricing your product but then you should adjust it based on other factors like customer surveys and market research. For example, a manufacturer might use cost-plus pricing to set their price for a product but then do customer surveys or focus groups to understand what customers are willing to pay for the item. Then they can tweak the price accordingly.

9. High-Low Pricing

High-low pricing, also known as dynamic pricing, is a strategy where you fluctuate the price of your product or service over time. The goal is to maximize sales by adjusting the pricing strategy based on supply and demand. For example, high-end retail stores often use this strategy: they’ll offer an item for a higher price during peak demand times and then lower the price when demand is low. This allows them to capitalize on high-demand periods while still attracting customers who are looking for a bargain. High-low pricing can also be used with services, such as offering discounts for booking in advance or charging more for same-day service. By understanding your market and the demand for your product or service, you can use high-low pricing to optimize your profits.

10. Hourly Pricing

Hourly pricing is a common strategy that’s often used by service-based businesses. With this pricing strategy, you charge your customers an hourly rate for the services you provide. One advantage to this approach is that it allows customers to have more control over their costs: they can decide how many hours of work they’ll need and how often they’ll need it. This can be especially useful if you’re offering a service that’s highly custom such as consulting or software development, where the amount of work needed for each customer can vary greatly. On the other hand, hourly pricing also means that your income stream isn’t predictable and can fluctuate from month to month. To manage this, you may want to consider setting minimum packages or offering discounts for larger projects. By doing so, you can ensure that you’re still making a profit while providing your customers with the flexibility they need.

11. Dynamic Pricing

Dynamic pricing, also known as real-time pricing, is a strategy where you adjust the price of your product or service based on factors like customer demand and availability. This allows you to maximize profits by adjusting the price of your product in response to changes in supply and demand. For example, an airline may use dynamic pricing to increase fares when there is high demand for seats on a particular flight. This allows them to capitalize on customer demand while also ensuring that all of their available seats are filled. On the other hand, dynamic pricing can be risky if you don’t have an accurate understanding of customer demand and market trends. Before implementing this strategy, make sure that you’re well-informed about the competitive landscape and customer demand for your product or service. By understanding your competition and customers, you can use dynamic pricing to effectively optimize your profits while providing an attractive price point to potential customers.

12. Premium Pricing

Premium pricing is the strategy of setting a higher price for your product or service in order to emphasize its quality and exclusivity. This strategy can help you establish your brand as a premium option, attract customers who are willing to pay for quality and differentiate your business from competitors. For example, luxury car brands such as Porsche typically use this strategy by charging a premium for their vehicles. This allows them to emphasize the luxury and exclusivity of their brand and appeal to customers who appreciate high-end cars. It’s important to note that successfully using this strategy requires more than just setting a higher price — you need to be able to back up your claims with quality products and services. If you don’t, customers may be disappointed with your offering and look elsewhere for better alternatives. By ensuring that you’re delivering a quality product or service, you can use premium pricing to differentiate yourself from the competition and capture more value for your business.

13. Tiered or Value-Based Pricing

Tiered or value-based pricing is a strategy where you offer customers different levels of service at different price points. This allows customers to choose a product or service based on their individual needs and budget. For example, many software companies use tiered pricing by offering basic, standard, and premium plans. This allows them to appeal to both budget-conscious customers and those who are willing to pay for additional features or higher levels of support. By offering multiple tiers of your product or service, you can appeal to more customers, increase the value of each sale, and maximize profits. Just make sure that you’re offering enough value at each tier to make it worthwhile for customers to upgrade.

14. Project-Based Pricing

Project-based pricing is a strategy where you charge a flat fee for a specific service or project. This allows you to provide customers with the flexibility they need while still getting paid for your services. For example, if you’re an independent contractor or consultant, this may be the best pricing strategy for you as it ensures that you get paid for your time and expertise. Project-based pricing can also be beneficial for businesses that offer custom products or services due to the fact that it allows them to accurately estimate their costs upfront, ensuring that they make a profit no matter how much time is required to complete the project. By understanding your customers’ needs and estimating your costs accurately, you can use project-based pricing to maximize profits and ensure that you’re getting paid for your services.

15. Bundle Pricing

Product bundling is a strategy where you combine multiple products or services into one package and sell them at a discounted rate. This is a great way to attract new customers and increase sales by offering a deal that’s too good to pass up. For example, if you run a business that sold web design services, you could create a bundle of multiple services and offer them at a discounted rate. This could include logo design, website development, search engine optimization (SEO), and content writing — all in one package for a discounted rate. Bundle pricing is also great for boosting upsells and getting customers to spend more than they originally intended. For example, a customer may come in with the intention of buying one service but end up purchasing the bundle because it offers more value at a lower cost.

16. Geographic Pricing

Geographic pricing is a strategy where you charge different prices for the same product or service based on the region in which it’s being sold. This can be beneficial if you are selling products or services that vary in price depending on their location. For example, if you were a grocery store chain with multiple locations around the country, you could use geographic pricing to charge different prices for the same products based on the region in which they’re being sold. This would allow you to adjust your pricing according to regional trends and local competition. Geographic pricing can also be used if you’re a business that sells online services, such as digital marketing or web hosting. By charging different prices based on the region in which a customer is located, you can ensure that you’re capturing maximum value from each sale and maximizing your profits.

17. Psychological Pricing

Psychological pricing is a strategy in which you intentionally price your products or services at certain levels to evoke an emotional response from customers. For example, some businesses will use odd-numbered prices that end in a ‘9’ (e.g. $19.99) as they have been found to be more appealing than whole-numbered prices (e.g. $20). This strategy is based on the idea that customers perceive odd-numbered prices as being lower than whole-numbered prices, even though they are actually the same amount. In addition to using odd-numbered prices, you can also use other psychological pricing strategies such as setting high list prices and offering discounts, emphasizing the savings that customers are getting from buying from you or offering special promotions and limited-time offers. By understanding what motivates your customers to buy, you can use psychological pricing to maximize sales and increase profits.

