15 Different Pricing Strategies Every Business Owner
Must Know
I. New Product Pricing Strategies
Pricing strategies usually change at different phases of a
product’s life cycle. The most challenging phase of setting a
pricing strategy is that of product introduction. During this
phase, marketers face the challenge of setting prices of
business offerings for the first time. There are two strategies
that they can follow:
1. Price Skimming
Price skimming involves setting rates high during the
introductory phase. This is designed to help businesses
maximize sales on new products and services. Once the
products or services are introduced, company lowers the
prices gradually. This is done eventually as competitor goods
appear on the market.
2. Pricing StrategiesFor Market Penetration
Penetration strategies aim to attract buyers by offering lower
prices on goods and services. Many new companies use this
technique to draw attention away from their competition. But
penetration pricing does lead to an initial loss of income for the
business.
II. Product Mix Pricing Strategies
The pricing strategy for each of the products is different when
you sell different set of products. This variation in pricing is
based on the costs, demand and the different level of
competition that a product has to face in the market. Now, you
vary pricing in order to maximize profits on your total product
mix. Accordingly, there are different product mix pricing
strategies. These include:
Product Line Pricing
You have to set different prices for various offerings in a
product line in case your business offers different product
lines. This price differentiation takes into account cost
differences between the products in a given product line.
Furthermore, it also considers customer perceptions with
regards to the value offered by different products in a given
line.
Optional Product Pricing
You have to add the price of accessories to the base price of
the product in case you offer accessory products along with
the main product. This means that accessories are given as an
option to the customers.
Captive Product Pricing
This pricing strategy is used by companies manufacturing
products that are essential for using the main product.
By Product Pricing
Some industries generate by-products as a result of
manufacturing goods. These by-products hold no value at
times and it is a costly affair to dispose them off. This scenario
may lead to increasing the cost of the core product. However,
a company can sell these by-products to make for the higher
cost of disposing them off by using by-product pricing. Thus,
this makes the price of the core product competitive.
Bundle Pricing
Bundle pricing means selling a package of goods or services
for a lower rate than what consumers would pay on purchasing
each item individually.
This pricing strategy is more effective for companies that sell
complimentary products.
But small businesses should remember that the profits they
earn on the higher-value items must make up for the losses
they take on the lower-value product.
III. Price Adjustment Strategies
Generally, companies adjust the basic price of their products.
This is undertaken to consider customer differences and
changing situations.
1. Pricing at a Premium
With premium pricing, businesses set costs higher than their
competitors. Premium pricing is often most effective in the
early days of a product’s life cycle. Furthermore, it is ideal for
small businesses that sell unique goods.
A business must work hard to create a value perception. This
is because customers need to perceive products as being
worth the higher price tag. There are many things a business
can do to support premium pricing of its offerings.
These include:
★ creating a high-quality product,
★ intense marketing efforts,
★ quality product packaging and
★ plush store décor
2. Economy Pricing
Economy pricing aims to attract the most price-conscious
consumers. This strategy is used by a wide range of
businesses. These include generic food suppliers, discount
retailers etc. Thus, businesses are able to minimize costs
associated with marketing and production with this strategy.
This further helps in keeping the product prices down. As a
result, customers can purchase the products they need without
frills.
Economy pricing is incredibly effective for large companies like
Wal-Mart and Target. However, the technique can be
dangerous for small businesses. Small businesses may
struggle to generate a sufficient profit when prices are too low.
This is because small businesses lack the sales volume of
larger companies. Still, selectively tailoring discounts to your
loyal customers is a great way to guarantee their patronage for
years to come.
3. Psychology Pricing
Price is certainly a concern before purchasing products or
services. Psychology pricing refers to techniques marketers
use to encourage customers to respond on emotional levels
rather than logical ones. It considers the psychology of prices
and not just the economics behind the pricing of product.
Hence, there are different ways in which a marketer can use
psychology pricing.
★ Offering discounts or buy one get one
★ Differential pricing
★ Price ending
4. Segmented Pricing
This pricing strategy involves selling a product or service at
two or more prices. Provided such difference in pricing is not
due to a difference in manufacturing a product or rendering a
service. Rather prices are adjusted based on the customer
segment, location and timing when a product is offered.
