pricing strategy example business plan pdf

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

Take a look at all our Webinars and Events!

Elevate Pricing with Elasticity

Optimise Pricing with Sensitivity

Blogs & articles, how to write a pricing strategy for my business plan.

In this blog you will learn about the importance of choosing the right pricing strategy for a successful business plan.

Why is a pricing strategy important for a business plan?

A business plan is a written document outlining a company’s core business practices – from products and services offered to marketing, financial planning and budget, but also pricing strategy. This business plan can be very lengthy, outlining every aspect of the business in detail. Or it can be very short and lean for start ups that want to be as agile as possible.

This plan can be used for external investors and relations or for internal purposes. A business plan can be useful for internal purposes because it can make sure that all the decision makers are on the same page about the most important aspects of the business.

A 1% price increase can lead to an 8% increase in profit margin.

A business plan could be very lengthy and detailed or short and lean, but in all instances, it should have a clear vision for how pricing is tackled. A pricing strategy ultimately greatly determines the profit margin of your product or service and how much revenue the company will make. Thorough research of consultancy agencies also show that pricing is very important. McKinsey even argues that a 1% prices increase can lead up to an 8% increase in profits. That is a real example of how small adjustments can have a huge impact!

It is clear that each business plan should have a section about pricing strategies. How detailed and complicated this pricing strategy should be depends for each individual business and challenges in the business environment. However, businesses should at least take some factors into account when thinking about their pricing strategy.

What factors to take into account?

The pricing strategy can best be explained in the marketing section of your business plan. In this section you should describe what price you will charge for your product or service to customers and your argumentation for why you ask this. However, businesses always balance the challenging scale of charging too much or too little. Ideally you want to find the middle, the optimal price point.

The following questions need to be answered for writing a well-structured pricing strategy in your business plan:

What is the cost of your product or service?

Most companies need to be profitable. They need to pay their expenses, their employees and return a reasonable profit. Unless you are a well-funded-winner-takes-all-growth-company such as Uber or Gorillas, you will need to earn more than you spend on your products. In order to be profitable you need to know how much your expenses are, to remain profitable overall.

How does your price compare to other alternatives in the market?

Most companies have competitors for their products or services, only few companies can act as a monopoly. Therefore, you need to know how your price compares to the other prices in the market. Are you one of the cheapest, the most expensive or somewhere in the middle?

Why is your price competitive?

When you know the prices of your competitors, you need to be able to explain why your price is better or different than that of your competitions. Do you offer more value for the same price? Do you offer less, but are you the cheapest? Or does your company offer something so unique that a premium pricing strategy sounds fair to your customer? You need to be able to stand out from the competition and price is an efficient differentiator.

What is the expected ROI (Return On Investment)?

When you set your price, you need to be able to explain how much you are expeciting to make. Will the price you offer attract enough customers to make your business operate profitable? Let’s say your expenses are 10.000 euros per month, what return will your price get you for your expected amount of sales?

Top pricing strategies for a business plan

Now you know why pricing is important for your business plan, “but what strategies are best for me?” you may ask. Well, let’s talk pricing strategies. There are plenty of pricing strategies and which ones are best for which business depends on various factors and the industry. However, here is a list of 9 pricing strategies that you can use for your business plan.

• Cost-plus pricing
• Competitive pricing
• Key-Value item pricing
• Dynamic pricing
• Premium pricing
• Hourly based pricing
• Customer-value based pricing
• Psychological pricing
• Geographical pricing

Most of the time, businesses do not use a single pricing strategy in their business but rather a combination of pricing strategies. Cost-plus pricing or competitor based pricing can be good starting points for pricing, but if you make these dynamic or take geographical regions into account, then your pricing becomes even more advanced!

Pricing strategies should not be left out of your business plan. Having a clear vision on how you are going to price your product(s) and service(s) helps you to achieve the best possible profit margins and revenue. If you are able to answer thoughtfully on the questions asked in this blog then you know that you have a rather clear vision on your pricing strategy.

If there are still some things unclear or vague, then it would be adviceable to learn more about all the possible pricing strategies . You can always look for inspiration to our business cases. Do you want to know more about pricing or about SYMSON? Do not hesitate to contact us!

Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!

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HAVE A QUESTION?

Frequently asked questions, related blogs.

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Hyperlearning

Retail | Listicle

19 Pricing Strategies (+ Pricing Strategy Examples)

Published June 15, 2023

Published Jun 15, 2023

REVIEWED BY: Meaghan Brophy

WRITTEN BY: Katie-Jay Simmons

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This article is part of a larger series on Retail Management .

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• 1 Keystone Pricing
• 2 Cost-plus Pricing
• 3 Manufacturer’s Suggested Retail Price (MSRP)
• 4 Psychological Pricing
• 5 Value-based Pricing
• 6 Discount Pricing
• 7 Loss-leader Pricing
• 8 Price Anchoring
• 9 Competitive Pricing
• 10 Penetration Pricing
• 11 Bundle Pricing
• 12 Project-based Pricing
• 13 Hourly Pricing
• 14 Premium Pricing
• 15 Price Skimming
• 16 Freemium Pricing
• 17 High-low Pricing
• 18 Dynamic Pricing
• 19 Geographical Pricing
• 20 Pricing Strategies Frequently Asked Questions (FAQ)
• 21 Bottom Line

Pricing strategies are the methods and formulas that businesses use to determine the cost of their products. A good pricing strategy finds the sweet spot between what customers are happy to pay and what makes your business money. It should also adapt to changes in the market or economy.

Here’s a list of 19 effective pricing strategies—from using the manufacturer’s suggested price to aligning with your competitors’ pricing to changing pricing in real time based on events—with examples of how to use them.

1. Keystone Pricing

What Is It: Doubling the product cost to get the selling price Commonly Used By: Retailers and ecommerce sellers

Keystone pricing is a strategy in which the asking price is double the product’s wholesale cost, or close to a 50% profit margin. It’s the default pricing strategy across both retail and ecommerce due to its simple application and ability to yield profits.

Occasionally businesses will use keystone pricing as a base markup on most goods, then apply higher markups or discounted pricing to certain items based on demand, volume, and competition. It’s a particularly common strategy in fashion, consumer goods, and grocery sectors.

For example , say you run a jewelry store. You purchase a birthstone ring from a wholesaler for $90. To maintain a keystone pricing strategy, you set the retail price for the ring at $180, ensuring a consistent 100% markup. This approach allows you to cover your costs, account for operating expenses, and generate a reasonable profit while offering the product to customers at a perceived fair market value.

Keystone pricing may not be the best strategy for every type of product. If your goods have low turnover rates, involve high shipping and handling costs, or are unique or rare, you may be undervaluing them by using keystone pricing. However, if your products are widely available and easily replaceable, keystone pricing may put them at too high of a price to generate sales.

Check out our guide on how to price your products for step-by-step instructions.

2. Cost-plus Pricing

What Is It: Applying a standard markup percentage on top of your cost of goods sold (COGS) Commonly Used By: Wholesalers, manufacturers, artisans, and private label sellers

Cost-plus pricing (also known as markup pricing ) involves calculating the total fixed and variable costs associated with your product (labor, marketing, shipping, etc.), and then adding a markup to achieve your desired profit margin. Most retail brands aim for a 30%–50% margin, which means roughly a 40%–100% markup.

Cost-plus pricing works well for companies that sell labor-intensive products or large amounts of similar products. Here are some examples of how wholesalers, manufacturers, artisans, and craftsmen typically use cost-plus pricing:

• Wholesalers: Wholesalers usually add a flat percentage markup to all goods that pass through their hands. A common wholesale or middleman markup on most consumer goods is 20%, but that can vary depending on your industry.
• Manufacturers: Manufacturers use different cost-plus prices depending on the buyer. A manufacturer might sell bulk goods to wholesalers at a cost-plus of 100%, just like a keystone markup—but then also sell single units directly to consumers on its website at a 200% markup (generating a 67% margin). This way, it makes more money per unit on smaller sales.
• Artisans and Craftsmen: Labor is the cornerstone of artisanal and craft works, so the cost-plus price represents the value of the labor and the product. For example, if you have a wooden chest built by an artisan, the cost-plus markup might be 70%. The base price represents materials and hours, and the 70% markup represents the value of the labor and finished product.

Use this formula to calculate cost-plus pricing based on the markup you want:

Item Cost x (1 + [Markup/100]) = Selling Price

So, if you are a craftsman who spent $150 making that wooden chest we mentioned above and wants to sell it at a 70% markup, your calculation would be:

150 x (1 + [70/100] 150 x (1 + 0.70] 150 x 1.70 Selling price = $255

3. Manufacturer’s Suggested Retail Price (MSRP)

What Is It: Using the price that product manufacturers recommend for their goods Commonly Used By: Retailers and ecommerce sellers

The MSRP pricing strategy is popular among retailers that purchase goods rather than making the products themselves. The MSRP often matches the Keystone price, but there can be exceptions.

Some retailers may have the flexibility to adjust the MSRP, but certain manufacturers or brands strictly prohibit alterations to their suggested prices. This is called MAP or Minimum Advertised Pricing , and it’s commonly used by brands like Apple to maintain their products’ value. Because of this, it’s crucial to know the pricing terms before you start working with a manufacturer to avoid legal trouble.

The downside of using MSRP as your pricing strategy is that you’ll have the same prices as your competitors. So, you’ll have to differentiate your store in other ways—for example, offering free shipping for ecommerce sellers and exceptional in-store promotions for retailers.

Some brands print the MSRP on their product packaging to ensure retailer compliance. If you choose to use a different pricing strategy in these cases, you’re likely to upset your customers as well as the manufacturer. (Source: Reddit)

4. Psychological Pricing

What Is It: Using prices that end in an odd number (typically 9, 5, or 7) to give the impression of a lower price and a good deal Commonly Used By: Retailers, ecommerce sellers, big box stores, and discount chains

Have you ever walked into a store or viewed an infomercial and noticed that all of the prices end in 99 cents? That’s psychological pricing at work.