Once you’ve chosen your pricing strategy, the next step is to pick a pricing model based on your product or service. 

Neither your pricing strategy nor pricing model is set in stone, and as your product shifts, your pricing model can change, and likewise if your market positioning changes, so can your pricing strategy.

Pricing is just one piece of your overall product-led strategy, for a more comprehensive look into how to put your product at the forefront of your acquisition check out our guide below. 

Guido Bartolacci

Guido is Head of Product and Growth Strategy for New Breed. He specializes in running in-depth demand generation programs internally while assisting account managers in running them for our clients.

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A Short Guide to Pricing Your Services as a Consultant or Coach

• Dorie Clark,
• Alisa Cohn,
• Marshall Goldsmith

Here are five options.

The coaches and consultants that succeed are those who you get pricing right. There are five key pricing strategies you can use: hourly billing, retainer agreements, productized services, value-based pricing, and pay for results. Hourly billing may make sense if you don’t know how long a project will take. But there are significant drawbacks to this approach, including intensive record keeping and the level of scrutiny it invites. A better arrangement, once you’ve built trust with a client, is a monthly retainer. In this situation, clients pay you a flat fee each month for access to your services. A third option is to develop a standard suite of products for sale (“productized services”). Or you can try value-based pricing which involves having a detailed conversation with the prospect to understand and agree upon the value the engagement, if successful, would have on the business and then determining a price. And finally, there’s pay for results. This model is only risky if you 1) don’t have a solid process and 2) don’t pick your clients well. If you do have a coaching or consulting process that you know works, a way to measure your client’s progress, and a willing and able client, your chances of success are high.

Many executives dream about starting an executive coaching or consulting practice, or launching one after they retire. But a touchy subject soon emerges: what should you charge?

• Dorie Clark is a marketing strategist and keynote speaker who teaches at Duke University’s Fuqua School of Business and has been named one of the Top 50 business thinkers in the world by Thinkers50. Her latest book is The Long Game: How to Be a Long-Term Thinker in a Short-Term World (HBR Press, 2021) and you can receive her free Long Game strategic thinking self-assessment .
• Alisa Cohn  is an executive coach who specializes in work with Fortune 500 companies and prominent startups, including Google, Microsoft, DraftKings, Venmo, and Etsy. She is the author of From Start-Up to Grown-Up . You can download her 5 scripts to handle delicate conversations here . Learn more at AlisaCohn.com .
• MG Marshall Goldsmith is recognized as one of the world’s leading executive educators and coaches. Dr. Goldsmith’s 30 books include What Got You Here Won’t Get You There and MOJO .

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The pricing strategy guide: Choosing pricing strategies that grow (not sink) your business

Choosing the pricing strategy for your business requires research, calculation, and a good amount of thought. Simply guessing may put you out of business. Here's what you need to know.

Definition of pricing

What are pricing strategies.

• Importance of pricing strategy

Top 7 pricing strategies

• 3 real-world examples
• How to create your strategy
• Determine value metric
• Customer profiles & segments
• User research & experiments
• Bonus: 10 data-driven tips
• Industry differences
• Final takeaway

Pricing strategies FAQs

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Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.  If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy.

This guide will cover everything you need to know about setting a pricing strategy that works for your business. 

Check out this introduction video made by the Paddle Studios team.

Price Intelligently is Paddle’s dedicated team of pricing and packaging experts for SaaS and subscription companies. We combine unrivaled expertise and first-party data to solve your unique pricing challenges, break the mold, and catapult your growth.  Learn more

Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying your product. As such, it should be calculated with certainty.

Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. If pricing is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from but some of the more common ones include:

• Value-based pricing
• Competitive pricing
• Price skimming
• Cost-plus pricing
• Penetration pricing
• Economy pricing
• Dynamic pricing

Pricing is an underutilized growth lever

Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible. There's a missed opportunity in the business world to see immediate growth for relatively little effort. 

Navigating PLG billing and pricing? Read our latest guide on product-led SaaS

Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential in optimizing what you charge. In fact, choosing the best pricing method is a more powerful growth lever than customer acquisition. In some cases, it can be up to 7.5 times more powerful than acquisition. 

The importance of nailing your pricing strategy

Having an  effective pricing strategy  helps solidify your position by building trust with your customers, as well as meeting your business goals. Let's compare and contrast the messaging that a strong pricing strategy sends in relation to a weaker one.

A winning pricing strategy:

• Portrays value

The word cheap has two meanings. It can mean a lower price, but it can also mean poorly made. There's a reason people associate cheaply priced products with cheaply made ones. Built into the higher price of a product is the assumption that it's of higher value.

• Convinces customers to buy 

A high price may convey value, but if that price is more than a potential customer is willing to pay, it won't matter. A low price will seem cheap and get your product passed over. The ideal price is one that convinces people to purchase your offering over the similar products that your competitors have to offer.

• Gives your customers confidence in your product 

If higher-priced products portray value and exclusivity, then the opposite follows as well. Prices that are too low will make it seem as though your product isn't well made.

A weak pricing strategy:

• Doesn't accurately portray the value of your product

If you believe you have a winning product, and you should if you are selling it, then you need to convince customers of that. Setting prices too low sends the opposite message.

• Makes customers feel uncertain about buying

Just as the right price is one that customers will pull the trigger on quickly, a price that's too high or too low will cause hesitation.

• Targets the wrong customers

Some customers prefer value, and some prefer luxury. You have to price your product to match the type of customer it is targeted towards.

Let's now take a closer look at the seven most common pricing strategies that were outlined above with more from Paddle Studios .