Customer Segment Pricing
Different prices are charged for the same set of products or
services from different customers In case of customer segment
pricing.
Location Pricing
A brand charges different prices for products or services at
different locations under location pricing. Although, the cost of
offering such a product or a service at each location is the
same.
Time Pricing
A brand changes the price of its products or services as per
the changing seasons, month, day or even hours in case of
time pricing. Say for instance the happy hours offered by a bar
restaurant or special nights for women offering discounted
beverages.
5. Discount and Allowance Pricing strategies
Brands usually change the basic price of their offerings in
order to honor customers for their actions. These actions may
include volume purchases, early clearance of bills, off season
purchases or stays etc. Thus, discount pricing involves
adjustment in two ways:
Discounts
Discount can be offered in different forms. These include cash
discount, a quantity discount, trade discount, and seasonal
discount.
❖ Cash discount refers to offering products at prices for
customers making prompt cash payments.
❖ Quantity discount refers to offering products reduced
prices to customers who make bulk purchases. These
discounts instigate customers to purchase more
products from a single seller rather than approaching
different sellers for different products.
❖ Trade discount is offered by a seller to its channel
partners for performing various functions. These
functions include selling, storing, and record keeping.
This discount is also known as a functional discount.
❖ Seasonal Discount refers to giving products at reduced
prices to customers who purchase merchandise or
services during the off season.
Allowances
Allowance refers to money paid by a brand to the retailers in
return for the retailer promoting the brand’s products in some
way or the other. Such allowances come in two forms:
Trade-in Allowances
Trade-in allowances refer to the price reductions given by a
brand to the customers for returning an old item in lieu of
purchasing the new one. This pricing strategy is common in
the durable goods industry such as furniture.
Promotional Allowances
These include the promotional money or price reductions
given by a brand to its dealers as a reward for promoting its
offerings.
6. Promotional Pricing
Sometimes, companies reduce product prices below the
market price or even below cost for a temporary period of time.
This strategy is followed in order to increase sales in the short
run or to reduce inventories. This is known as promotional
pricing. This takes place in several forms.
For instance, sellers follow special event pricing on certain
occasions in order to lure more customers. Such occasions
may include festivals, special occasions, etc. These occasions
include independence day, women’s day, festivals like Diwali,
Christmas, etc.
7. Geographical Pricing
This pricing strategy refers to adjusting the list price of the
products based on the location of the customer. Thus, the
Geographical pricing strategy basically reflects the shipping
costs involved in delivering the products from the point of
origin to the point of sale.
Hence, a low price may be charged if the customer location is
closer to the point of origination. And the higher price is
charged in case customers are located at a faraway place.
Accordingly, there are five different geographical pricing
strategies:
FOB Pricing
The goods are placed free on board a carrier at a specific
location under this pricing strategy. It is at this location that the
title to and responsibility of the goods gets passed on to the
consumer. Furthermore, the consumer pays for the freight
from the factory to the destination. Hence, the closer the
customer destination, the lower the price, and vice versa.
Uniform Delivered Pricing
This pricing strategy is in contrast to FOB pricing. Thus, a
company charges the same price plus freight for the products
under this strategy. This is irrespective of the location of the
customers. Furthermore, the freight cost is levied on the basis
of average freight cost.
Zone Pricing
This pricing strategy falls somewhere between FOB pricing
and uniform – delivered pricing strategies. Thus, the company
sets up two or more zones under zone pricing. The customers
that fall in a particular zone pay the same price. This is to say
farther the zone, the higher would be the price of the products
and vice versa.
Basing – Point Pricing
The company chooses a particular city as a basing point as
per this strategy. Additionally, the company charges freight
costs to all customers from that city to the location of the
customer. This is irrespective of the city from where the goods
are shipped.
Freight – Absorption Pricing
The seller absorbs all or part of freight charges in order to get
more business from a particular location under this strategy.

Thus, the Freight-Absorption pricing strategy might result in a

declining average cost for the product and compensating for
extra freight cost. This strategy is used to penetrate a
particular market and clinging to highly competitive markets.

8. Dynamic Pricing
Earlier, a fixed price policy was followed by companies while
setting the price for goods. However today, companies are
resorting to dynamic pricing. Dynamic pricing involves
adjusting the price of products continuously to meet the needs
of individual customers.