March 17, 2025

Simple Pricing Strategies for Your Business

The right pricing strategy for your business is crucial to sustaining and growing your business. It can also help to distinguish your products and services amongst competitors, and help it stand out.

To develop the right pricing strategy, you need to get clear on your business' value and goals. Plus, understanding the various pricing strategies available to business owners can help you control costs without compromising quality.

Understand Your Business First

There are different pricing strategies, and the right one for your business will vary based on your goals, industry and what you sell. Here’s how to get started:

• Define your customer: Refine your customer personas, including their purchasing power and habits as well as problems your business can solve for them.
• Set a clear goal: Determine what your business objectives are, like entering new markets or to increase profitability. 
• Analyze current and past data: Review sales data and any pricing strategies you've employed to see what has worked and what needs improvement. 
• Know your costs: Get clear on what your business pays to produce your product or service and how much each unit will cost.  
• Determine your business’ value: Determine how your product or service stands out amongst your competitors. 

Eight Types of Pricing Strategies

Once you have a clear understanding of your goals, customer and market, consider these types of pricing strategies: 

1. Penetration pricing: This popular pricing strategy involves introducing new products at a low introductory price and gradually increases as  brand recognition increases. It can help to encourage more word of mouth and the ability to enter a new market faster. 

2. Cost-plus pricing: After determining the cost to make a product, you add a markup to arrive at your selling price. Best for businesses that want a simple pricing strategy and predictable profits. 

3. Competitive pricing: With competitive pricing, your business sets a price based on competitor rates, usually at a lower price. This strategy is great for highly competitive industries. 

4. Dynamic pricing: This strategy means changing prices based on the demands of the market. Businesses with fluctuating customer demand like ones that sell seasonal products tend to benefit the most.

5. Freemium pricing: The basic version of your business' product is available for free, but you charge for any additional or advanced features. This strategy can help to attract a wider audience and encourages upgrades over time.

6. Psychological pricing: The pricing encourages customers to respond emotionally and typically involves charging an amount that feels slightly lower. For example, charging $19.99 instead of $20 to make it seem like a better value.

7. Price Skimming: The opposite of penetration pricing, price skimming involves setting an initial higher price then lowering it as time goes on. This strategy may be best suited for businesses that want their products to appear exclusive or high in demand.

8. Value-based pricing: Sometimes referred to as premium pricing you set your product's price based on what you believe your customers think it's worth. It can maximize your business profit if you believe the product has unique benefits. 

Common Pricing Pitfalls to Avoid

Competing on price alone may not be the best long-term strategy as it can harm brand perception. Instead, you can combine various pricing strategies to strike a balance between affordability and value. 

For example, you can offer freemium pricing to be competitive amongst businesses that offer similar products. In time, you can slowly increase the paid tiers or take away some features in the free plans. Or, if you want to enter the market more quickly, consider penetration pricing where you’re sacrificing some profit temporarily.  

Inconsistent pricing could also cost your business in terms of brand reputation. Take the time to establish a clear pricing strategy, make sure all decision makers are on board and update it across all channels.

As your business ebbs and flows, so too can your pricing strategy. Look at data including customer feedback, competitor analysis and your overall costs. Regularly reviewing and adjusting pricing over time to help you reach business goals could help you remain competitive for years to come.

This content was written by a freelance author and commissioned and paid for by American Express.