10 types of pricing strategies

5 min readNov 21, 2017

Your pricing strategy is the value you put to your product or service. It helps you determine how you can maximise your profits. It can take into account consumer demand, product attributes, competition and marketing objectives and is targeted at your customers and against competitors. While your pricing strategy may change over time, it is important to define it based on the needs of your customer. Here some of the more common pricing strategies to help you figure out which suits your customers best.

Penetration Pricing

Penetration pricing includes setting the price low, with the goal of attracting customers and gaining market share. The price will be raised later once this market share is gained. This strategy is usually used by businesses who are just entering the market. In marketing it is a theoretical method that is used to lower the prices of the goods and services causing high demand for them in the future.

Economy Pricing

Economy pricing is a valuation technique which assigns a low price to selected products. Economy pricing is widely used in the retail food business for groceries, such as canned and frozen goods, sold under generic food brands, where marketing and production costs have been kept to a minimum.

Premium Pricing

Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the tendency for buyers to assume that expensive items enjoy an exceptional reputation, are more reliable or desirable, or represent exceptional quality and distinction. A premium price may portray the meaning of better quality in the eyes of the consumer.

Tiered Pricing

Tier Pricing is a way to encourage shoppers to buy larger quantities of a product by applying discounts based on the quantity ordered. These discounts may be “tiered” so that they increase as the order amount is raised. At its most basic, it means providing your product or service at different price points. Nearly every major business you encounter uses it in some way. When you’re choosing between shipping something 5–7 day, 3–5 day, 2-day or overnight, that’s tiered pricing in action.

Psychological Pricing

Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.00. There are certain price points where people are willing to buy a product. If the price of a product is $100 and the company prices it at $99, then it is called psychological pricing. In most consumer’s minds, $99 is psychologically ‘less’ than $100. A minor distinction in pricing can make a big difference in sales. The company that succeeds in finding psychological price points can improve sales and maximize revenue.

Pay What You Want

Pay what you want is a pricing system where buyers pay any desired amount for a given commodity, sometimes including zero. In some cases, a minimum (floor) price may be set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select an amount higher than the standard price for the commodity.

Giving buyers the freedom to pay what they want may seem to not make much sense for a seller, but in some situations it can be very successful. While most uses of pay what you want have been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use.

Optional Product Pricing

Optional Product Pricing is when companies attempt to increase the amount customers spend after their initial decision to make a purchase. Optional ‘extras’ increase the overall price of the product or service. For example, airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other. Again budget airlines are prime users of this approach when they charge you extra for additional luggage or extra legroom.

Captive Product Pricing

Captive products are strategically used to maximize revenue. Sellers generally follow a product-mix pricing strategy when pricing captive products. Low price are offered for the core product, but high prices are placed on captive products. This attracts customers to the core product with a low price but allows sellers to make a profit off the captive products, which are necessary to use the product. Captive pricing must be done carefully, for the pricing of a core product could effective the value of a captive product, and vice versa.

Promotional Pricing

Price promotions or promotional pricing is the sales promotion technique which involves reducing the price of a product or services in short term to attract more customers & increase the sales volume. This can also include bundle pricing, where companies sell a package or set of goods for a lower price than they would charge if the customer bought all of them separately, or “2 for 1” promotions.

Dynamic Pricing

Dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.