Click on any of the links below for a more in-depth guide to that particular pricing strategy.

1. Value-based pricing

With value-based pricing, you set your prices according to what consumers think your product is worth. We're big fans of this pricing strategy for SaaS businesses.

2. Competitive pricing

When you use a competitive pricing strategy, you're setting your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a  business just starting out , but it doesn't leave a lot of room for growth.

3. Price skimming  

If you set your prices as high as the market will possibly tolerate and then lower them over time, you'll be using the price skimming strategy. The goal is to skim the top off the market and the lower prices to reach everyone else. With the right product it can work, but you should be very cautious using it.

4. Cost-plus pricing 

This is one of the simplest pricing strategies. You just take the product production cost and add a certain percentage to it. While simple, it is less than ideal for anything but physical products.

5. Penetration pricing

In highly competitive markets, it can be hard for new companies to get a foothold. One way some companies attempt to push new products is by offering prices that are much lower than the competition. This is penetration pricing. While it may get you customers and decent sales volume, you'll need a lot of them and you'll need them  to be very loyal  to stick around when the price increases in the future.

6. Economy pricing 

This strategy is popular in the commodity goods sector. The goal is to price a product cheaper than the competition and make the money back with increased volume. While it's a good method to get people to buy your generic soda, it's not a great fit for SaaS and subscription businesses.

7. Dynamic pricing 

In some industries, you can get away with constantly  changing your prices  to match the current demand for the item. This doesn't work well for subscription and SaaS business, because customers expect consistent monthly or yearly expenses.

Three real-world pricing strategy examples

Real-world pricing strategy examples are the best way for a business to better understand the above-listed pricing strategies. Evaluating other businesses' approaches can be a good starting point but keep in mind that the right pricing strategy is based on math, market research, and consumer insights. For now, let’s look at the pricing strategy examples of some of the biggest brands of today: 

1. Streaming services 

Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+, Hulu, and other streaming services? That's because these companies have adopted competitive pricing , or at least a form of it, called  market-based pricing .

2. Salesforce

When Salesforce first came out, they were the only CRM in the cloud. (It wasn't even called 'the cloud' back then!) Armed with ground-breaking deployment and a target customer of a large enterprise, Salesforce could charge what they wanted. Later, after they'd grown, they were able to lower prices so small businesses could sign up. This is a classic example of  price skimming . 

3. Dollar Shave Club

At one time, you couldn't turn on your TV without an ad for Dollar Shave Club telling you how much cheaper they were than razors at the store. Although an aggressive  marketing strategy  and advertising like that is unusual for the pricing model, they were nevertheless employing economy pricing. It worked out well for them. They were acquired by Unilever in 2016 for a reported $1 billion.

How to create a winning pricing strategy

In the beginning, the actual number you're charging isn't that important.

There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you.

Instead, understanding the following is much more important:

• Finding your  value metric
• Setting your ideal  customer profiles and segments
• Completing  user research + experimentation

This video from Paddle Studios goes deep on mastering a winning pricing strategy.

Step 1: Determine your value metric

A “ value metric ” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. 

If you get everything else wrong in pricing, but you get your value metric right, you'll do ok . It's that important. Partly because it bakes lower churn and higher expansion revenue into your monetization.

A pricing strategy based on a value metric (vs. a tiered monthly fee) is important because it allows you to make sure you're not charging a large customer the same as you'd charge a small customer.

If you remember your high school or college economics class, the professor put a point on a demand curve for the perfect price and said “the revenue a firm gets is the area under that point.” The problem here is: what about all that other area under the curve?  You’re missing out on that revenue by charging a flat monthly fee.

“Good, better, best” pricing strategy is a bit more advantageous, because you end up with three points on our trusty demand curve, and thus more revenue potential. You see this problem among many eCommerce businesses and retailers whose products are constrained by being physical goods—the car with the basic package vs. the car with the stereo and sunroof vs. the car with everything. In software, it’s thankfully dying out, but you’ll still see it with mass-market products:  Netflix, Adobe Creative Cloud, etc.

A value metric, however, allows you to have essentially infinite price points—maximizing your revenue potential. In practice, you’ll never show infinite price points on your pricing page , sales deck, or mobile conversion page, but you may have a new customer come in at a certain level and then grow.

Value metrics also bake growth directly into how you charge because as usage or the amount of value received goes up (and those are not the same thing), the customer pays more. If they end up using or consuming less, they pay less (and thus avoid churning). This is why companies using value metrics are typically growing at  double the rate with half the churn and 2x the expansion revenue  when compared to companies that charge a flat fee or where the only difference between their pricing tiers are features.

To determine your value metric, think about the  ideal essence of value  for your product—what value are you directly providing your customer?

In B2B, it's likely going to be money saved, revenue gained, time saved, etc. In  DTC , it may be the joy you bring them, fitness achieved, increased efficiency, etc. Obviously, we can't measure all of these, but if you can,  and  your customer trusts your measurement (meaning you say you saved them $100 and they agree you saved them $100), that’s your value metric.

As an example, the perfect value metric for  Paddle Retain  (our churn recovery product) is how much churn we recover for you. We can measure this, and our customers agree to the measurement, so we can charge on that axis. Other pure value metric products include  MainStreet , which handles government paperwork to automatically get you back tax credits—you pay a percentage of the money saved.

Most of you won't have a pure value metric, so the next step is to find a proxy for that metric. Take for example  HubSpot ’s marketing product. Their pure value metric is the amount of revenue their tool drives for your business. This is hard to measure and hard for the customer to agree to in terms of what percentage of credit HubSpot deserves for revenue from a blog post. Proxies for HubSpot are things like the number of contacts, number of visits, number of users, etc.