A store may price a product at $199 instead of $200 or $4.95 instead of $5. With psychological pricing, the theory is that customers put a greater emphasis on the first digit of a product price, so $199 seems like a much better value than $200, even though the actual price difference is minimal.

By providing customers with the sense that they’re getting a bargain or paying less, psychological pricing reduces the psychological pain of loss that customers experience when parting with their money. This incentivizes shoppers to buy, especially in impulsive scenarios. It also gives them the sense that they’re walking away with a good deal.

An ad from Food Lion shows all the deals that it is currently offering and gives us a great example of a retailer creating the illusion of a deal with psychological pricing. (Source: Pinterest)

Psychological pricing is also a great “bang for your buck” pricing strategy, where only a few cents can inspire customers to make much larger purchases. For example, at my boutique, we decided to re-price our jeans from $70 to $69.99. Immediately, we saw a massive uptick in denim purchases, simply due to the 1-cent price change.

Many retailers choose to mark all their goods with 99-cent endings. Some, however, will reserve the power of psychological pricing exclusively for their sale pieces to incentivize faster turnover of old merchandise. Other common prices that retailers use to make a more appealing sticker price are 95 cents, 89 cents, and 69 cents.

Steer clear of psychological pricing techniques if you sell high-value items, as it may decrease the perceived worth.

5. Value-based Pricing

What Is It: A strategy in which pricing is based on perceived value or how much the customer believes the product is worth Commonly Used By: Specialty stores, luxury stores, sellers of rare and unique goods

The value-based pricing strategy works best for merchandise with high brand recognition, luxury goods, and unique products that have exclusive features that set them above the competition. It does not work well for businesses that sell commoditized goods or products that lack exclusive features (such as grocery or convenience retailers).

As a value-based pricing strategy example, say you own a shop that sells vintage luxury handbags. The value of your products is not represented by doubling the production cost price or by any MSRP. In this case, you would use a value-based pricing system that accounts for the exclusivity of designer labels and the rarity of the bags to reflect perceived value.

To implement a value-based pricing strategy, you have to analyze three things:

• Your Customers: Conduct surveys, research locally, and understand your target market so that you can learn their value system (and set prices accordingly).
• Your Market: Research industry trends and national consumer patterns to understand the value-based price that the greater population is willing to pay for your products.
• Your Competitors: Look to competing sellers to see how they are pricing their products. Successful businesses in your industry can help you understand the pricing that is helping them prosper, as well as what prices will allow you to compete.

6. Discount Pricing

What Is It: A strategy of regularly selling goods at prices under competitors’ Keystone or MSRP prices Commonly Used By: Retailers, ecommerce seller, big box stores, and discount chains

Discount pricing drives entire business models—think Dollar Store, Big Lots, and Home Goods. It’s best for volume-driven businesses that can get lower prices from suppliers by purchasing large quantities.

Be sure customers know they’re getting a deal by clearly displaying your discount or even including the undiscounted MSPR/Keystone price on the tag. This shows customers exactly how much they are saving.

Mark your racks and tags with the discount you are offering so customers know just how much they are saving. (Source: Crazy Coupon Lady)

For the small retailer, an overall discount pricing strategy can leave you with razor-thin profits that easily dip into losses. But running occasional sales, markdowns, seasonal specials, and coupons is an excellent way for small businesses to move through old products and attract new shoppers.

Plus, small businesses can use discount pricing strategies to kick-start drooping sales, unload stale stock, and take advantage of seasonal shopping trends.

To ensure that you don’t sacrifice your bottom line, run your numbers and determine whether a discount will leave you with healthy margins before applying this strategy.

7. Loss-leader Pricing

What Is It: A strategy that sets prices below production costs to attract new customers or increase sales Commonly Used By: Retail, ecommerce sellers, convenience stores, big box stores, and discount chains

Loss-leader pricing is when you sell select products at extremely low prices to draw customers in and then get them shopping for more profitable goods as well.

A good loss-leader pricing strategy example is Costco, a popular wholesale grocery membership club that sells rotisserie chickens for $4.99 each. Costco states that it actually loses money on each chicken sold, but they function as a loss leader that inspires people to sign up for memberships and shop the rest of their store.

Take a note out of Costco’s book and place your loss leaders in the back of your store . This will force shoppers to go through your entire space and be exposed to lots of other products before they reach the deal.

Loss-leader pricing is a great strategy for grocers and other stores where people make multi-item purchases, but it can be a risky pricing strategy for small businesses. The strategy relies on the fact that the profits you lose from your loss leader will be made up by profits of other items. This is difficult to ensure if you don’t sell many items per ticket or if your margins on other goods are small. Be sure that you run the numbers and know your typical units per ticker (UPT) before introducing a loss leader to your pricing strategies.

Units per ticket (UPT): A popular retail metric that tells you the average number of items in each transaction over a certain period of time. Also called IPC or Items Per Customer.

UPT formula:

UPT = total units sold / total number of transactions

8. Price Anchoring

What Is It: A strategy that involves displaying a higher anchor price alongside your product price to make it look like a better deal to customers Commonly Used By: Retail stores, ecommerce stores, discount chains, secondhand stores

There are two primary ways that you can implement an anchor pricing strategy. This first is when you display a regular or MSRP price and your lower price on the same tag. Stores like Marshalls, TJ Maxx, and other discount, consignment, and antique stores use this pricing strategy storewide.

TJ Maxx, a popular discount store, shows the “compare at” price on all their tickets so shoppers know just how much they are saving. (Source: Consumer Products Safety Commission)

Another anchoring strategy that you can use is to display multiple models of the same product together so that the cheaper model seems like a good deal. For example, if you have ever had to choose a new phone or computer, you’ve seen that the cheaper models are typically displayed together with the most expensive model acting as the anchor price. In effect, when a customer chooses one of the less expensive models they feel as though they are getting a good deal compared to the anchor price.

Anchor pricing can work well for small sellers. It’s especially useful if you sell in a niche that has a lot of competition, but not so much that you have to substantially lower your price to compete. Often, a standard storewide 5% to 10% anchor pricing discount is enough to create a memorable sense of value that brings shoppers back for more.

9. Competitive Pricing

What Is It: A pricing strategy in which you use competitors’ prices to set the price of your same or similar products Commonly Used By: Convenience stores, big box chain stores, discount stores, gas stations, retail stores

Competitive pricing ensures that your goods are priced low enough to compete with other sellers. It’s a smart option for products that are common and easily attainable elsewhere. It’s also a useful strategy to use when testing new products that are similar to competitor’s.

Alternatively, you can use this strategy to set yourself a step ahead by making your prices lower than the competition.

In the age of Amazon and other large-scale retailers, competitive pricing is particularly important. If a shopper could just as easily buy your product on Amazon, it’s crucial to have a better price. If that’s not attainable, consider creating value in other ways—like offering free shipping or a free gift with purchase.

10. Penetration Pricing

What Is It: A pricing and marketing strategy that involves temporarily selling at a lower price to attract customers and increase brand recognition Commonly Used By: Retailers with membership options, discount stores, and big box retailers

Penetration pricing is a smart way to introduce a product to new customers, build brand recognition, and foster customer loyalty .

It works particularly well for promoting new products or things that you have to buy on a subscription or membership basis. The idea is that the low price will penetrate the market and get customers to make an initial purchase. Then, once hooked, they will continue purchasing the item as its price increases (or buying for other products from your store).

Penetration pricing strategy examples include:

• Offering a free month of membership upon sign-up
• Selling a new product at a steep price to drum up hype
• Offering a limited-time deal

For example, Fabletics, a fitness clothing membership retailer, offers new customers two bottoms for $24 and 70% off everything when they sign up. This is a deal that really gets people excited and willing to sign up for the $50 monthly subscription. The catch? The deals that reeled you in are only available for your first purchase, and after that, prices are back to their normal rates.

Fabletics has mastered the art of penetration pricing with its enticing sign-up offers. (Source: Fabletics)

11. Bundle Pricing

What Is It: A pricing strategy that offers a discount when two or more products are purchased together, rather than buying them separately Commonly Used By: Discount retailers, beauty supply, office supply, and grocers

Bundle pricing is a pricing strategy in which retailers sell multiple items together at a lower price than if purchased individually. This type of pricing typically has two objectives: giving customers a sense that they are getting a bargain and selling more products.

The benefit behind bundle pricing is that retailers are able to sell more items and increase their transaction sizes while customers walk away feeling like they got a deal.

Fast food restaurants famously take advantage of bundle pricing by offering discounted combo meals. (Source: Burger King)

In retail, bundle pricing is primarily used by discount stores or businesses that sell a lot of complementary products, like beauty or craft stores. It is also sometimes used around the holidays to promote gift baskets.

12. Project-based Pricing

What Is It: When you charge a flat fee for a specific service Commonly Used By: Service providers, freelancers

Project-based pricing is a service pricing strategy in which you set your pricing based on the service/project provided, not based on an hourly rate. This is a great way for service-based businesses to create security in the minds of their customers because it allows them to know the price upfront.

Some businesses will set a time limit on the project-based price and then upcharge or set an hourly rate for the additional time the project requires.

This strategy works best for businesses that provide services with set parameters and few potential variables, and should not be used for more creative projects. For example, nail salons charge a set price for manicures and pedicures or a tire shop offers the same price for wheel removal. Home improvement projects, on the other hand, have more variability, so hourly pricing may be better suited here.

13. Hourly Pricing

What Is It: When your price is based on an hourly rate that correlates to the length of a project Commonly Used By: Service industries that offer creative or highly variable services

This pricing strategy is the flip side of project-based pricing. It’s typically used for projects with more creative elements or less controllable or consistent parameters. This strategy is usually less favorable than project-based pricing in the eyes of the customers, but it’s more practical for most service-based industries.

For example, consider if a company charged a flat “landscaping” fee for their landscaping projects. This pricing structure would not make sense, as there are countless types of landscaping services and as well as sizes of yards and gardens. In this case, the company would have been better off using an hourly pricing strategy, so it could charge accordingly for the variability of the work and make a fair profit based on labor, resources, and time.

