The 10 Types Of Pricing strategies

Here are 10 different types of pricing strategies you can use to sell your
products in a competitive market and still make profits.

Premium pricing
Premium pricing, also called image pricing or prestige pricing, is a pricing
strategy of marking the price of the product higher than the industry
standards/competitors’ products. The idea is to encourage a perception
among the buyers that the product has a more utility or a higher value
when compared to competitors’ products just because it is sold at a
premium price.

The premium pricing strategy has the advantages of producing higher

revenues and building a premium brand image. However, to make this
pricing strategy a success, a business has to work really hard on the quality
of the product and the brand to create a value perception. Spending a
substantial amount on building a premium or luxury brand helps the
business create a barrier for the competitors to position their products in
the same class.
Premium Pricing Example
Branded unleaded petrol is sold at a higher price than regular unleaded
petrol. The consumer never gets to test if the branded is better, yet he buys
the branded offering thinking if it’s expensive, it must be better.

Penetration Pricing
Penetration pricing is a pricing strategy where the price of the product
is initially kept lower than the competitors’ products to gain most of the
market share and to trigger word of mouth marketing.
Even though this strategy leads to losses initially, it results in many
customers shifting to the brand because of the low prices. Once these
customers become loyal and the brand achieves a strong market
penetration, marketers increase the prices to a point where they get
optimum profits without 0much loss of customers.

Penetration Pricing Example

Oneplus launched its flagship product Oneplus 1, which had all the features
of an iPhone, at a highly affordable price of $299. Once the company
acquired a good market share, it started launching its products at a
premium. The recent phones from Oneplus are priced in the range of $500-
$700.

Economy Pricing
Economy pricing is a no-frills pricing strategy followed by generic food
suppliers and discount retailers where they keep the prices of the product
minimal by reducing the expenditure on marketing and promotion. This
strategy is used essentially to attract most price-conscious consumers.

Also Read:  Product and Brand Positioning Map

The key to success using economy pricing strategy is to sell a large volume
of product and services at low prices. The strategy is most suited to big
businesses like Aldi and Walmart.

Economy Pricing Example

Aldi uses this no-frills economy pricing strategy where it operates small
stores, only sells products which have a good demand, keep products in
their original shipping containers, and even charges the customers if they
ask for carry-bags.
Price Skimming
Price Skimming is a strategy of setting a relatively high introductory price of
the product when the product is new and unique and the market has fewer
competitors. The idea is to maximise the profits on early adopters before
competitors enter the market and make the product more price sensitive.

The strategy got its name from successive skimming of layers of cream or
the customer segments as the prices are lowered over time.

The initial high price not only helps the business to recover its development
costs but also gives the product a perception of being an exclusive and
premium product.
Price Skimming Example
Smartphones (both iPhones and Android) are introduced in the market at a
higher price, but the price is reduced as the time passes.

Psychological Pricing
Psychological pricing refers to the psychological pricing strategies
marketers use to make customers buy the products, triggered by emotions
rather than logic. Such strategies come in the form of:

 Charm Pricing: This involves reducing the price by a minimal amount (say

1 cent) which makes the customer perceive the price to be less. For example –
the price of a $3 product is set as $2.99 in supermarkets as customers’ brains
process $2.99 to be nearer to $2 and not $3.
 Prestige Pricing: This involves rounding off and setting a higher price for
premium and exclusive products as rounded figures are easily processed and
are preferred in such cases.
 BOGOF: Buy one, get one free offers trigger the greed among the
customers as they get two products for the price of one. This strategy is often
used to clear up the stock or increase the volume of sales.
 Price Anchoring: Anchor is the first (higher or lower) price communicated
to the customer to make their mind revolve around that price and buy the
 product the retailer wants. For example – printing double price label showing a
regular price and a sale price, keeping a higher priced and medium quality
product along with a lower priced but good quality product to increase its sale,
etc.
Bundle Pricing
Bundle pricing involves selling packages or set of goods or services at
lower prices than they would have actually cost if sold separately. This is
an effective strategy to bundle unsold products or products with less
demand with the high selling products to clear up the shelf space and to
increase the profits.

Bundling works wonders when two complementary products are bundled

together.

Bundle Pricing Example

Mcdonald’s happy meal is a perfect example of bundle pricing.

Freemium
Freemium is an Internet-based pricing strategy where basic services are
provided free of charge but charges are levied on additional premium
features. The freemium strategy is different from premium with free
samples strategy as you don’t pay anything to utilize the free services
provided under the freemium business model.

Also Read:  What Is Lifestyle Marketing? [Definitive Guide]

Freemium Example
Candy Crush Saga is a great example of freemium pricing strategy where
the game is provided for free but a price is levied if you want more lives to
play.
Pay What You Want
Pay what you want is a pricing strategy where the power of deciding the
price of a product is given to the buyers, who pay their desired amounts for
a product, which could even be zero.

Unlike how it seems, this pricing strategy often leads to more profits and

increased market share as most of the customers pay amounts which are
more than the cost price of the product.
Although many businesses set a minimum price and use a partial version
of this pricing strategy, many refrain themselves from setting a floor price.

