10 Pricing Strategies in Marketing

In marketing, pricing strategies are the practices you use to decide what to charge for your products. Price is an important factor for consumers, and depending on your industry and market, you can design many pricing strategies for specific circumstances. 

In this article, you’ll learn pricing strategies, their importance, and how to implement specific strategies in your business.

What is a pricing strategy in marketing?

Pricing strategies in marketing refer to the plan you will use to set the prices for your products. First, you must understand your revenue, business goals, and customers to determine the optimal prices for your products. Pricing strategy is critical to your business plan and often correlates with other marketing and sales strategies. 

The importance of pricing strategies

Pricing strategies are critical because customers care a lot about the price of the objects they buy. A consumer research study from First Insight asked in-store and online shoppers what factors mattered most while purchasing. The data indicated that 70 percent of in-store shoppers and 63 percent of online shoppers viewed price as an important factor, compared to 50 percent and 44 percent of shoppers who viewed quality as the determining factor [1]. Though quality and price are not mutually exclusive, companies need to know how to price their products strategically to maximize their potential.

Types of pricing strategies

To help you understand what pricing strategy might be right for you and your company, we broke down ten common pricing options. 

1. Value pricing

A value pricing strategy means pricing your goods according to customer perceived value. This method requires a trusted brand name or scarcity already present to be effective. For example, luxury brands like Gucci or Dior will be higher priced because customers deem them more valuable than more common or less expensive brands. 

Consider purchasing a beverage or hot dog at a sports event to understand how scarcity and value pricing go together. If event-goers are thirsty or hungry, they have little choice but to spend the money at the concession stand to buy food or drink. The value goes up because other options aren’t available in the area. 

2. Price skimming

Price skimming is a strategy where you introduce a product at a higher price and gradually reduce it over time. It will be particularly effective if you’re entering a market without many competitors and your product is in high demand. Without competition, you can ask for a higher price. As competition begins to enter the market, you can lower your prices slowly and position yourself as a more affordable option to others. 

An example of when price skimming works best might be a new, cutting-edge piece of technology. Until other companies begin to manufacture similar products, you can ask for a premium price. But once other options become available, you can lower your asking price.  

3. Penetration pricing

A penetration pricing strategy is the opposite of a price skimming strategy, where you introduce a product at a lower price and gradually raise it over time. This strategy has the most significant effect when you want to enter a market with a lot of established competition. A low price encourages customers to try your product, causing you to gain market share. Once you’ve earned some consumer awareness—and, hopefully, customer loyalty—you can raise the price. 

For a specific example of penetration pricing, consider Gillette razors. Through promotions or giveaways, Gillette makes it inexpensive for customers to get their first razor. To keep using the razor, customers need to purchase replacement blades. They may also want accessories or other attachments, which Gillette prices at a premium. Selling the first razor at a discount builds the base of users who will then purchase more expensive items. 

4. Premium pricing

A premium pricing strategy means recognizing that your product has a unique characteristic that differentiates it from what your competition is doing, setting the price higher accordingly. If your product offers something customers can’t get elsewhere, you may uncover a market share of individuals willing to pay a higher price for a superior product. This strategy works best when you have no direct competition. 

Luxury fashion brands could be an example of a premium pricing strategy. Whether the garments include higher-quality materials and craftsmanship or simply carry the luxury brand label, manufacturers can set their prices higher as a result. 

5. Competitive pricing

A competitive pricing strategy in marketing is when you survey your competitors, record their average prices, and then price yourself depending on how you differ from them. For example, you could price slightly higher if you have a product with more features than your competitors. 

Competitive pricing works best in markets that benefit from stable prices. If one manufacturer cuts its prices, the entire market would shift to remain competitive. The manufacturer would lose any advantage they’ve gained from cutting its prices, and everyone would make less profit. Therefore, manufacturers have an incentive to keep prices stable. 

Consider toilet paper, for example. Toilet paper manufacturers attempt to differentiate themselves based on the qualities of their product—three- or four-ply, more significant roles, a softer texture—but comparable products use similar pricing strategies. 