14. Premium Pricing

What Is It: The practice of setting a high price to give the impression that a product is superior or high quality Commonly Used By: Luxury retailers, specialty shops, antique goods, and tourist shops

Premium pricing is when retailers artificially inflate prices to create a sense of value among customers. This is a practice commonly used by luxury retailers and specialty stores to help them demonstrate the value of their goods. In other words, the price of the good creates its perceived value, which increases its demand, and, in turn, justifies its price.

Retailers that sell established brands (or are established brands themselves) can use premium pricing on all their products. However, it is also a popular strategy to select only one or a few goods to set at a premium. The products with premium pricing will raise your entire brand’s perceived value and make customers willing to pay more all-around.

For example, say that you own a specialty pool store, and Walmart sells the same pool floaties that you carry. Rather than pricing your floaties equal to or lower than Walmart’s, you can price them slightly higher to reflect your expertise, personalized service, and unique value proposition.

15. Price Skimming

What Is It: Selling a product with a higher-than-usual markup and then lowering the price over time Commonly Used By: New product launches, subscription-based businesses, retailers with membership options

Price skimming (also known as skim pricing) is a strategy that involves charging the highest initial price that customers will pay for your product then lowering it over time. The main goal is to generate the highest possible revenue by targeting customers who are willing to pay premium prices. Then, as consumer demand fades and new competitors enter the market, you reduce the price and attract more cost-conscious customers.

This strategy doesn’t work in every scenario. Price skimming is usually used when:

• There is enough demand from prospective customers who are willing to pay a high price
• There is no direct competition that would deter buyers
• A high price can effectively contribute to the item’s perceived value
• You need to recoup development and/or production costs

A classic price skimming example is the iPhone. When Apple launches a new model, they sell it at a high price to plenty of loyal, price-insensitive customers who value having the latest technology. Then, as new versions and competing devices are introduced, the company drops the price to capture more sales.

Price skimming can also be used by businesses that require recurring payments (like subscriptions and memberships). It helps foster loyalty by rewarding long-term customers with better prices. The strategy can even help with the initial signup by creating an incentive to “earn” the better rate.

16. Freemium Pricing

What Is It: A model that provides a free basic service with the option to upgrade to a paid premium version for additional features Commonly Used By: Subscription-based businesses, retailers with membership options, service providers, software-as-a-service companies

Freemium pricing is when a business will offer a base-level service, plan, or membership tier for free, as well as the option to upgrade to a premium or paid version with enhanced features, advanced functionality, or additional benefits.

By offering a free option at the forefront, the freemium pricing structure helps businesses reel in customers and get them interested in their products or services. You may be familiar with this pricing model from streaming services like YouTube or Spotify.

In both of these companies’ freemium pricing structures, there is a free service where you can play music or videos without charge. But, to listen to the entertainment without advertisements or breaks, you have to join their monthly subscription.

Another form of freemium pricing is offering a free trial . The free initial product also serves to get customers interested in your business and makes them more likely to sign up for your paid service.

Generally, you use freemium pricing on services and products that are low-cost and need to be sold in high volumes. A popularly cited stat says that there is between a 1% and 10% conversion rate from free trials to paid services through freemium pricing. If you’re thinking about using this pricing structure, be sure that your product’s overhead and marketing costs are low so you don’t end up digging yourself into an unprofitable situation.

Shipping software companies (like ShippingEasy, pictured here) use a freemium pricing model to offer a low-volume base plan. When the customer’s business grows and sales increase, they must upgrade to a paid plan to meet their order volume.

17. High-low Pricing

What Is It: When a company alternates between offering high prices and promotional discounts to attract customers Commonly Used By: Discount stores, electronics stores, clothing brands, supermarkets

High-low pricing is a strategy in which retailers alternate between discounted promotional prices and prices that are or above the product’s MSPR. This is accomplished by having frequent sales during which prices are lowered for a short time.

This strategy establishes the value of a product then uses limited-time promotions to deliver a bargain— which drives bursts of high-volume sales. Similar to loss-leader pricing, the high-low strategy works to drive store traffic and encourage customers to buy additional items once they’re in store. It also uses the same structure as price skimming to capture sales from multiple target markets by using different price points.

But, unlike price skimming, hi-low pricing can retain the product’s perceived value after the promotion as long as you’re careful. Too many sales and discounts will result in shoppers perceiving your sale prices as the actual value, which dilutes your brand.

One example of high-low pricing is the fashion retailer Zara, which frequently introduces new collections at regular prices and then offers promotional discounts during seasonal sales. This strategy helps Zara attract customers with the initial higher-priced items and later bring in price-conscious shoppers with discounted prices. It also creates a sense of urgency and drives sales.

18. Dynamic Pricing

What Is It: A strategy where prices are adjusted in real time based on factors such as demand, supply, competitor pricing, and market conditions Commonly Used By: Hospitality, tourism, transportation, entertainment, and utilities

Dynamic pricing is when a business changes its pricing based on the seasons or other demand-shift indicators (weather, day of the week, political climate, etc.). It takes into account things like competitor pricing, supply and demand, and other external market factors in setting its prices. This pricing strategy works best for services in the hospitality and transportation industry and essential goods like gas and electricity.

This strategy can help companies maximize their profits in industries with a lot of volatility in terms of traffic and demand. For example, a resort might charge $300 for a room during the peak season and $220 for the same room during the offseason. This type of pricing helps the business owners capitalize on busy times when demand is high, and use lower prices to incentivize offseason purchases.

To use dynamic pricing, be sure to understand your industry and its peaks and valleys in demand. Then assign higher prices during peaks and lower pricing during valleys. It’s important that your dropped prices can still generate enough revenue to cover your costs, or, alternatively, profits acquired during peak prices can cover profits lost from low prices.

19. Geographical Pricing

What Is It: The practice of adjusting an item’s price based on the location of the buyer Commonly Used By: Multilocation retail stores, franchise businesses, ecommerce sellers, luxury brands

Geographical pricing is a strategy that adjusts the price of a product based on the buyer’s location. This pricing strategy takes into account several factors— including shipping costs, local market conditions, economic status, and buying habits of different geographical areas. Sometimes, it also considers the cost of living and the average income of people in a specific region.

For example, a multilocation clothing store might charge different prices for the same item in New York City versus a rural town in Kansas. In the city, the price could be higher due to increased demand, higher average income, and a higher cost of living. This higher price also helps to offset the inflated cost of the retailer’s rent and other utilities. On the other hand, in a rural town where income levels and cost of living are lower, the seller may opt for a lower price to match the local market’s purchasing power.

Pricing Strategies Frequently Asked Questions (FAQ)

What is the most used pricing strategy.

The most popular and common pricing strategies are:

• Cost-plus pricing: calculating your costs and adding a markup
• Keystone pricing: doubling the wholesale price
• Competitive pricing: setting your price based on what competitors charge
• Value-based pricing: pricing your goods based on what the customer thinks they’re worth

These pricing strategies are used by businesses throughout a number of industries, from small companies and startups to enterprise-level companies. They’re popular because they’re simple to use across large inventories and generate profit while attracting customers.

Can You Combine Pricing Strategies?

You can combine multiple pricing strategies to find the best (and most profitable) ways to price and market your products.

For example, a handcrafted furniture business might use cost-plus pricing for a table that costs $200 to make. They add a 50% profit margin and sell it for $300. That business can then combine bundle pricing by offering a living room set that features the table along with a bookshelf and a chair. Bought separately, these items would cost $950, but as a bundle they sell for $850.

Another example of combined pricing strategies could be a retailer using high-low pricing to attract customers with promotional deals, while also implementing geographical pricing to adjust prices based on the location of their stores. This allows them to attract a wide range of customers while accounting for local market conditions and cost variations.

How Do You Determine the Selling Price of a Product?

Setting the perfect price for your products means you need to understand your costs, know how much your customers are willing to pay, and keep an eye on your competitors. With this information, you can choose from a variety of pricing strategies to set a price that will be attractive to customers and still make you a profit.

It may take some experimentation to find the best prices for your goods. Even once pricing is dialed in, most businesses continuously test and adjust their pricing strategies based on market conditions and customer feedback.

Bottom Line

With nearly 20 pricing strategies to choose from, there are a lot of options when it comes to pricing your products. The best thing you can do to sell through your products and maximize your profits is to use a mix of pricing strategies based on what works for each individual item you sell. Whatever you choose, be sure to continuously monitor their success and ability to generate sales and profits, so you can make adjustments and continue to maximize your retail business.

About the Author

Find Katie-Jay On LinkedIn

Katie-Jay Simmons

Katie-Jay Simmons aims to put answers in the hands of small business owners by leveraging more than 10 years of retail and hospitality experience. Informed by a background in jewelry and gemology, she specializes in ecommerce with a focus on fulfillment and global sourcing. Her scope of expertise ranges from traditional brick-and-mortar businesses to innovative, high-volume ecommerce operations.

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Pricing Strategy in a Business Plan: Deep Dive

• March 21, 2024
• Business Plan , How to Write

In this blog post, we’re diving into how to choose and explain your pricing strategy in your business plan. We’ll cover different pricing models like penetration, premium, and value-based. We’ll also dive into how to present your pricing strategy in your business plan.

Whether you’re starting a new business or preparing a business plan for an existing company, getting your pricing right is key to attracting customers and making a profit. Let’s break down how to make your pricing strategy clear and effective. Let’s dive in!

What are the different pricing strategies?

