There are five major pricing strategies commonly used by businesses:
1. Cost-plus pricing calculates costs and adds a markup.
2. Competitive pricing researches competitors' prices and bases rates on the market.
3. Penetration pricing sets artificially low prices to drive out competition before raising prices for profit.
4. Price skimming sets a high initial price that is lowered over time as demand evolves, like with seasonal items.
5. Value pricing sets the price based on customer beliefs rather than costs.
How to price your product: 5 common strategies - John B. Wilson
1. HOW TO PRICE YOUR
PRODUCT: 5 COMMON
STRATEGIESPresented by John B. Wilson
JOHNBWILSON.ORG
2. Running a business requires a lot of decision
making. One of the most important choices
any business owner must make involves
pricing. There are five major strategies that are
commonly used when setting prices. They
hold no matter what the product or service is.
Introduction
3. This is a very common method of
setting prices. To use cost-plus pricing,
simply calculate costs and add a mark-
up. Cost-plus pricing is often used in
small businesses.
Cost-plus
pricing
4. Competitive
pricing
In this pricing method, sellers
look to see what pricing the
market will hold. They research
the pricing used by
competitors and base their
rates on that.
5. Penetration
pricing
A new business sets prices
artificially low when they enter
a new market. Once they’ve
driven competitors out of
business, they raise prices to
the level where they are
making a profit.
6. Price
skimming
In this scenario, businesses set
an artificially high price and
lower it over time as demand
evolves. An example of this is
seasonal items like Christmas
trees. Pricing them at an oddly
high markup during spring and
summer months means they
can be marketed as
discounted during the holiday
season.
7. value pricing
Pricing a good or service by
value means setting a price
based on customers. With value-
based pricing, overhead and
production costs aren’t taken
into account as much as
customer beliefs are.