Pay What You Want Pricing Example

Panera Bread Co. restaurant in the St. Louis is a famous example of a
business operating successfully using the pay-what-you-want pricing
strategy.
Predatory Pricing
Predatory pricing, or below the cost pricing, is an aggressive pricing
strategy of setting the prices low to a point where the offering is not even
profitable, just in an attempt to eliminate the competition and get the most
market share.

An ongoing price war among the competitors may lead to one adopting a
predatory pricing strategy to make the competitor exit the arena.

Predatory pricing is illegal in many countries under the antitrust laws and
competition acts as it acts as a barrier to healthy competition and leads to
businesses enjoying a monopoly.

Predatory Pricing Example

A perfect example of a company adopting a predatory pricing strategy is
Amazon which, in 2013, offered books at a price less than the cost
price and even shipped it for free just to win over the traditional brick-and-
mortar competitors.
Dynamic Pricing
Dynamic pricing, also called demand pricing, is a comparatively new pricing
strategy which charges different prices of the same item from different
users depending upon their perceived ability to pay.

This pricing strategy is dependent on the internet and is usually used by

the eCommerce websites. It uses cookies and internet browsing history of
the users to understand their requirements and the urgency to buy and
price the products accordingly to increase the sales.
Dynamic Pricing Example
Ecommerce websites like Amazon, Flipkart, etc. use this strategy to
remarket their products to the window shoppers.
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11 different types of pricing

1) Premium pricing
It is a type of pricing which involves establishing a price higher than your
competitors to achieve a premium positioning. You can use this kind of pricing
when your product or service presents some unique features or core
advantages, or when the company has a unique competitive
advantage compared to its rivals. For example, Audi and Mercedes are
premium brands of cars because they are far above the rest in their product
design as well as in their marketing communications.

2) Penetration pricing
It is a commonly used pricing method amongst the various types of pricing is
designed to capture market share by entering the market with a low price as
compared to the competition. The penetration pricing strategy is used in order
to attract more customers and to make the customer switch from current
brands existing in the market. The main target group is price sensitive
customers. Once a market share is captured, the prices are increased by the
company.

However, this is a sensitive strategy to apply as the market might be

penetrated by yet another new entrant. Or the margins are so low that the
company does not survive. And finally, this strategy never creates long
term brand loyalty in the mind of customers. This strategy is used mainly to
increase brand awareness and start with a small market share.

3) Economy pricing
This type of pricing takes a very low cost approach. Just the bare minimum to
keep prices low and attract a specific segment of the market that is highly
price sensitive. Examples of companies focusing on this type of pricing
include Walmart, Lidl and Aldi.

4) Skimming price
Skimming is a type of pricing used by companies that have a
significant competitive advantage and which can gain maximum revenue
advantage before other competitors begin offering similar products or
substitutes. It can be the case for innovative electronics entering the
marketing before the products are copied by close competitors or Chinese
manufacturers.

After being copied, the product loses its premium value and hence the price
has to be dropped immediately. Thus, to get maximum margins from their
products, innovative companies keep launching new variants so that
customers are always in the discovery phase and paying the required
premium.

5) Psychological pricing
It is a type of pricing which can be translated into a small incentive that can
make a huge impact psychologically on customers. Customers are more
willing to buy the necessary products at $4,99 than products costing $5. The
difference in price is actually completely irrelevant. However, it makes a great
difference in the mind of the customers. This strategy can frequently be seen
in the supermarkets and small shops.

6) Neutral strategy
This type of pricing focuses on keeping the price at the same level for all four
periods of the product lifecycl. However, with this type of strategy, there is
no opportunity to make higher profits and at the same time, it doesn’t allow for
increasing the market share. Also, when the product declines in turnover,
keeping the same price effects the margins thereby causing an early demise.
This pricing is used very rarely.

7) Captive product pricing

It is a type of pricing which focuses on captive products accompanying
the core products. For example, the ink for a printer is a captive product where
the core product is the printer. When employing this strategy companies
usually put a higher price on the captive products resulting in increased
revenue margins, than on the core product.

8) Optional product pricing

It can be frequently observed in the case of airline companies. For example,
the basic product of KLM Airlines is offering or providing seats in the airplane
for different flights. However, once the customers start purchasing these
seats, they are offered optional features along with the seats. Examples may
be extra seat space, more drinks etc. Because of this optional product, there
is more revenue generated from the main product. Customers are willing to
spend for the optional product as well.

9) Bundling price
Ever hear of the offer of 1 + 1 free? In the supermarket, when two different
products are combined together such as a razor and the lotion for shaving,
and they are offered as a deal, then we get to experience the bundling type of
pricing first hand. This strategy is mainly used to get rid of excess stocks.

10) Promotional pricing strategy

It is just like Bundling price. But here, the products are bundled so as to make
the customer use the bundled product for the first time. This type of pricing
focuses on buying one, and getting a new type of product for free.
Promotional pricing can also serve as a way to move old stock as well as to
increase brand awareness.

11) Geographical pricing

It involves variations of prices depending on the location where the product
and service is being sold and is mostly influenced by the changes in the
currencies as well as inflation. An example of geographic pricing can also be
the sales of heavy machinery, which are sold after considering the
transportation cost of different locations. Click here to read more
on geographical pricing strategy.

Depending on the goals and objectives of your company, and the strategies

decided by your company, you can use any of the 11 types of pricing
mentioned above. One can identify what strategy should be applied by
analyzing the market and also the product/service lifecycle they are present
in.