Different pricing strategies can significantly influence demand, profitability, and market positioning for businesses. Here’s an overview of some common pricing strategies:

• Cost-Plus Pricing: Adds a markup percentage to the cost of producing a product or delivering a service. It’s simple to calculate and ensures a profit margin.
• Value-Based Pricing: Sets prices based on the perceived value to the customer rather than the cost of production. This strategy focuses on the benefits and value the product or service brings to the customer.
• Competitive Pricing: Prices are set based on competitors’ pricing structures. Businesses might price their products slightly lower than competitors to gain market share or at a similar level to match the market rate.
• Penetration Pricing: Involves setting lower prices to enter a competitive market and attract customers quickly. The goal is to gain market share and then gradually increase prices.
• Premium Pricing: Setting the price of a product or service higher than the competitors. This strategy is used to signal superior quality or exclusivity to justify the higher cost.
• Dynamic Pricing: Adjusting prices in real-time based on market demand, competition, and other factors. Common in industries like hospitality and airlines.
• Freemium Pricing: Offering a basic product or service for free while charging for premium features. This strategy is often used by software and service companies to attract users.
• Bundle Pricing: Combining several products or services and selling them at a single price, often lower than the total cost of buying each item separately. This can increase the perceived value and encourage sales.

How to choose a pricing strategy

Here’s how to come up with an efficient pricing strategy:

Align Pricing with Market Strategy

Begin by articulating how your pricing strategy complements your overall market strategy. If you’re aiming for market penetration, explain how your pricing is designed to attract a large volume of customers by being more affordable than competitors.

For a premium pricing strategy, discuss the exceptional quality, exclusivity, or unique value your offerings bring, justifying higher price points.

If you’re adopting a value-based pricing model instead, illustrate how your pricing directly correlates with the perceived value to the customer, possibly through superior benefits or cost savings they provide.

Relate Pricing to the Target Market

Your pricing strategy should be closely tied to your understanding of your target market .

For instance, if your target market highly values sustainability and is willing to pay more for eco-friendly products, your pricing should reflect this. Similarly, if you’re targeting a price-sensitive segment, explain how your pricing strategy enables you to offer competitive value while maintaining profitability.

Consider the Competitive Landscape

A comprehensive pricing strategy also considers the competitive landscape . Analyze your competitors’ pricing and how your strategy positions you within this context.

Are you offering a more affordable alternative to premium products, or are you introducing a higher-quality option in a market segment dominated by low-cost competitors?

Discuss how your pricing strategy gives you a competitive edge, whether it’s by filling a gap in the market, offering better value, or challenging the status quo with innovative pricing models.

Where to include your prices in your business plan?

In your business plan, prices should be detailed under “Products or Services” within the Business Overview section of your business.

This part of the plan not only describes what you are offering but also provides an ideal opportunity to outline your pricing strategy and the specific prices or price ranges of your products or services.

Here, you can explain how your pricing fits into the market and aligns with your overall business strategy, giving potential investors or lenders a clear understanding of your approach to generating revenue.

Remember your pricing strategy should align with your financial projections (projected income statement, cash flow statement, and balance sheet). Indeed, you will need to give some high-level explanation of how you came up with these financial projections, based on your pricing strategy too.

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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.

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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.

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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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Price Skimming: All You Need To Know [+ Pricing Calculator]

Psychological Pricing and the Big-Time Boost It Offers Businesses

How to Price a Product That Your Sales Team Can Sell

B2B Pricing Models & Strategies [+ Pros and Cons of Each]

What Is Captive Product Pricing?

Everything You Need to Know About Value-Based Pricing

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

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Free PDF Business Plan Templates and Samples

By Joe Weller | September 9, 2020

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We’ve gathered the most useful collection of business plan PDF templates and samples, including options for organizations of any size and type.

On this page, you’ll find free PDF templates for a simple business plan , small business plan , startup business plan , and more.

Simple Business Plan PDF Templates

These simple business plan PDF templates are ready to use and customizable to fit the needs of any organization.

Simple Business Plan Template PDF

This template contains a traditional business plan layout to help you map out each aspect, from a company overview to sales projections and a marketing strategy. This template includes a table of contents, as well as space for financing details that startups looking for funding may need to provide. 

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Lean Business Plan Template PDF

This scannable business plan template allows you to easily identify the most important elements of your plan. Use this template to outline key details pertaining to your business and industry, product or service offerings, target customer segments (and channels to reach them), and to identify sources of revenue. There is also space to include key performance metrics and a timeline of activities. 

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Simple 30-60-90 Day Business Plan Template PDF

This template is designed to help you develop and implement a 90-day business plan by breaking it down into manageable chunks of time. Use the space provided to detail your main goals and deliverables for each timeframe, and then add the steps necessary to achieve your objectives. Assign task ownership and enter deadlines to ensure your plan stays on track every step of the way.

Download Simple 30-60-90 Day Business Plan Template

PDF | Smartsheet

One-Page Business Plan PDF Templates

The following single page business plan templates are designed to help you download your key ideas on paper, and can be used to create a pitch document to gain buy-in from partners, investors, and stakeholders.

One-Page Business Plan Template PDF

Use this one-page template to summarize each aspect of your business concept in a clear and concise manner. Define the who, what, why, and how of your idea, and use the space at the bottom to create a SWOT analysis (strengths, weaknesses, opportunities, and threats) for your business. 

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If you’re looking for a specific type of analysis, check out our collection of SWOT templates .

One-Page Lean Business Plan PDF

This one-page business plan template employs the Lean management concept, and encourages you to focus on the key assumptions of your business idea. A Lean plan is not stagnant, so update it as goals and objectives change — the visual timeline at the bottom is ideal for detailing milestones. 

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One-Page 30-60-90 Day Business Plan Template

Use this business plan template to identify main goals and outline the necessary activities to achieve those goals in 30, 60, and 90-day increments. Easily customize this template to fit your needs while you track the status of each task and goal to keep your business plan on target. 

Download One-Page 30-60-90 Day Business Plan Template

For additional single page plans, including an example of a one-page business plan , visit " One-Page Business Plan Templates with a Quick How-To Guide ."

Small Business Plan PDF Templates

These business plan templates are useful for small businesses that want to map out a way to meet organizational objectives, including how to structure, operate, and expand their business.

Simple Small Business Plan Template PDF

A small business can use this template to outline each critical component of a business plan. There is space to provide details about product or service offerings, target audience, customer reach strategy, competitive advantage, and more. Plus, there is space at the bottom of the document to include a SWOT analysis. Once complete, you can use the template as a basis to build out a more elaborate plan. 

Download Simple Small Business Plan Template

Fill-In-the-Blank Small Business Plan Template PDF

This fill-in-the-blank template walks you through each section of a business plan. Build upon the fill-in-the-blank content provided in each section to add information about your company, business idea, market analysis, implementation plan, timeline of milestones, and much more.

Download Fill-In-the-Blank Small Business Plan Template - PDF

One-Page Small Business Plan Template PDF

Use this one-page template to create a scannable business plan that highlights the most essential parts of your organization’s strategy. Provide your business overview and management team details at the top, and then outline the target market, market size, competitive offerings, key objectives and success metrics, financial plan, and more.

Download One-Page Business Plan for Small Business - PDF

Startup Business Plan PDF Templates

Startups can use these business plan templates to check the feasibility of their idea, and articulate their vision to potential investors.

Startup Business Plan Template

Use this business plan template to organize and prepare each essential component of your startup plan. Outline key details relevant to your concept and organization, including your mission and vision statement, product or services offered, pricing structure, marketing strategy, financial plan, and more.

‌Download Startup Business Plan Template

Sample 30-60-90 Day Business Plan for Startup

Startups can use this sample 30-60-90 day plan to establish main goals and deliverables spanning a 90-day period. Customize the sample goals, deliverables, and activities provided on this template according to the needs of your business. Then, assign task owners and set due dates to help ensure your 90-day plan stays on track.

‌Download Sample 30-60-90 Day Business Plan for Startup Template 

For additional resources to create your plan, visit “ Free Startup Business Plan Templates and Examples .”

Nonprofit Business Plan PDF Templates

Use these business plan PDF templates to outline your organization’s mission, your plan to make a positive impact in your community, and the steps you will take to achieve your nonprofit’s goals.

Nonprofit Business Plan Template PDF

Use this customizable PDF template to develop a plan that details your organization’s purpose, objectives, and strategy. This template features a table of contents, with room to include your nonprofit’s mission and vision, key team and board members, program offerings, a market and industry analysis, promotional plan, financial plan, and more. This template also contains a visual timeline to display historic and future milestones.

Download Nonprofit Business Plan Template - PDF

One-Page Business Plan for Nonprofit Organization PDF 

This one-page plan serves as a good starting point for established and startup nonprofit organizations to jot down their fundamental goals and objectives. This template contains all the essential aspects of a business plan in a concise and scannable format, including the organizational overview, purpose, promotional plan, key objectives and success metrics, fundraising goals, and more.

Download One-Page Business Plan for Nonprofit Organization Template - PDF

Fill-In-the-Blank Business Plan PDF Templates

Use these fill-in-the-blank templates as a foundation for creating a comprehensive roadmap that aligns your business strategy with your marketing, sales, and financial goals.

Simple Fill-In-the-Blank Business Plan PDF

The fill-in-the-blank template contains all the vital parts of a business plan, with sample content that you can customize to fit your needs. There is room to include an executive summary, business description, market analysis, marketing plan, operations plan, financial statements, and more. 

Download Simple Fill-In-the-Blank Business Plan Template - PDF

Lean Fill-In-the-Blank Business Plan PDF

This business plan is designed with a Lean approach that encourages you to clarify and communicate your business idea in a clear and concise manner. This single page fill-in-the-blank template includes space to provide details about your management team, the problem you're solving, the solution, target customers, cost structure, and revenue streams. Use the timeline at the bottom to produce a visual illustration of key milestones. 

Download Fill-In-the-Blank Lean Business Plan Template - PDF

For additional resources, take a look at " Free Fill-In-the-Blank Business Plan Templates ."

Sample Business Plan PDF Templates

These sample business plan PDF templates can help you to develop an organized, thorough, and professional business plan.

Business Plan Sample 

This business plan example demonstrates a plan for a fictional food truck company. The sample includes all of the elements in a traditional business plan, which makes it a useful starting point for developing a plan specific to your business needs.