To find the right proxy metric, you want to come up with 5-10 proxies and then talk to your customers and prospects. You’ll typically find 1-2 of these pricing metrics will be most preferred amongst your target customers. You then want to make sure those 1-2 also make sense from a growth perspective. Your larger customers should be using/getting more of the metric, whereas your smaller customers should be using/getting less of the metric. You also want to make sure the metric encourages retention.

When we look at HubSpot, if they were to primarily price on “number of seats”, folks could share a login and HubSpot wouldn’t make much more money on large customers vs. small. Ironically they wouldn’t get as many people invested in HubSpot, because there’d be friction to adding additional seats. Instead, if they give unlimited seats and price based on “number of contacts” there’s minimal friction to getting as many people into HubSpot as possible to do activities (e.g., blog posts,  email campaigns , landing pages, etc.) that then produce contacts.

The result: HubSpot’s marketing product’s value metric is “contacts”, which ensures growth is baked directly into how they make money. The usage drives the metric, which therein drives revenue. Most importantly customers small, medium, and large are all paying at the point they see the value and then can grow.

Some other examples:

• Wistia  charges by the number of videos or channels you use/have
• Zapier  invented the concept of zap (connection of software) and charge based on time to connect
• Theater in Barcelona charged based on the number of laughs
• Husqvarna  charges based on time for lawn care products vs. making you buy them
• Rolls Royce  charges per mile for airplane engines. They own the engines on the plane you own and do all the maintenance. Cool model.
• Fresh Patch  charges based on the amount of grass you want per month for your dog—yes they deliver grass to you monthly

As a side note, you should stop pricing based on seats for products where each seat doesn’t provide a unique experience. For instance, imagine you're an AE using a CRM. If you log into the account of the AE sitting next to you, you can’t really do your work because you are only seeing their leads and accounts. Conversely, if you were a marketing exec and were to log in to another marketing manager’s account in HubSpot, you could do all the work you need to. Thus, for the latter, seats are not the right value metric.

Per-seat pricing is a relic of the  perpetual license  era when we couldn’t measure usage or value enough within our products. We’re beyond that point, so use the above as a good litmus test.

Step 2: Determine your customer profiles and segments

The second key component of your pricing strategy is determining your target segment and ideal customer profile. We've all heard about personas, and you may be rolling your eyes at the concept, but most personas are useless because they aren’t quantitative enough. When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve" with a cute avatar, and cute meetings where people tell you they’re targeting "developers."

To get quantified personas, you need to pull out a spreadsheet.  Here’s a template  you can use.

1. Columns: Customer profiles you're targeting

These can take many forms, but the ultimate goal is to be as specific as possible so that you not only know who you’re targeting but how to monetize and retain them. Pragmatically, you typically separate these customer profiles based on size or role (or both). For example, a marketing automation product may target the following profiles:

• Marketing leaders (Director and higher) at companies $1M to $10M
• Marketing leaders (Director and higher) at companies $10.01M to $50M
• Marketing leaders (Director and higher) at companies $50.01M to $100M

The point is you can’t be everything to all people and you need to understand who you’re targeting in order to make better decisions.

2. Rows: Characteristics of each profile to help you differentiate between them

• Most valued features
• Least valued features
• Willingness to pay
• Lifetime value (LTV)
• Customer acquisition costs (CAC)
• ... and any other metric or category you think could be useful

If you're just starting out or you don't have some of this data, it’s fine. Still fill it out though with your hypotheses. You know  something  about your customers.

Next, you then need to validate (or invalidate) the most pressing hypothesis in that spreadsheet based on the decisions you’re going to make. If you're going to validate a new feature for a particular segment, then that's where you should start. Price point the biggest question? Start by researching the price point with each of these roles/segments.

If you don't know who your key roles/segments are, there's no way in hell you’ll set up an efficient growth flywheel, let alone an optimized pricing strategy. Personas act as a constitution within your business to centralize your focus and arguments about direction.

If you don't do segment and persona analysis, you better be able to raise a ton of money. I guarantee you there's some persona or segment on some vision document or in that euphoric part of your entrepreneurial brain that is completely wrong for your business. I see it all the time. Even I—someone who thinks about segments and customer research all the time—fall prey to being an absolute idiot with who we should target.

When we built  ProfitWell Metrics (our free subscription metrics tool) I thought we were geniuses who were going to be billionaires. Turns out analytics products are terrible. Willingness to pay for them is terrible; retention for them is terrible; NPS is terrible. Everything is just terrible, mainly because customers don't appreciate graphs or at least aren't willing to pay much for them. When we did our research this became obvious and put us 18 months ahead of our competitors, pushing us to change up the positioning of the product to freemium, which has fueled our business ever since (oh and our NPS is 70, because we massively over-deliver a free product better than the paid competition).

Never underestimate the power of focusing on the customer through research. You should never, ever just do what they ask, but you need to be an anthropologist who knows them better than anyone else.

Step 3: User research + experimentation

Beyond your value metric and core segments, the monetization game becomes extremely tactical and research-based. Figuring out your price point involves researching those segments and then making decisions in the field. Same with discounting, add-on, and packaging strategies. The point: monetization is never finished because it’s the very essence of translating your value into an optimal framework for your target customer segments.

Practically this is why you should be experimenting with your monetization every quarter. Experimentation can get tricky and have a few quirks, but you’ll find it’s similar to most growth frameworks out there (which are all versions of the scientific method).