6. Economy pricing

The economy pricing strategy is a plan to be the leading affordable brand on the market. Generic and store-brand goods are examples of implementing economy pricing. This strategy works best for brands that don’t spend much on production and aim to get their product to as many people as possible for lower prices. 

Another example of economy pricing at work is generic drugs and medications, which sell similar products as brand medications at discount costs to reach a wider audience. 

7. Dynamic pricing

Dynamic pricing strategies will require updating prices automatically based on demand and availability. For example, a vacation destination may offer rooms for a lower rate in the off-season when fewer travelers visit and a much higher rate in the busy season when the demand allows for it. Other examples of dynamic pricing include airplane tickets and e-commerce marketplaces like Amazon. 

8. Cost-plus pricing

A cost-plus pricing strategy describes a simple method of calculating price, where you add a predetermined profit margin to the cost to produce the product. For example, say it costs $5 to create your product. You decide that a 30 percent profit margin is a good fit for your industry and competition. You would then price your item, which took $5 to create, at $6.50. This strategy works best for companies who want a straightforward pricing strategy that doesn’t require a lot of additional research. 

9. Bundle pricing

Bundle pricing is a strategy that puts multiple items into one purchase, usually for a discount unavailable when buying each item individually. Sometimes, companies implement bundle pricing for a paired set, such as shampoo or conditioner. If you want to purchase one, you’ll have to buy both. 

An example of bundle pricing could be a value meal at a restaurant. If you wanted to buy a burger and a drink at a fast food restaurant, you might discover that purchasing a bundled meal with french fries costs only a few cents more. That feels like a good deal to the consumer, but at the end of the day, it’s a higher price point. 

10. Psychological pricing

Psychological pricing strategies involve pricing items so customers spend more money than initially planned. A classic example is the .99 cents strategy, also known as charm pricing. Instead of pricing your item at $20, a charm price would be $19.99. 

A co-study between the University of Chicago and MIT indicated that items priced ending in a nine have a higher demand than similar items that do not end in a nine [2]. One proposed explanation is that customers perceive $19.99 to be closer to $19 than $20 because they first look at the left digit. 

Careers in pricing

Pricing analysts, managers, and directors are examples of careers where you can work with pricing strategy. To give you a clearer picture of these jobs, we’ve examined the basics you should know before considering them as part of your career path.  

1. Pricing analyst 

Average annual US salary: $69,189 [3]

Job outlook (projected growth from 2022 to 2032): 9 percent [4]

Requirements: Pricing analysts generally need a bachelor’s degree, particularly in finance, business, or data science.

As a pricing analyst, you would help companies research their market and competitors to decide on pricing strategies before releasing a product. After the product is released, you will monitor sales and adjust the price of the products as needed.  

2. Pricing manager

Average annual US salary: $121,578 [5]

Job outlook (projected growth from 2023 to 2033): 8 percent [6]

Requirements: You will need at least a bachelor’s degree, although some employers prefer candidates with a master’s degree.

As a pricing manager, you will help companies research and implement pricing strategies to increase revenue. You will consider industry trends and other analytics to track the performance of your strategy. 

3. Director of pricing strategy

Average annual US salary: $146,036 [7]

Job outlook (projected growth from 2023 to 2033): 6 percent [8]

Requirements: An example of the requirements for this position might be a bachelor’s degree with 10 years of experience in pricing.

As a director of pricing strategy, you will likely oversee a staff or department. You’ll take an active role in shaping company strategy and positioning. Observing trends in your market industry is an essential part of the job.  

Learn pricing strategies with Coursera.

If you’d like to learn more about pricing strategies or start a career as a pricing analyst, consider earning your Pricing Strategy Optimization Specialization on Coursera, offered by the University of Virginia BCG. This four-course track can help you learn skills in strategic management and pricing strategies such as cost-based pricing, market-based pricing, customer value-based pricing, and more.