Download Basic Business Plan Sample - PDF

Sample Business Plan Outline Template

Use this sample outline as a starting point for your business plan. Shorten or expand the outline depending on your organization’s needs, and use it to develop a table of contents for your finalized plan.

Download Sample Business Plan Outline Template - PDF

Sample Business Financial Plan Template

Use this sample template to develop the financial portion of your business plan. The template provides space to include a financial overview, key assumptions, financial indicators, and business ratios. Complete the break-even analysis and add your financial statements to help prove the viability of your organization’s business plan.

Download Business Financial Plan Template

PDF  | Smartsheet

For more free, downloadable templates for all aspects of your business, check out “ Free Business Templates for Organizations of All Sizes .”

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Essential guide to pricing strategy: how to, types and examples

Mar 17th, 2022

What is a pricing strategy?

Types of pricing strategies, how to create a pricing strategy .

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Pricing is one of the paramount challenges faced by companies. Prices should not only correspond to the existing market conditions but also cover the company’s expenses, take into account the competitors’ pricing and allow the organization to make a profit. A pricing strategy should also maintain balance while addressing customers’ needs and generating revenue. 

Moreover, when it comes to pricing, there is no one-size-fits-all solution. Instead, you need to continuously review the pricing strategy and adapt it to changing market conditions and competitive environment. Thankfully, a variety of pricing models and approaches will help you identify the best pricing that will help you find the sweet spot between your clients’ ability to pay and your financial goals. This article will describe the most common pricing strategies and provide examples of their successful implementation.

Pricing strategy is a method of determining the most appropriate price for a product or service. This process takes into consideration market and consumer demand and focuses on maximizing profits and shareholder value. When developing a pricing strategy, businesses consider various factors, such as marketing goals, financial objectives, target customers, brand positioning , input costs, trade margins, and product characteristics. The external factors that affect pricing strategy include competitor pricing, economic and market trends.

When selling a product or service, a company may employ a range of pricing strategies. Before deciding on the most suitable pricing strategy, senior executives need to analyze the brand positioning with respect to its competitors and to the customers’ perspective, price segmentation or establishing different prices for the same products or services and competitive pricing response strategy or the way to respond to competitor price changes. It should also be noted that pricing strategy greatly depends on economic, cultural, and industrial conditions and varies from one organization to another.

Many articles on pricing use the terms pricing strategy and pricing model interchangeably. However, there are some notable differences. A pricing model deals with the implementation of a pricing strategy. Pricing models rely on quantitative data. Some of the most popular pricing models include hourly, project-based, retainer, and performance-based approaches. The retainer model, for example, is when a business owner charges a monthly fee for a specific amount of time spent on the task or deliverables. 

Pricing strategy, in contrast, is how the seller utilizes pricing to accomplish defined business goals. The term refers to a consumer’s reaction to particular prices. In this guide, we will review pricing strategies and the steps needed to create one. 

An effective pricing strategy allows you to strengthen your position in the market by gaining consumers’ trust and meeting your business objectives. The listed approaches will be based on various characteristics, such as product value, expenses you need to cover, the purchasing power of your target market, and competitors’ pricing. Let us compare different types of pricing strategies, their advantages and disadvantages. 

Penetration pricing strategy

The main idea of the penetration pricing strategy is to encourage potential buyers to purchase the product by offering a lower price during the initial release. This pricing strategy helps new businesses enter the market and attract customers. Penetration pricing utilizes low prices to raise awareness about a new product among a large number of clients. After some time, the company raises prices to maximize profits and demonstrate the increasing value of the product.

According to penetration strategy, a brand initially lowers prices to gain market share and build a customer base with the goal of keeping new clients once the prices go back to normal. Due to this reason, penetration pricing is usually applied for a limited time, and it is not suitable as a long-term strategy. Moreover, there is a considerable risk that the buyers may prefer the brand at first but then choose the competitor as prices rise. 

Landlocked Airlines employed a penetration pricing strategy to encourage customers to use its services during certain seasons. This approach proved to be effective for a small airline company. Landlocked Airlines promoted its services during the winter holidays. The company reduced prices for inter-state trips, which helped it earn a good reputation and attract many new customers who would book more expensive tickets in the future.

Competitive pricing strategy

A competitive pricing strategy is based on using competitors’ prices as a reference point to set your product prices. This strategy does not take into account consumer demand or product cost. The approach is suitable for an over-saturated market as slightly different prices can play a critical role for the customers while the characteristics of the products remain the same. 

There are three options for businesses that follow a competitive pricing strategy. The companies may set prices below the competition, at the competitors' level, or above the competition.

If the company sets higher prices for the products than its competitors, it should justify the pricing by providing additional features or special payment terms. When the company is going to charge a price below the market, there is a chance of potential losses. The profits from the additional products can compensate for the expenses on the product priced below the market. If a business sets the same prices as its competitors for similar products, it may distinguish itself through outstanding product marketing .

Pepsi and Coca-Cola are perfect examples of competitive pricing strategy. This is because the brands are very similar in terms of the quality and characteristics of the products. However, Pepsi is usually slightly more expensive than Coca-Cola. So will typically have smaller total sales volumes with better profit margins, while Coke will usually achieve necessary overall profits through larger sales volumes.

Skimming (or high-low) pricing strategy

Skimming strategy is when a business sets the highest initial price for a new product and then cuts it once there is lower demand. The skimming pricing strategy is widely used in technology markets where companies aim to reimburse R&D costs. The tech companies producing devices like smartphones and video game consoles usually price their products according to this strategy as gadgets tend to lose relevance over time.

This approach targets early adopters or customers who have lower price sensitivity. It happens for several reasons: these people’s need for the product outweighs their desire to save money, they usually have higher income or better knowledge of the product’s value. Companies apply a skimming strategy for a limited period to recover their investments in product development. To obtain greater market share, businesses should use other approaches like penetration pricing strategy after some time. However, the skimming method may irritate consumers who purchased the product initially and attract competitors who notice the sudden decrease in prices.

Apple uses a skimming pricing strategy to gain the highest profit in a short time instead of getting the maximum sales. The company also applies this strategy to differentiate itself from the competitors in the market. Furthermore, Apple made minor adjustments in the skimming pricing strategy. The company charges high prices for the new products and then justifies them by increasing the value of the products in future versions. 

Premium (or prestige) pricing strategy

Premium pricing strategy is also known as prestige pricing or luxury pricing. According to this strategy, companies artificially increase prices to create the perception that the products are exclusive, high-end, or luxurious. The strategy is based on consumers’ belief that expensive products have a solid reputation, are more trustworthy or attractive, and symbolize excellent quality and distinction. Premium pricing focuses more on the product’s perceived value than its actual value.

Customers of the brands sticking to the premium pricing strategy are typically not price-sensitive, so they are ready to pay more for the latest trends. Technology and fashion brands use this approach as they aim to provide value and status through their products. The drawback of the strategy is the difficulty of implementation. The success depends on the physical locations of the stores and target customers.

Starbucks is an example of a premium pricing strategy. The coffee company’s customers choose its lattes and signature coffee products over lower-priced competitors, such as Dunkin’ Donuts and smaller or local coffee chains.

Value-based pricing strategy

This strategy relies on determining the price of the product according to its value for the customer. A value-based pricing strategy is often used when the value of the product to the customer exceeds the cost of production. The businesses that use this strategy always target one specific customer segment or a single customer if it is a B2B company . The value-based approach is not applicable in the case of multiple segments as it would be difficult for marketers to determine the appropriate price for each one.

The strategy will not work well for the “blue ocean” products as this pricing method works if the product has a competitor’s alternative offer. First, the marketers have to use the competitor’s product as the criterion for establishing a value-based price. Then it is essential to determine the product’s unique features that distinguish it from the competing option. Finally, the marketers need to calculate the value of the differentiated features. 

Supreme , an American streetwear brand, differentiates itself from competitors by emphasizing the exclusivity of clothing while maintaining prices relatively cheap and affordable. The brand always keeps a minimal inventory and never produces a large number of items. You cannot buy Supreme clothing in large retail stores, their supply is restricted. Owning limited items sold by Supreme makes its owner a much more fashion-conscious person. This strategy creates a sense of originality of the products while increasing their desirability. As a result, the brand has a unique value that you cannot get from owning any other piece.

Dynamic pricing strategy

Dynamic pricing strategy, sometimes also known as time-based pricing, surge pricing, and demand pricing, establishes prices based on various factors, such as competitor pricing, customer demand, market, and supply. When implementing a dynamic pricing strategy, the companies use data collected from customers or react to changing market conditions. Then businesses adjust the prices for comparable goods to correspond to consumers’ capacity to pay. 

The companies that typically use dynamic pricing strategy are hotels, airline companies, and entertainment facilities. These organizations apply specific machine learning algorithms that analyze demand, competitor prices, and other factors to customize prices to current market conditions or customers’ willingness to pay. The dynamic method is also suitable for large businesses like eCommerce platforms and retail stores as implementing the strategy can be quite expensive.

Uber charges a price for a ride depending on the route, traffic, and rider-to-driver demand at the moment. The algorithm or service rules consider these factors when determining the prices. 

Cost-plus (or economy) pricing strategy

A cost-plus strategy is one of the easiest methods to set up the price for the product. The strategy takes into account only the cost of producing the product. Then you need to add the set markup percentage to the costs and sell the product for the total. Thus, to derive the price of the product, you need to add material costs, labor costs, shipping costs, marketing, and overhead costs to a markup percentage. 

Retailers who sell physical goods often use this method. The advantage of the cost-plus strategy is that it is easy to calculate. If all your production and labor costs are fixed, this pricing strategy can generate consistent profits. However, the method does not consider market factors, such as customer perceived value or competitors’ prices.

Let us imagine the company that produces jellies and jams. The production cost of a jar of wild blueberry jelly is $1.50 per 250 ml. The company is going to add a markup of 40%. Thus, the price of the jelly in the shop will be $2.10.