Here’s a good prioritization list of what business owners should attack in optimizing their  monetization strategy  once they have the core segments and value metric figured out:

Priority 1: Foundational [see above]

• Core customer segments
• Value metrics

Priority 2: Core

• Order of magnitude price point (are you a $10 product vs. a $500 product)
• Positioning and value props

Priority 3: Optimizations

• Add-on strategy
• Specific price point (are you a $10 product vs. a $11 product)
• Price localization/internationalization
• Discounting strategy
• Contract Term optimization

Priority 4: Growth accelerators

• Market expansion (going up or down market)
• Vertical expansion
• Multi-Product

Your true order of operations with monetization will vary, but for the most part, all companies should work through the foundational and core sections before moving to the optimizations and growth accelerators. If you’re larger or there’s a fire, you may start with an optimization. In fact, this is sometimes a good idea. Something more scoped like “price localization” can help get momentum, be a forcing function to clean up tech and experimentation stacks, and mitigate political conversations. Remember, monetization is something that’s important, uncomfortable, and something you likely don’t know much about, so progress is better than nothing. Start small. You can (and should) always do more.

Bonus: 10 rapid-fire pricing strategy tips rooted in data⚡

In case you're still hungry for more tips on nailing your pricing strategy and achieving maximum profitability, look no further. We've got you covered:

1. You should  localize your pricing  to the currency and willingness to pay of the prospect's region

• Revenue per customer is 30% higher when you just use the proper currency symbol
• Having different price points in different regions increases revenue per customer further, and is justified based on different consumer demands in different regions

2. Freemium is an acquisition model, not a part of pricing

• Think of  freemium  as a premium ebook driving leads, not another pricing tier
• Don't do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until two to three years into their business. The exceptions to this notion are if you have a very specific need or network effect (eg., marketplaces, social networks, etc.) or if you have a top 50 growth person on your team.
• To be clear, we're not saying DON’T do freemium. we're saying it's a scalpel, not a sledgehammer that requires thought. A lot of people end up reading our articles on freemium and end up going, “Cool, let’s do freemium and we’ll be a unicorn.” I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.
• Paid users who convert from free tend to have higher NPS, better retention, and much lower CAC .

3. Value propositions matter oh so much

In B2B value propositions can swing willingness to pay ±20%, in DTC it's ±15%

4. Don't discount over 20%

In some verticals discounting over 20% may be fine, but you're likely not in one of them (although you may think you are), but the size of the discount almost perfectly correlates with higher churn. Large  discounts  get people to convert, but they don't stick around.

5. For upgrades to annual discounts, don't use percentages and try offers

Percentages don't work as well as whole dollar amounts for discounts (ie., "one month" will work better than "X percent off"). Annuals see much lower churn rates.

6. Should you end your price in 9s or 0s? Depends on your price point

Ending your prices in 9s evokes a discount brand, making the customer feel like they're getting something. Ending in 0 evokes luxury or premium, making them feel like they're getting a high-end product. Studies on this for technology products are inconclusive. We have seen it increase conversion in lower-cost products, but retention isn't as good with those customers.

7. You should experiment with your pricing in some manner every quarter

This doesn't mean change you should the price point each quarter, but experiment with variable costs. More changes correlate with increasing revenue per customer. Like all things, focusing on something makes you improve it.

8. Case studies boost willingness to pay quite a bit

Social proof is important.  Case studies  that offer proof of the high quality of your products can boost willingness to pay by 10-15% in both B2B and in DTC.

9. Design helps boost willingness to pay by 20%

This graph didn't look this way 10 years ago when design didn't do much for willingness to pay. Today, affinity for a company's design can boost willingness to pay considerably.

10. Integrations boost retention and willingness to pay

The more integrations a customer is using, typically the higher their willingness to pay and the better their retention. I wouldn't charge for the integrations, but I'd use this as a tool to get people hooked in and paying more or buying different add-ons.

Pricing strategies for different industries

Pricing strategies are not one size fits all. Finding the proper pricing strategy is dependent on your industry, as well as your company's unique objectives. But to give you an idea, we've listed a couple of industries and strategies that are well suited for each other. 

SaaS/Subscriptions

For SaaS and subscription-based businesses, value-based pricing is the winner hands down. As long as your customers are willing to pay, you can charge much more than your competitors.  Because your price is based on how much customers will spend, it isn't artificially lowered like other methods that fail to account for that. 

We also like value-based pricing for B2B companies. Value-based pricing requires you to look outward and understand your customers better. This is good for finding the optimal price, but it's also good for building optimal relationships that will also help grow your company. 

No more price guessing, just pricing that works

Accurately pricing your product for maximum growth requires a lot of market research and even more expertise on how to conduct and analyze that research. Our Price Intelligently  service combines our years of experience in the field with powerful machine learning tools to understand your target customer base and what makes them tick. We know the data to collect, the questions to ask, and the people to ask them of. This is important because businesses in different stages of growth need different strategies for evaluating pricing. Additionally, every business has a unique set of potential selling points and a unique target audience to pitch to.

You need someone in your corner who knows how to evaluate pricing options for your specific businesses. With our help, you can be confident that your pricing strategy and chosen price points will unlock growth levers at your company that have been sitting idle, because they'll be tailored to finding and maximizing the value propositions that are unique to your business. 

Which pricing strategy is best? 

This depends on your business model. For SaaS and subscription companies, as well as many others, we recommend value-based pricing.

How do you determine the selling prices of a product?

First, find a pricing strategy that fits well with your business model and product. As you've seen, pricing strategies differ, but they all give clear instructions for how to use them to set prices.

What is the simplest pricing strategy?

Since you only need to add up the cost to make your product and add a percentage to it, cost-plus pricing is the simplest form of pricing to use.

What is a pricing curve?

A pricing curve is a graph that shows you the number of people who are willing to pay a given price for a product.

What are the 4 major pricing strategies?

Value-based,  competition-based , cost-plus, and  dynamic pricing are all models  that are used frequently, depending on the industry and business model in question.

Related reading

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It can be easy to be fooled into thinking you scored a deal after nabbing a $26 flight to Las Vegas on Spirit Airlines.

