35 Pricing Examples

Price is an area of business strategy that has an immediate financial impact for any business.

As a strategy, price can be optimized for short term gains such as discounting your products to achieve immediate revenue growth. It can also be carefully designed for long term goals such as building brand reputation or avoiding a price war with your competition. As such, designing a price strategy is often far more complex than testing prices out to see what works. It often starts with the design of your products and product lines.

A common theme of price strategy is finding a way to sell to price sensitive customers who may represent the bulk of your revenue while still charging premium prices to customers who are willing to pay more. The following are common price strategies.

Advanced Purchase

Offering a cheaper price for those who buy in advance. A means of discovering price sensitivity.

Bulk Pricing

Discounts for volume purchases that target partners such as wholesalers or customers directly.

Commitment Pricing

Discounts for committing to a service contract that guarantees a fixed period of recurring revenue.

Cost Plus Pricing

Prices based on your costs such as cost plus ten percent. An easy way to manage your margins and profitability. Generally considered a suboptimal way to market products to end customers. Typically used by businesses that have limited marketing capabilities and deal with high volumes such as intermediaries in a supply chain.

Coupons

Offering discount coupons is a form of price discrimination that offers different prices to price sensitive customers who are willing to find your coupons.

Customary Price

A sticky price for a particular product or service that customers have come to expect. Where a strong customary price exists, charging a higher price can result in dramatically lower sales.

Direct Segmentation

Segmenting customers by direct factors such as age or city of residence in order to charge price insensitive customers more. For example, a higher price for corporate customers or a student discount.

Discounting

Promotional discounting designed to boost sales volumes and acquire new customers. In many cases, discounting is also required to dispose of excess inventory levels.

Drip Pricing

The controversial practice of advertising a low price but then adding unavoidable fees. Tends to anger customers leading to low conversion and a poor customer relationship. In many jurisdictions, drip pricing is prohibited by law. It also raises ethical issues and represents a reputational risk. Historically, drip pricing is common for services such as event tickets, travel and flower delivery.

First Degree Price Discrimination

Aggressive price discrimination strategies employed by a business with a dominant position in a particular market that directly targets a customer's ability to pay. For example, corporate customers may receive different prices based on their top line revenue.

Group Pricing

Offering discounts to particular identifiable groups such as government employees or senior citizens. Typically used for promotional purposes and to target different price sensitivities.

Incentive Discounts

Offering a lower price to a partner who can achieve significant sales volumes. For example, airlines and hotels commonly offer low prices to companies that organize and sell packaged tours.

Indirect Segmentation

Segmenting customers by behavioral factors such as the activity on their account and offering different prices and promotions. For example, offering a steep discount to accounts that haven't made a purchase recently.

Line Pricing

Offering a uniform price for a line of products. For example, a fashion brand may offer a budget line of clothing and a premium line. The prices within each line are similar but there's a large gap between the two lines designed for different price sensitivities.

Loss Leader

Advertising a low price, potentially below cost, to attract customers in order to establish a relationship and sell them additional items.

Loyalty Pricing

Charging a different set of prices to loyalty card members or other sets of loyal customers. A type of price discrimination.

Market Price

A price set by supply and demand that is difficult to escape if your product is a commodity or partially commoditized.

Negotiated Price

Negotiating a price with customers. Common for products, services and assets that are relatively expensive. Negotiations are typically guided by a set of industry and culture specific conventions. In many cases, a significant discount to advertised prices is commonplace.

Pay What You Want

Simply asking customers to pay what they want. Typically used for charity fundraisers and other good causes.

Peak Pricing

Charging more during peak times for a product or service with limited capacity such as a theme park.

Penetration Pricing

Low prices designed to produce initial market share for a new product or achieve critical mass for a new technology or innovation.

Perceptual Pricing

Considering the cognitive effects of different price points. Historically, customers sometimes perceived prices such as $19.99 as lower than $20. In some cases, a round number such as $20 is perceived as more honest and appealing.

Personalized Pricing

Offering different prices and promotions at the individual account level based on behavior such as purchasing patterns or data that you acquire about the customer. In some instances, personalized pricing may have legal and compliance implications related to privacy rights and consumer protection regulations.

Predatory Pricing

Pricing, often below cost, designed to put a competitor out of business in hopes of establishing a monopoly in a particular area or market. Typically prohibited by regulations such as competition laws and trade agreements.

Premium Product Versions

Offering a premium version of a product that targets customers who are willing to pay more.

Prestige Pricing

Setting a high price that aligns with the prestige of your brand and avoiding discounts that cheapen your brand image. Typically works if you have a well positioned brand in an industry with strong product differentiation such as luxury goods.

Price Points

Price points are prices that appear to support a certain level of demand. For example, jeans priced at $100 may sell 40,000 units but jeans priced any higher may sell less than 10,000 units.

Price Skimming

Price skimming is the practice of charging a high price for a much anticipated new product at launch that is reduced with time. Fans of a particular brand or early adopters of new technology may be willing to pay a high price to be first. Price skimming is often used to quickly recover research and development costs for a new technology.

Price Umbrella

A price umbrella is the price set by a dominant competitor in a market. It tends to act as a ceiling for prices. In other words, it's difficult to charge a higher price than the most popular product in a particular category. Niche products that offer higher quality or unique features may be able to generate demand at a price above the umbrella.

Razors And Blades

Charging a low price for equipment and a high price for the supplies required to operate it.

Sliding Scale Fees

Charging a higher price to those who can afford it. Commonly used by lawyers, schools and community organizations as a way to improve access to important services. In most cases, the higher price is the regular price and an exception is made for those who can't afford a service but clearly deserve it such as a remarkably talented student who applies to a prestigious school.

Subscription Pricing

Recurring revenue such as monthly service fees are often worth an order of magnitude more than a one time sale. As such, it is common to wrap things in services. A classic example is a book subscription service that ships a highly regarded new book each month for a flat service fee.

Time Based Pricing

Offering discounts on particular days or times of the day in order to separate price sensitive customers from those who are willing to pay more.

Undercutting

Setting your price just under the price of a competitor. A common strategy in highly competitive industries such as the sellers of products and services on an ecommerce platform. Generally results in a price war that is costly for all competitors in a particular market.

Value Based Pricing

Setting your price based on the perceived value of your products and service in the minds of your customers as opposed to factors such as your costs. For example, a restaurant may charge $14 for a salad and $21 for a fish dish where the gross margin for the salad is 82% and 12% for the fish dish.