Target pricing strategy

Target pricing strategy is a method used by companies to establish the product price on the basis of market prices. A target price is an expected price the potential buyers are willing to pay for a product. To set the price for the product, the company conducts market research and analyzes the prices for similar offers. Then the company determines the profit margin or the amount of profit it aims to gain from a product or service. After setting the profit margin, the business evaluates whether the cost of manufacturing the product is within the budget. 

This strategy can guarantee that the company gets reasonable profit as the business sells the product at a price that corresponds to market demand. Large companies like automobile manufacturers choose target pricing strategy as it is not related to product demand as they sell the complete stock volume. Furthermore, target pricing increases the profitability of the companies by lowering the cost of manufacturing the product while the selling price is fixed and determined beforehand. 

Toyota uses target pricing to save costs at the development stage and increases the quality of the products at the same time. The goal of the company is manufacturing costs reduction, so Toyota strives to meet the goal through design adjustments of the vehicles.

Discount (or low-cost) pricing strategy 

Discount pricing strategy is a method of reducing the prices for original products or services to increase traffic, move inventory and generate additional sales. Discount pricing creates a sense of urgency and a feeling that a customer is making a good deal, so this approach attracts many potential buyers. However, a discount pricing strategy is used very often by various brands and may create a reputation that your company is a bargain retailer. In addition, it may lead to a negative perception of your products’ quality. Discount pricing strategy, which is based on cost advantage can also be used as a barrier to entry for new businesses, coming to the market.

There are three common types of discount pricing: seasonal, clearance, and volume discounts. During the seasonal discounts, companies usually provide special discounts on seasonal products. Sometimes businesses apply seasonal discounts to out-of-season products to sell old inventory. Companies use the term “clearance” to denote that the products are available at exceptionally low prices and only for a limited time, like “buy two items and get one for free”. A volume discount is also known as bundling or selling goods in bulk.

Beardbrand , a company that produces brand care products, promotes discounted bundles of its goods. The bundles are different kinds of one product. They are less expensive if purchased as a set than purchased separately. Customers can test different product variations to choose the most favorite one.

Seasonal pricing strategy

The seasonal pricing strategy sets the prices for the products depending on the demand during the high season or low season. The goal is to balance the demand by attracting customers with low prices during less busy times and increasing income in peak periods by charging higher prices. The peak seasons typically include annual holiday periods like New Year and Christmas, public holidays, school holidays, and local events like festivals and concerts.

To implement the strategy, you need to adapt to fluctuations in customer demand by breaking the year into low, mid, and peak periods. Then, determine the minimum and maximum prices you are going to charge. Try different prices to ensure that seasonal discounts do not motivate people to wait until the end of the peak period. Thus, the extra fees would not drive away customers seeking greater value.

Hotels, online travel agencies, and booking systems like Airbnb and Booking.com adjust their pricing to meet consumer demands. In addition, some services utilize artificial intelligence and machine learning to determine seasonal prices with the help of the algorithm.

Psychological pricing strategy

Psychological pricing aims to create a positive psychological impact to increase sales. According to psychological studies , when customers make purchases, they experience pain or loss. Therefore, the sellers can reduce this effect, improving the chances that the customers will buy the product.

The companies employ psychological pricing strategy by setting prices ending in 9, such as $8.99 instead of $9. It looks like the seller reduced the price as much as possible, taking into account every cent. As a result, the customer perceives the price as if purchasing the product for $8 instead of $9. 

Another way to use this strategy is to put more expensive items right next to the ones you are trying to sell in a physical shop or online. For example, suppose you use it in combination with discount pricing and offer a 50% discount when buying two products. In that case, customers will consider this a favorable situation to buy a product. 

McDonald's uses psychological pricing by selling combination meals that seem like a good deal compared to purchasing a single product. The brand encourages people to spend money on additional products they might not otherwise buy. 

Geographic pricing strategy

Geographic pricing is when a company sets different prices on its products or services depending on the market or geographical location. This strategy is suitable for multinational companies. The price for the product may be based on customers’ disposable income or the economic conditions of a particular country. 

Paid social media advertising makes it simple to market a product or service using a geographic pricing strategy. You can create your pricing model focusing on the city, region, or zip code of your target customers. If some clients travel and relocate permanently, it will not influence your overall strategy to a large extent.

In 2019 Apple stores in China were selling the latest iPhones at discounts. Apple faces many challenges in the Chinese market as there are low-cost phone manufacturers like Huawei . Due to these obstacles, geographical pricing strategy allows the brand to compete effectively.

Map pricing strategy

Although MAP pricing might seem like a variation of the geographic pricing strategy, it is, in fact, something completely different. MAP is an acronym for Minimum Advertised Price. Some countries, for example, the United States, allow brands or manufacturers to establish MAP policies to define the lowest prices at which the retailers can promote their products. A MAP policy is a document that prevents price erosion which typically leads to lower seller margins and reduced value of the goods. In addition, MAP policy allows for identifying fraud and protects customers from purchasing fake goods. The minimum advertised price policy also specifies the consequences for companies that violate the established rules as well as the procedure for enforcing the policy.

There are MAP regulations for almost every product in the world. The policy is helpful for both manufacturers and retailers as it allows standardizing the prices and differentiating the product from the competition by focusing on its unique features like service and customer support. In addition, it helps small and mid-sized retailers compete against larger companies.

If a backpack manufacturer establishes a minimum advertised price of $50 for the best-selling item, all product resellers should advertise this product at $50 or more. However, if a reseller decides to promote the item at a $35 price, this will violate MAP regulations.

It might be challenging to develop a successful pricing strategy as it requires considering various characteristics of your business. True, creating a pricing strategy is a complicated task, so we broke the process into five steps.

1. Determine your business objectives. Your goals might include increasing profitability, introducing a new product, gaining more significant market share, or reaching a new market segment . Consider what you want your company to contribute to the economy and the world.

2. Perform a comprehensive market pricing analysis. Analyze the market in which your product or service is going to compete. If the market is over-saturated and you have many competitors offering similar products or services, the price will be your key to success. Try to reduce operational costs to maximize profit margins. If you produce a highly differentiated product, you can use premium pricing and focus on better customer service.

3. Make a list of your competitors. Competitors’ pricing strategies have a notable impact on yours. So, you need to identify several direct competitors and analyze their pricing. Then consider the alternatives that consumers may use to solve the problem instead of your product or service. Next, study the pricing of these substitute products. Finally, develop your pricing strategy based on all of the above.

4. Understand your target customers. At this stage, you need to determine why and how your target audience will use your product or service. The most important issue is the perceived value of the product. You need to understand the task your product or service solves for the customer, how it alleviates the pains related to this task, and what benefits the customer will get by using the product.

5. Set your prices and review them regularly. Finally, set the prices for your product or products based on your goals and the data you have collected. Set lower prices if you believe in market potential and want to quickly grab a larger share of it. Or set higher prices if the product you offer is superior to the competition. And make sure to review your results and update the prices if there is an opportunity to improve your results.

Now you have a better grasp of the most common pricing strategies. You can choose the most effective one for your business from the above-listed methods and then make adjustments to create more personalized experiences for your audience. It is time to offer the customers the best price for value!

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15.3: Pricing Strategies

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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, 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).

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.

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.

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

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

McDonald’s Uses Humor in Greece to Sell Big Macs

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McDonald’s in Japan

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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 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, 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. 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.

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12 real-world pricing strategy examples.

Pricing your products and services is one of the most daunting yet most crucial parts of doing business. The goal of strategic pricing is to maximize your profit. It’s a lot more complicated than raising your prices or increasing your profit margins.

Every business is different. They have different products, different customers and different market share. It makes sense that there isn’t a one-size-fits-all pricing strategy. So how do you make the most out of your sales without alienating a potential customer? And how does your pricing align with the brand identity you want to convey?

Read on for our full guide on how to price your product or service. This includes 12 common pricing strategies and real-life examples you can learn from

In this article, we’ll cover:

What Is a Pricing Strategy/Pricing Model?

The four cs of pricing your product, the four main pricing strategies you should know, other kinds of pricing strategy, pricing strategy benefits, key takeaways.

Most marketing guides use pricing strategy and pricing model interchangeably. There are some key differences that you should keep in mind.

A pricing strategy is how the seller uses pricing to achieve a certain business objective. It deals with the psychological reaction that a consumer has towards certain kinds of prices.

A pricing model, on the other hand, is how the seller goes about implementing the pricing strategy. Pricing models are usually specific and quantitative in nature. Here are some of the most common pricing models:

• Hourly: You charge an hourly rate (e.g., $40/hour) and then bill the client for the total number of hours worked.
• Project-based: You charge a flat rate for the entirety of the project (e.g., $5,000 for a website).
• Retainer: You charge a monthly fee for on-going deliverables (e.g., $300/month for search engine optimization).
• Performance-based: You charge a rate based on the results you produce (e.g., $100 per key performance indicator reached).
• Cost-plus pricing: You charge for the production costs (e.g., $10 to make a shirt) plus a profit markup (e.g., 100%, or total $20).

Pricing strategies work best when they take into consideration the four major pillars of pricing. These are customers, current positioning, competitors and costs. Keep the four Cs in mind when choosing the best pricing approach for your business.

Who is your target market ? What is your ideal customer’s disposable income range? How much would that customer be willing to pay for your products and service? Will pricing your products/services impact your customers’ purchasing behavior or attitude towards your brand? What kind of pricing strategy speaks to your target customer the best? How does it align with your brand image and what type of value does it communicate?

Current Positioning

What is your brand identity? Which parts of the market are you catering to with your marketing efforts? Are you known as a budget or low-cost alternative, or are you a luxury business with elite clients? Are you a relatively unknown startup, or does your company already have a hold on the market? Your products and services need to be priced accordingly. The more luxury your offerings (or the more established you are as a company), the more you can demand from your customers. This is not to say you should necessarily “price high.” Your product and pricing need to work together in order to create the image that you want.

