A pricing strategy is the process and methodology used to determine prices for products and services. It helps businesses choose prices to maximize profits and shareholder value while considering consumer and market demand. Different pricing strategies work for different products and business models, and a good pricing strategy can enable several things for a business, such as conveying value to customers, attracting customers, inspiring customer trust and confidence, boosting sales, increasing revenue, and improving profit margins. However, a bad pricing strategy can target the wrong customers, make them feel uncertain about trusting and buying your product, and inaccurately portray the value of your product.

There are several common pricing strategies to choose from to price products and services. The first step in choosing a pricing strategy is to examine the different types, review pricing strategy examples, and understand how they differ. Some of the most common pricing strategies include:

• Value-based pricing: This pricing strategy sets prices according to what consumers think the product is worth. It is often used for SaaS businesses.

• Competitive pricing: This pricing strategy sets prices based on what the competition charges. It works especially well when your business offers something the competition doesn’t.

• Price skimming: This pricing strategy sets new product prices high and subsequently lowers the price as competitors enter the market.

• Cost-plus pricing: This pricing strategy calculates the selling price of a product to produce a particular rate of return on investment for a specific volume of production.

• Penetration pricing: This pricing strategy sets a low price to enter a new market and gain market share.

• Economy pricing: This pricing strategy sets low prices to attract price-sensitive customers.

• Dynamic pricing: This pricing strategy sets prices based on real-time supply and demand.

Pricing strategies can bring both competitive advantages and disadvantages to a business and often dictate the success or failure of a business; thus, it is crucial to choose the right strategy. All pricing strategies are double-edged swords, and what attracts some customers will turn off others. Therefore, it is essential to use a strategy that’s appropriate for your business and your target customers.