May 15, 2023 8:00:00 AM

9 pricing strategies you should know

When it comes to pricing your products or services, there's no one-size-fits-all approach. Different businesses and industries have different needs, and what works for one company may not work for another.

But don't worry, we've got you covered. In this article, we'll go over 10 popular pricing strategies and provide some real-world examples of companies that have used them effectively.

Cost-plus pricing: This strategy involves adding a markup to the cost of the product to determine the selling price. A classic example of this is Walmart, which uses a cost-plus pricing model to offer low prices on a wide range of products.
Value-based pricing: This approach takes into account the value that the product or service provides to the customer, rather than just the cost of production. A great example of this is Tesla, which charges premium prices for its electric cars based on the value they provide in terms of performance and environmental benefits.
Competitive pricing: This strategy involves setting prices based on what competitors are charging for similar products or services. One example of this is Amazon, which frequently adjusts its prices based on the prices of its competitors.
Penetration pricing: This approach involves setting a low price to quickly attract customers and gain market share. A company that has used this strategy is Netflix, which initially offered a low monthly subscription fee to attract customers away from traditional cable TV providers.
Skimming pricing: This strategy involves setting a high price for a new product or service and then gradually lowering the price over time. Apple is known for this, it charge a premium on its new products and gradually reduces the prices over time.
Bundle pricing: This approach involves offering a package deal of multiple products or services at a discounted price. A great example of this is the fast food industry, which often offers meal deals that include a sandwich, drink, and side for a lower price than buying the items separately.
Freemium pricing: This strategy involves offering a basic version of a product or service for free, but charging for advanced features or add-ons. LinkedIn is a good example of this, it offers a free version of its platform but charges for premium features such as InMail and job postings.
Dynamic pricing: This strategy involves adjusting prices based on factors such as supply and demand, time of day, or weather conditions. Uber is an example of this, it adjusts its prices based on the level of demand for rides in a particular area.
Personalized pricing: This approach involves setting prices based on the customer's specific characteristics, such as their location, purchase history, or browsing behavior. Amazon is a good example of this, it uses data on customer behavior to offer personalized pricing and recommendations.

Common strategies in Manufacturing

In the manufacturing industry, cost-plus pricing is one of the most commonly used strategies. This approach involves adding a markup to the cost of materials, labor, and overhead to determine the selling price of a product. This strategy is often used because it is simple and easy to understand, and it allows manufacturers to ensure that they are covering their costs and making a profit. However, this linear relationship between cost and price can limit the ability to maximize profits and can also lead to missed opportunities for pricing based on the value of the product to the customer.

Another popular pricing strategy in the manufacturing industry is target costing. This approach involves setting a target price for a product and then working backwards to determine the cost of materials, labor, and overhead that will allow the manufacturer to reach that target price. This strategy helps manufacturers to be more competitive in the marketplace and to ensure that they are not overpricing their products. However, it also requires a detailed understanding of the costs of production and the market demand for the product.

Value-based pricing is also gaining popularity in the manufacturing industry. This approach involves determining the value that a product provides to the customer and setting the price based on that value. This allows manufacturers to charge premium prices for products that offer unique benefits or features, such as energy efficiency or eco-friendliness. This strategy can lead to higher profits, but it also requires a deep understanding of the customer's needs and preferences. This can be achieved by using advanced data analysis based on data from your CPQ (configure, price, quote) system.

Bottom line

In conclusion, there is no one-size-fits-all when it comes to pricing strategies, different businesses and industries have different needs, and what works for one company may not work for another. By understanding the different pricing strategies available and the advantages and disadvantages of each, you can make informed decisions about the best approach for your business.

And it's important to note that, Advanced data analysis based on data from your CPQ (configure, price, quote) system can help you find the sweet spot for each product or service.