Competitors

How much are your competitors charging? If your competitors raise or lower their prices, how would that affect your sales? Are your products/services comparable, or do you offer something special for the same cost? You can use your competitors’ prices as a benchmark. Always take note of any major differences that allow you to be more flexible on your price.

It’s simple math—you can’t profit if you’re spending more than you bring in. Always take into consideration production costs (how much it costs to produce a product or service) and fixed costs. (What you have to pay regardless of how many units you sell—e.g., marketing, rent, staffing, other operating expenses , etc.). A common method for this using cost plus pricing. Determine your costs, then determine how much additional you want to charge on top of that.

There are dozens of strategies in existence. There are four basic strategies that provide the foundations for more complex pricing. These are: economy pricing, penetration pricing, price skimming and premium pricing.

Pricing Strategy Examples: #1 Economy Pricing

Under the economy pricing strategy, your company charges as little as possible to entice the largest number of potential customers. This works by lowering operating and production costs as much as you can. Because your profit margins are usually lower, you also have to focus on volume.

This pricing approach is most commonly seen at dollar stores. It’s also common at chain supermarkets like Target or Walmart. However, if you’re a small business, this tactic is a bit tricky. You may not have the volume, market share, or brand awareness to set your products and services at the lowest possible price to reach that target customer.

Pricing Strategy Examples: #2 Penetration Pricing

If you’re a relatively new business, you may want to consider pricing for optimum market penetration. This means that you initially sell your product or service at a low introductory price. This will attract new customers. Then raise prices one you’ve secured your share in the market.

You can see this pricing strategy at work with telecommunications or cable companies. They’ll initially charge a lower-than-market rate for the first month or so. This will entice customers to sign up for their services. There are two potential downsides to this strategy. First, your profits will take a hit. Second, some customers may not buy into the higher price.

Pricing Strategy Examples: #3 Price Skimming

Think of price skimming as the opposite of penetration pricing strategy. You start with a higher initial cost, and then lower the price over time. This occurs as consumer demand falls and newer goods take over the market. This is a great way to cover production and marketing costs early. It also reinforces the idea that your brand is one of quality and luxury.

Price skimming is very common in the tech/electronics industry. Whenever a new flagship phone from Apple or Samsung comes out, prices are high. However, if a customer buys the same phone a year or even just a few months later, they could get it at a much lower price.

Pricing Strategy Examples: #4 Premium Pricing

It may seem counterintuitive to price your product at a premium price point. Customers can actually respond positively to higher prices. Because only a few people can afford them, expensive products create the illusion of exclusivity, status and quality.

You can opt for a premium price if your product or brand has a competitive advantage. The trade-off is that though your business will likely sell fewer units. The high profit margin should be able to make up for loss of volume. Premium pricing can be found in most industries. This includes restaurant and hospitality to automotive to fashion.

While economy, penetration, skimming and premium pricing are the most common pricing strategies, they’re not the only ones you can use. Below are eight more approaches that could benefit your business.

Psychological Pricing

Also known as charm pricing, psychological pricing takes advantage of the fact that humans are emotional by nature. We respond to things emotionally and impulsively rather than logically.

The biggest example of this is when sellers mark their prices as $0.99 or $0.75. This is rather than rounding up to the nearest whole number—like when an item costs $99.99 instead of $100. This is because we see and react to the first set of numbers. We immediately think it is cheaper, even though there’s a negligible difference in cost.

Bundle/Product Line Pricing

If you have a range of products or services that complement each other, you can bundle together products.  This may allow you to charge a lower price than if customers bought them individually. This is called bundle pricing. This is a great way to get rid of stock, move products and encourage more spending.

Retail brands will bundle together related items. Service providers have package deals if you get multiple services at one time. The tricky part of product line pricing is that you have to make sure that your profit loss doesn’t outweigh how much you earn by pushing multiple products at the same time.

Promotional Pricing

Promotional pricing is also known as discount pricing. You sell your products or services at a discounted rate for a short period of time. This could involve slashing off a percentage of the price. This provides vouchers or coupons, launching two-for-one deals or giving away free items with every purchase.

Promo pricing follows the idea that some profit is better than no profit. We recommend using this strategy on high-volume periods (e.g., the holidays). It also works at the end of the season when moving products out of inventory is a higher priority than pure profit.

Geographical Pricing

If you are a local business, then geographical pricing isn’t for you. But if you’re an international company that sells all over the world, then this pricing approach is very relevant.

With geographical pricing, you price your goods and services according to geographical factors such as cost of living, average income, legislation, taxes, and of course, supply and demand. For example, gas stations in a busy urban area are likely to have different prices than similar stations in a rural town.

Captive Product Pricing

This pricing strategy works best if customers have to keep buying from you to continue using your products. Examples of this are shaving products and subscription services like the Dollar Shave Club. Once you buy a razor from a particular brand, the customer will have to keep buying blades and other accessories from you since other brands won’t be compatible.

You can charge a low price for the initial buy-in (e.g., razor handles, printers), and then make up for any profit loss through the renewables (e.g., blades, printer ink).

Optional Product Pricing

You might be familiar with optional product pricing through another term: upselling. With upselling, you can tack on extra services or products for a slightly higher cost. You see airlines using this strategy all of the time, with extra charges for optional services such as baggage, priority check-in, in-flight meals and exit row seats. The idea behind this is that it’s easier and more profitable to convince a current customer to spend more than it is to try and attract a new customer.

Value Pricing

Value-based pricing means basing your prices off how much value your customers feel they are getting when they buy your product or service, instead of deciding prices based on how much a product or service costs to make. The idea behind this is that customers are willing to spend more money on something that they feel is worth it and provides them with value.

For example, a T-shirt may cost just $5 or $10 to produce. But because there’s some value attached to the style and brand, some companies may charge as much as hundreds or even thousands of dollars for it.

Dynamic Pricing

Dynamic pricing is a pricing strategy that’s variable instead of fixed. This means that, depending on the time or other external factors, prices can and will fluctuate. You see this often in the tourism industry—hotels and airlines usually charge higher rates during peak season and will lower their rates when there is less consumer demand.

Flexible pricing systems often use technology to generate the best rates depending on market factors. While this makes it easier to maximize profits, gathering the data necessary to implement dynamic pricing may be too time-consuming or expensive for small businesses.

There are several benefits to using pricing strategies like the ones above. Some of these benefits include:

• Allowing for increased margins on higher priced items. In the case where your margins are based on the initial sale only, using a pricing strategy that encourages recurring purchases will yield higher profits.
• Increasing competitiveness. When everyone else in your industry is jacking up prices and cutting discounts to maximize short-term profits, it might be time to rethink your approach. Using a pricing strategy that entices customers to keep buying from you will make your business more competitive and increase customer loyalty.
• Price flexibility. By using geographical pricing, captive product pricing and dynamic/flexible pricing, you can charge customers different prices based on certain criteria.
• Simplifying your marketing messaging. If your marketing message focuses on value and benefits rather than price, you can make it easier for customers to understand and trust your brand.
• Reducing customer price resistance. When your customers feel that they’re getting a good deal, they’ll be more likely to trust and buy from you.

There are many benefits to having a good pricing strategy. By using one or more of the pricing strategies discussed above, you can increase your profits and grow your business.

The right pricing strategy will help you get more customers and increase your profits. But what works for one company may not necessarily work for you—even if they’re in the same industry. It’s important to take a look at your specific marketing strategy and circumstances before choosing the most effective price strategy. Check out our resource hub for more information!

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• Product management
• Pricing strategies (Kotler)

Refine your pricing strategy and understand the value that you offer

About the pricing strategies template

How do you know if your product is priced competitively? It starts with understanding the pricing landscape within your industry. Kotler's pricing strategy, associated with well-known marketer and professor Philip Kotler, aims to help businesses determine an effective pricing approach.

The idea is to find a balance between maximizing profitability and meeting customer expectations — with an understanding of market demand and what competitors are currently charging. Be sure to keep an eye on competitor pricing changes, promotions, and any value-added services they offer.

Adjust the template to meet your needs and then share with internal stakeholders. Having transparent conversations about pricing strategies and models can help you better understand your product's position in the market. Whether you are positioned as a premium, mid-range, or budget option, clarity in pricing supports this positioning.

Best practices

Determine the best pricing strategy for your products and services.

Understand your market and customers Start by conducting thorough pricing research to understand your target market, customer preferences, purchasing behavior, and willingness to pay. Consider your business goals so you can can align your pricing with your long-term objectives.

Study your competitors Identify your top competitors. For each, evaluate their pricing strategy and position them on the grid based on quality vs. price — ranging from superb value in the top left to rip-off in the bottom right.

Understand your value Gauge the perceived value of your product or service and visualize how your offering stacks up against the competition. Use these insights to determine the right price.

Adjust as needed Regularly review your pricing strategies to remain competitive and profitable in your industry — potentially testing different strategies to see what resonates best with your target audience.

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FREE 3+ Pricing Strategy Proposal Samples in PDF | MS Word | Google Docs

Are you releasing new products or offering new services to the public? If you’re unaware of how to price them, you might encounter the risk of losing profits because you either priced your products or services too high for any customer not to buy them and go to other businesses that offer more affordable prices or you priced them too low that it doesn’t cover the costs of producing and manufacturing the products let alone making a profit for your business. To create efficient pricing, you need to figure out which pricing strategy works best for your products or services. Read the article to know how to make a pricing strategy proposal.

Pricing Strategy Proposal

3+ pricing strategy proposal samples, 1. pricing strategy proposal, 2. carbon pricing strategy proposal, 3. sample pricing strategy proposal, 4. business pricing strategy proposal, different types of pricing strategy, how to write a pricing strategy proposal, 1. know your business goals, 2. do a market pricing analysis, 3. know your target audience, 4. analyze your competition, 5. create a strategy plan, what are the 3cs of pricing, why is pricing strategy important.