But while the airfare itself is certainly cheap, there’s a good chance your total flight costs will far exceed $26. That’s because Spirit Airlines has one of the most comprehensive a la carte pricing models of any airline. Spirit seats on their own tend to be tantalizingly cheap, but things that other airlines typically include in the cost of airfare — like soft drinks and reserved seats — will cost you extra.

Suddenly, your $26 flight might start to cost the same, or even more, than the fares listed for non-budget airlines.

» Learn more: Spirit Airlines: The complete guide

Spirit Airlines bag fees

Base fares include one personal item, like a laptop bag or purse. But don’t think you can get away with not having to pay by stuffing all your possessions into a backpack, as even that might not fit. Spirit defines a personal item as anything 18 by 14 by 8 inches or smaller. Even something like this fairly standard-size Adidas backpack would be too large by Spirit standards.

For larger bags, like that backpack or rolling luggage, there’s a good chance that the cost to fly your stuff is more than the cost to fly yourself.

Spirit doesn’t publish standard bag fees, as they can vary not only based on route but also on when you pay for them. And the longer you wait, the more you’ll pay. If you’re paying at the gate, you could end up paying nearly twice as much as if you had paid the bag fee at the time of booking.

While fees can fluctuate, here’s what Spirit bag fees look like for the aforementioned $26 flight between Seattle and Las Vegas:

And that’s assuming your baggage weighs 40 pounds or less. Here are the additional fees you’d pay per bag if transporting large or heavy items:

For customers enrolled in Spirit’s add-on membership program called Spirit Saver$ Club, there’s some good news: Bag fees are discounted. The membership costs $69.95 for 12 months, $99.90 ($5 savings) for 18 months and $129.90 ($10 savings) for 24 months.

Here’s how much typical bag fees cost for that same flight if you’re a member of the Spirit Saver$ Club:

What does Spirit consider a personal item vs. carry-on vs. checked bag?

Depending on the size of your bag, it might not be considered a personal item, even if it fits under the seat in front of you. What’s more, you might not be able to carry it on, even if you think it’s a relatively small suitcase. Here’s how Spirit defines each type of bag:

Personal item: Maximum of 18 by 14 by 8 inches, including handles and wheels.

Carry-on: Maximum of 22 by 18 by 10 inches, including handles and wheels.

Checked bag: Maximum of 62 linear inches (length plus width plus height) including handles and wheels, and less than 100 pounds (overweight/oversize baggage fees apply).

Spirit Airlines change fees

Change fees are on hold temporarily due to the COVID-19 pandemic. Generally though, there’s a good chance that the cost to change or cancel your flight ends up being more than the cost of the flight itself.

Spirit does not offer any sort of refundable fare, but it does provide some options to change and cancel reservations.

Spirit typically charges $90 to cancel your reservation online and an even heftier $100 to cancel over the phone or at the airport. Perhaps what stings even worse than paying $90 to cancel your flight: You won’t get the amount you paid refunded back to your original form of payment. Instead, you get it as a Reservation Credit toward future Spirit flights. And adding insult to injury is that those credits have an expiration date; typically, your new flight made with the Reservation Credit must be booked within one year from the original date of purchase.

If you’re changing your flight within 24 hours of departure, you can pay $99 to stand by for an earlier flight.

If you booked an award ticket, expect to pay even more. The change fee is $110, and you still must pay the difference of any additional miles required for your new itinerary.

» Learn more: Plan your next redemption with our airline points tool

How to avoid Spirit Airlines change fees

Act quickly. As long as you’re booking a flight at least seven days before departure, Spirit does not charge a fee if the flight is changed or canceled within 24 hours after the initial purchase. Money is refunded to the original form of payment.

Book a Flight Flex (though we don’t recommend it). Flight Flex is a sort of insurance program offered by Spirit Airlines that allows you to modify your flight once without having to pay a change fee.

But Flight Flex comes with its own fee which, like bag fees, can vary by flight. For this $26 flight between Seattle and Las Vegas, the cost to add the Flight Flex option was $45. And Flight Flex comes with restrictions, including that you are entitled to only one change, and you need to make the change more than 24 hours before the scheduled flight. Plus, you’re still on the hook to pay for any difference in fares.

Here’s why Flight Flex is generally a bad deal: Say you’re changing your $26 flight to a new $100 flight. With Flight Flex, you would have paid $71 (that’s $45 for the Flight Flex option plus $26 for the original flight). You also still owe $74 to make up the fare difference, which means changing to a new $100 flight ends up costing $145 after all the fees.

Flight Flex is also included as part of Spirit’s Bundle It Combo (more on that later), which removes the a la carte aspect and instead packages a bunch of add-ons for one fee. If you want the ability to change your flight and anticipate checking bags anyway, the bundle option can make more sense.

Given that, it can often make more financial sense to just book your airfare sans Flight Flex, and then book an entirely new ticket should your plans change. If you do go this route, it's also generally smart to book a roundtrip flight as two separate one-way fares, so your return trip isn't void if you need to chance the outbound trip.

Generally speaking, trip insurance can turn out more useful than Flight Flex (especially if your credit card offers trip insurance for no extra cost anyway).

Fees to check in and obtain your boarding pass for your Spirit flight

There’s no fee to check in online for your Spirit flight. Once checked in, print your boarding pass at home, too, because it’s free.

But if you fail to plan ahead, you’ll have to pay up.

If you need to print your boarding pass at an airport kiosk, it costs $2. If you’re a luddite who prefers bypassing the kiosk in favor of a human, it costs even more: $10 to have your boarding pass printed by an airport agent.

Spirit waives those fees in a few circumstances, such as if you’re traveling as an unaccompanied minor, with a lap infant, or if you’re using a military ID instead of a passport and are unable to check in online.

Fees to select a seat ahead of time

Whether you’re trying to avoid the middle seat or you just want to guarantee that you can sit next to your kid, it’s going to cost you to choose your seat ahead of time.

