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The 10 Types Of Pricing Strategies

August 2, 2023 by Aashish Pahwa in Marketing Essentials
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If choosing the right pricing strategy for your business

seems like a completely daunting task, we’re here to
assure you that you’re not alone. But this choice doesn’t
require a leap of faith. Conduct your research, plan a
positioning strategy, release an MVP and a beta, ask your
prospective customers about the price they’re willing to
pay, and maximise your revenue without compromising
the demand for your offering.
 Contents [ show ]

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 the most price-conscious
consumers.

The key to success in using an economy pricing strategy

is to sell a large volume of products 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, keeps 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
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
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 offer triggers 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 price 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 a 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 sets 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 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 the premium with free samples
strategy as you don’t pay anything to utilize the free
services provided under the freemium business model.

Freemium Example

Candy Crush Saga is a great example of a 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 from
setting a floor price.

Pay What You Want Pricing Example

Panera Bread Co. restaurant in 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 for 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 eCommerce websites. It uses cookies
and the 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 window shoppers.

Go On, Tell Us What You Think!

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