• Google Docs

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• Competition-Based:  This is the type of pricing strategy in which businesses set their prices according to the prices of their competitors.
• Dynamic:  This type of strategy is a flexible and efficient way for businesses to gain revenue by taking advantage of customer demand at the moment they are ready to buy the product or service. One best example of this is airline tickets.
• Cost-Plus: This type of strategy only focuses on the costs of producing their products or services. This can also result in marking up prices.
• Hourly Pricing: This type of strategy is usually used in the service industry . This is a motivation factor for individuals to do their best when they get paid by the hour.
• Geographic Pricing: This type of strategy depends on the geographical location of where the product is sold. This is usually done for international sales where shipping and production can be more costly.
• Bundle Pricing: This type of strategy is when ya business offers a bundle of two or more complementary products or services together and sells them for a single price.

In the first part of your proposal, you need to outline your business goals right away. You can use your goals as your determinant basing the pricing of your products or services. The following business goals listed below are great examples that you can use:

• Increase profitability
• Improve cash flow
• Penetrate a larger market
• Larger market share
• Increase revenue per customer
• Beat your competitors
• Introduction of a new product in the market

The next section is where you list down all your analysis in pricing your products or services that considers the context of the market where it belongs. You need to figure out what are the common pricing strategy that your competitions use in pricing a similar product or service that you offer.

This section is where you give comprehensive details regarding your target audience . When identifying your target audience, you need to answer the questions why, what, and how your target audience will use your product or service based on their needs. Knowing these things can help you create your pricing model and promotional campaigns that will align with your customer’s interest to buy your product.

Aside from knowing your target audience, you also need to know how your competition bases their prices as well. These two formulas will help you to create a sensible and efficient pricing strategy for your products and services. You need to identify at least three direct competitors and include your analysis of the structure of their pricing. You also need to include in your analysis how the products or services that you offer are better compared to your competition.

This section is where you include the action plan of your pricing strategy for your products or services. When choosing the best strategy you need to base it on the market, customer, and competitive analysis that you did earlier. Below are some pricing strategies examples that are commonly used by businesses:

• Economy pricing
• Premium pricing
• Price skimming
• Promotional pricing
• Psychological pricing
• Sandwich pricing
• Competitive pricing
• Value pricing

The 3Cs of pricing strategy is a strategic framework that emphasizes the importance of the business environment in a capitalistic aspect. The 3Cs are cost, customers, and competitors.

Pricing a product or service is important since it defines their value that is worthy enough for you to produce or do by giving profit and worth enough for your customers to invest their time and money to use and enjoy the products or services.

Writing a proposal for your pricing strategy isn’t a job that can be done pronto. You need to commit some time to do some research, analyze your data, make a plan, draft your proposal, and revise it for errors. However, take your time into making your proposal to ensure that it is clear, concise, and free from error. To help you get started on making your pricing strategy proposal, download our free sample templates provided above to use as your guide.

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8 Business Plan Templates You Can Get for Free

8 min. read

Updated April 10, 2024

A business plan template can be an excellent tool to simplify the creation of your business plan. 

The pre-set structure helps you organize ideas, covers all critical business information, and saves you time and effort on formatting.

The only issue? There are SO many free business plan templates out there. 

So, which ones are actually worth using? 

To help remove the guesswork, I’ve rounded up some of the best business plan templates you can access right now. 

These are listed in no particular order, and each has its benefits and drawbacks.

What to look for in a business plan template

Not all business plan templates are created equal. As you weigh your options and decide which template(s) you’ll use, be sure to review them with the following criteria in mind:

• Easy to edit: A template should save you time. That won’t be the case if you have to fuss around figuring out how to edit the document, or even worse, it doesn’t allow you to edit at all.
• Contains the right sections: A good template should cover all essential sections of a business plan , including the executive summary, product/service description, market/competitive analysis, marketing and sales plan, operations, milestones, and financial projections. 
• Provides guidance: You should be able to trust that the information in a template is accurate. That means the organization or person who created the template is highly credible, known for producing useful resources, and ideally has some entrepreneurial experience.
• Software compatibility: Lastly, you want any template to be compatible with the software platforms you use. More than likely, this means it’s available in Microsoft Word, Google Docs, or PDF format at a minimum. 

1. Bplans — A plan with expert guidance

Since you’re already on Bplans, I have to first mention the templates that we have available. 

Our traditional and one-page templates were created by entrepreneurs and business owners with over 80 years of collective planning experience. We revisit and update them annually to ensure they are approachable, thorough, and aligned with our team’s evolving best practices.  

The templates, available in Word, PDF, or Google Doc formats, include in-depth guidance on what to include in each section, expert tips, and links to additional resources. 

Plus, we have over 550 real-world sample business plans you can use for guidance when filling out your template.

Download: Traditional lender-ready business plan template or a simple one-page plan template .

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2. SBA — Introduction to business plans

The U.S. Small Business Administration (SBA) offers two different business plan templates along with a short planning guide. 

While not incredibly in-depth, it’s enough to help you understand how traditional and lean plans are structured and what information needs to be covered. The templates themselves are more like examples, providing you with a finished product to reference as you write your plan.

The key benefit of using these templates is that they were created by the SBA. While they may provide less guidance, you can be assured that the information and structure meet their expectations.

Explore: The SBA’s planning guide and free templates

3. SCORE — Planning workbook

SCORE’s template is more like a workbook. It includes exercises after each section to help you get your ideas down and turn them into a structured plan.

The market research worksheets are especially useful. They provide a clear framework for identifying your target market and analyzing competitors from multiple angles. Plus, they give you an easy way to document all the information you’re collecting.

You will likely have to remove the exercises in this template to make it investor-ready. But it can be worth it if you’re struggling to get past a blank page and want a more interactive planning method.

Download: SCORE’s business plan template

4. PandaDoc — A template with fillable forms

PandaDoc’s library offers a variety of industry-specific business plan templates that feature a modern design flair and concise instructions. 

These templates are designed for sharing. They include fillable fields and sections for non-disclosure agreements, which may be necessary when sending a plan to investors.  

But the real benefit is their compatibility with PandaDoc’s platform. Yes, they are free, but if you’re a PandaDoc subscriber, you’ll have far more customization options. 

Out of all their templates, the standard business plan template is the most in-depth. The rest, while still useful, go a bit lighter on guidance in favor of tailoring the plan to a specific industry.

Explore: PandaDoc’s business plan template library  

5. Canva — Pitch with your plan

Canva is a great option for building a visually stunning business plan that can be used as a pitch tool. It offers a diverse array of templates built by their in-house team and the larger creative community, meaning the number of options constantly grows.

You will need to verify that the information in the template you choose matches the standard structure of a traditional business plan. 

You should do this with any template, but it’s especially important with any tool that accepts community submissions. While they are likely reviewed and approved, there may still be errors.

Remember, you can only edit these templates within Canva. Luckily, you only need a free subscription, and you may just miss out on some of the visual assets being used. 

To get the most value, it may be best to create a more traditional planning document and transfer that information into Canva. 

Explore: Canva’s business plan gallery

6. ClickUp — The collaborative template

Out of all the project management tools that offer free business plan templates, ClickUp’s is the most approachable.

Rather than throwing you into all the features and expecting you to figure it out—ClickUp provides a thorough startup guide with resource links, images, and videos explaining how to write a plan using the tool. 

There’s also a completed sample plan (structured like an expanded one-page plan) for you to reference and see how the more traditional document can connect to the product management features. You can set goals, target dates, leave comments, and even assign tasks to someone else on your team. 

These features are limited to the ClickUp platform and will not be useful for everyone. They will likely get in the way of writing a plan you can easily share with lenders or investors. 

But this is a great option if you’re looking for a template that makes internal collaboration more fluid and keeps all your information in one place.

Sign Up: Get a free trial of ClickUp and explore their template library

7. Smartsheet — A wide variety of templates

I’m including Smartsheet’s library of templates on this list because of the sheer number of options they provide. 

They have a simple business plan template, a one-page plan, a fill-in-the-blank template, a plan outline, a plan grading rubric, and even an Excel-built project plan. All are perfectly usable and vary in visual style, depth of instructions, and the available format.

Honestly, the only drawback (which is also the core benefit) is that the amount of templates can be overwhelming. If you’re already uncertain which plan option is right for you, the lengthy list they provide may not provide much clarity.

At the same time, it can be a great resource if you want a one-stop shop to view multiple plan types.

Explore: Smartsheet’s business plan template library  

8. ReferralRock affiliate marketing business plan

I’m adding ReferralRock’s template to this list due to its specificity. 

It’s not your standard business plan template. The plan is tailored with specific sections and guidance around launching an affiliate marketing business. 

Most of the template is dedicated to defining how to choose affiliates, set commissions, create legal agreements, and track performance.

So, if you plan on starting an affiliate marketing business or program, this template will provide more specific guidance. Just know that you will likely need to reference additional resources when writing the non-industry sections of your plan.

Download: ReferralRock affiliate marketing business plan template

Does it matter what business plan template you use?

The short answer is no. As long as the structure is correct, it saves you time, and it helps you write your business plan , then any template will work. 

What it ultimately comes down to, is what sort of value you hope to get from the template. 

• Do you need more guidance? 
• A simple way to structure your plan? 
• An option that works with a specific tool?
• A way to make your plan more visually interesting?

Hopefully, this list has helped you hone in on an option that meets one (or several) of these needs. Still, it may be worth downloading a few of these templates to determine the right fit. 

And really, what matters most is that you spend time writing a business plan . It will help you avoid early mistakes, determine if you have a viable business, and fully consider what it will take to get up and running. 

If you need additional guidance, check out our library of planning resources . We cover everything from plan formats , to how to write a business plan, and even how to use it as a management tool . 

If you don’t want to waste time researching other templates, you can download our one-page or traditional business plan template and jump right into the planning process.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Kody Wirth is a content writer and SEO specialist for Palo Alto Software—the creator's of Bplans and LivePlan. He has 3+ years experience covering small business topics and runs a part-time content writing service in his spare time.

Table of Contents

• Qualities of a good template
• ReferralRock
• Does the template matter?

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