Spirit doesn’t have a published list of seat assignment pricing as it varies per flight, though the airline says all seat reservations start at a minimum of $5.

But $5 is a liberal assumption for how much you’ll actually pay to reserve your seats. Here’s how much seat assignments cost on that same $26 flight between Seattle and Las Vegas:

The "Big Front Seats" have more legroom, are wider (no middle seat in the row) and cost an additional $40. The often-coveted seats in the emergency exit rows cost $20, and even a middle seat near the back costs $12 to reserve.

Fees for in-flight refreshments

Fees for in-flight food and alcoholic beverages are common across all airlines. Some more generous airlines will dole out complimentary in-flight snacks (we see you, Delta Biscoff cookies and JetBlue Terra Chips). But Spirit won’t even throw in a free Diet Coke.

All refreshments sold in-flight on Spirit come with a fee, such as coffee ($2), sodas and juices ($3), beer and wine ($8) and snacks like Pringles or Oreos (starting at $3).

In-cabin pet fee

Spirit charges $110 per pet container, each way, with a limit of four pets total in the cabin. Spirit allows you to put two pets in one container. If you are traveling with a pet or two, they’ll always ride with you in-cabin, as Spirit does not transport pets in cargo.

And even still, there are a number of limitations. Pets need to be small, since the container must fit under the seat, and pets must be able to stand and turn around in the container. Plus, the combined weight of the pet and carrier must be 40 pounds or less.

Priority boarding and security access

For an additional fee, you can whiz through security and be one of the first to board the plane. Starting at $7.99, Spirit’s “Shortcut Boarding” access allows you priority boarding in Zone 2.

Depending on the airport you’re departing from, you may also be able to pay for "Shortcut Security," though we don’t recommend it. It’s not TSA PreCheck , but it will allow you to go through security in an expedited lane. Costs vary per airport but don’t exceed $20, though it's not a guarantee your airport even offers the Shortcut Security program.

Unaccompanied minor fees

Is your kid flying alone? That’s an extra $100.

You’ll get hit with that unaccompanied minor fee if the child is 5-14 years old. On the bright side, Spirit will throw in a free snack and drink for your kid, a solid $6 value.

Spirit won’t allow children to fly alone if they’re 4 or younger, or if they’re traveling on a connecting flight, international flights or domestic flights that include a scheduled change of aircraft.

Bundle packages

Spirit offers bundled packages during the booking process. If you anticipate paying for a number of these fees anyway, then bundling them isn’t a bad deal.

Going back to that same flight between Seattle and Las Vegas, it costs $52.99 more for the Boost It package and $64.99 for the Bundle It package.

Here’s how much it would cost to order a la carte what you can get in the combo packages for one set price:

Boost It package (costs $52.99):

Pick Your Seat: $20 (exit row!).

Personal item: $0 (already included with airfare).

Checked Bag plus 10 pounds extra: $33 (if the bag weighs 40 pounds or less) or $63 (if it weighs 50 pounds or less).

Shortcut Boarding: $7.99.

The Boost It package is worth $88.99 in this scenario (if you take advantage of the 50 pound allowance), which is a $36 savings. If your bag is less than 40 pounds ($33) but you want to pick a seat ($20) and have Shortcut Boarding ($7.99), then you save only a few dollars on the Boost It bundle price. But if your bag is in that weight sweet spot (40-50 pounds), you’ll save $36 with this bundle.

Bundle It package (costs $64.99):

Pick Your Seat: $20.

Flight Flex: $45.

*It’s tough to assign a value to Spirit miles because you accrue a different number of miles based on your status within the Free Spirit program.

The 2x miles aside, the Bundle It package is worth $133.99 in this scenario, which is a $69 savings if you were to buy each item individually at booking. Spirit says it’s a $104 savings value, based on the company’s own mileage valuation.

Again, if you are packing that oversize bag (between 40 and 50 pounds) or you want the Flight Flex option (which we don’t really recommend), then it’s worth it. But if you want only a few things — say one checked bag that weighs less than 40 pounds, the ability to choose your seat and shortcut boarding — keep buying a la carte.

Fees across U.S. airlines

In NerdWallet's most recent analysis of airline fees , we compared seat selection, checked baggage and overhead carry-on baggage fees charged by the major U.S. airlines on typical one-way fares.

Note: This analysis is based on 2023 data and does not take into account recent baggage fee price hikes across multiple airlines. Our next analysis will happen in the fall of 2024.

Here's how they stacked up:

Spirit is a low-cost carrier, which means that the price you pay for the flight will include only the ticket itself. You will need to pay for everything you’d like to add such as bags, printing your boarding pass at the airport, selecting your seat, change fees, award redemption fees, meals on the flight, early boarding and more. The fees fluctuate based on when you purchase these add-ons, so a bag purchased at booking will be cheaper than if you purchase it at the gate.

Because Spirit is a low-cost carrier, you will need to pay extra for everything other than the flight. So, if you’ll be checking a bag, printing your boarding pass at the airport, purchasing food on the plane and paying for a seat up front, you’ll end up paying for each of these add-ons, which will increase the price of your ticket. If you often fly with Spirit and value these extras, the carrier offers the Spirit Saver$ Club, which provides discounts on bags, seats and more.

Spirit will assign a random seat to you during the check-in process. However, if you’d like to choose your own seat or select one at booking, you will need to pay for it. The proximity to the front of the plane also affects the cost of the seat. If you’re interested in the Big Front Seat, which is Spirit’s equivalent of domestic first class, it will be cheaper to purchase this seat in advance instead of at the airport.

You are allowed one personal item (e.g., purse, small backpack) free of charge. The dimensions must not exceed 18 x 14 x 8 inches (45 x 35 x 20 cm) including handles and wheels. If your backpack is larger, refer to the carry-on and checked bag price list.

The bottom line

Book your $26 flight, but expect to spend a lot more than that.

You might have thought you could get away without a carry-on when you booked the flight, but as you start packing, you realize you’ll need a small rolling suitcase. That’s an extra $45 at check-in.

You don’t have a printer, so you’ll have to pay $2 to print your boarding pass at the airport kiosk.

You don’t want the middle seat so you accept you’ll pay $14 to choose an aisle, but why pay $14 for an aisle when it’s only $6 more for the exit row aisle? You pay $20 to choose a good seat.

Once flying, you pay $3 for a ginger ale. While your credit card is already out, you throw in Sea Salt PopCorners for $4.

Suddenly, your $26 flight has become $100. That’s not even including a number of other fees you might end up paying too, like pet fees, priority boarding, cancellation fees and more.

Don’t be fooled into thinking Spirit has ultra-cheap fares. Traveling with Spirit is cheap if you pack uber-light — and pack your own snacks. For budget travelers who can plan ahead, Spirit can be a deal. But pay attention when booking, because your “cheap” Spirit flight might cost more than a ticket on any of the other airlines.

How to maximize your rewards

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2024 , including those best for:

Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card

No annual fee: Bank of America® Travel Rewards credit card

Flat-rate travel rewards: Capital One Venture Rewards Credit Card

Bonus travel rewards and high-end perks: Chase Sapphire Reserve®

Luxury perks: The Platinum Card® from American Express

Business travelers: Ink Business Preferred® Credit Card

on Chase's website

1x-5x 5x on travel purchased through Chase Travel℠, 3x on dining, select streaming services and online groceries, 2x on all other travel purchases, 1x on all other purchases.

75,000 Earn 75,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's over $900 when you redeem through Chase Travel℠.

1.5%-5% Enjoy 5% cash back on travel purchased through Chase Travel, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and unlimited 1.5% cash back on all other purchases.

Up to $300 Earn an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) - worth up to $300 cash back!

on Capital One's website

2x-5x Earn unlimited 2X miles on every purchase, every day. Earn 5X miles on hotels and rental cars booked through Capital One Travel, where you'll get Capital One's best prices on thousands of trip options.

75,000 Enjoy a one-time bonus of 75,000 miles once you spend $4,000 on purchases within 3 months from account opening, equal to $750 in travel.

• Effective Price Positioning: Six Strategies for Your Enterprise

Understanding the Concept of Price Positioning

The critical role of strategic pricing in business success, the most effective price positioning strategies, 1. premium pricing, 2. penetration pricing, 3. value-based pricing, 4. dynamic pricing, 5. competition-based pricing, 6. price skimming, price positioning examples, developing a business pricing strategy, 1. evaluating market standing and setting business goals, 2. analyze your target audience, 3. study your competitors, 4. create and execute your pricing strategy, what is an example of pricing and positioning, what are three price positioning, how important is price positioning, what is an example of a positioning strategy.

• Price Monitoring
• Product Availability Tracker
• MAP Monitoring
• Price Optimization
• Digital Shelf Analytics
• Dynamic Pricing
• Price Intelligence
• Product Matching
• Price Comparison
• Price Scraping
• Price Crawler
• Amazon Price Tracker
• Google Shopping Repricer
• Furniture & Home Decor
• Beauty Care
• E-Pharmacies
• Consumer Packaged Goods (CPG)
• Consumer Electronics
• Fashion and Apparel
• Sporting Goods
• Automotive Supplies
• Pet Supplies
• Toys and Gifting
• Pricing & Promotion Teams
• E-commerce Teams
• Business Analysts
• Marketing Teams
• Merchandising Teams
• All Solutions
• Case Studies

Browse Course Material

Course info.

• Prof. Catherine Tucker

Departments

• Sloan School of Management

As Taught In

• Operations Management
• Industrial Organization
• Microeconomics

Learning Resource Types

Assignments.

Each group will be required to hand in three case write-ups. All teams must do Colonial Homes since this is a case which requires price elasticity analysis. You may then choose any  two of the following four cases:

Virgin Mobile Keurig EA Sims Cigarette Wars

The reports should be 2 pages long. This space constraint is designed to ensure that you think hard about the most important points to write down.

Your reports must be handed in at the start of the class in which the case will be discussed. These cases will be graded and will determine 36% of your overall grade. For the three written cases you should discuss the cases only within your group.

Use the case questions to guide your reports (and to help prepare for our discussion of the other cases). Some additional recommendations:

• Separately answer each discussion question.
• Do not omit the obvious, but omit needless words.
• Use numerical analysis wherever possible. Describe the steps you took to reach your numerical conclusions.

Case Questions

Case: virgin mobile usa (pricing a product for the first time).

• What does the case suggest that customers do not like about current cell phone pricing schemes?
• What pricing scheme could Virgin introduce to best address these concerns?
• How can Virgin profit from introducing a pricing scheme that challenges the status quo?

Case: Colonial Homes (Real-world measurement of price elasticities)

• Calculate price elasticities using both the projections in Table A and the actual sales figures in Exhibit 1.
• How would you use these projections to guide future pricing strategy?
• What challenges do you see in using these projections as a basis for Colonial’s future pricing policy?

Case: Keurig (Pricing complementary products)

• What price for a brewer and for the portion pack (K-cup/Keurig-Cup) do you recommend?
• Under your pricing strategy, how profitable are coffee sales and brewer sales for Keurig?

Case: Electronic Arts Introduces The Sims Online

• Who would be ideal early adopters for the Sims online?
• What pricing strategy should EA use to entice their target customer?
• What challenges do you see in using their pricing strategy to reflect network effects?

Case: Philip Morris: Marlboro Friday A (When is price-cutting a good idea?)

• Should Philip Morris (PM) have cut prices?
• Having cut prices, what should they do now?

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