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17 Pricing Strategies You Can Use To Make Money in 2021

by Chenell Tull | Updated: March 23, 2021

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When deciding how to price your products and services, many beginners just pull numbers out of thin air – I know I did! But there are tons of pricing strategies that can help you decide if you’re charging enough, charging too little, or overcharging (no wonder you keep getting denied after pitching your prospects!)

It’s an important part of any businesses strategy.

There are tons of digital marketers out there that will tell you to “double your prices!” all the damn time. But that’s not always the right way to go about things.

Is it better to charge by the hour, or to use a value based pricing strategy? I wanted to break down all of the major pricing strategies and help you decide if any of these will work for you.

1. Bundle Pricing

Also known as:

What is Bundle Pricing?

Bundle pricing is pretty self-explanatory. It’s a pricing strategy where a company combines a few different products together and sells them at a single price instead of charging separate prices for each one.

There are two types of bundle pricing:

  1. Pure Bundling – this is when products are only sold as a package, and you cannot buy them separately. Cable providers often use this and make you get the “Blue package” which includes 20 channels even if you only wanted National Geographic.
  2. Mixed Bundling – this is when you are able to buy things together or separately. In the cable provider example, you can purchase internet, but they also give you a discount if you bundle your cable and home phone into the package.

This can frequently be seen as “Buy One Get One Free” sales, or

Who it’s best for:

Bundle pricing is great for companies who have a few different products or services to sell, or if you want to increase the value of items that sell at a lower volume.

It also works well when you have a ton of competition and need to offer discounts to keep your market share. Instead of just having a 20% off sale and losing that much in revenue, you can bundle your products or services together and increase the customer value which makes the loss in revenue easier to handle.

Advantages:

Disadvantages:

Examples:

Aside from the cable company example above, you also see this all over the place in the insurance industry.

“Save when you bundle your home and auto insurance”

Insurance is super competitive and many customers are looking for the best price, so bundling makes complete sense here because they are keeping their customers from going to the competition by offering a discount.

2. Competition-Based Pricing

Also known as:

What is Competition-Based Pricing?

Competitive pricing is a pricing strategy where you set your prices based on what your competitors are charging. The idea is that your competitors have been selling their products and services well, and if people are buying them then the price must be right.

The problem is that so many businesses are charging prices that don’t have a lot of data to back them up, so you could essentially be copying a bad strategy.

Who it’s best for:

A competitive pricing strategy can be great for companies who are just getting started and have no idea where to start when it comes to pricing.

However, you will want to reevaluate your prices after a few months and see if there is room for improvement.

Advantages:

Disadvantages:

Competition-Based Pricing Strategy Examples:

Lots of marketing agencies and consultants will use this type of pricing and get sucked into the bad ways others are charging.

But, as a digital marketing consultant this is an easy way to make sure you’re at least close when it comes to your competitors pricing strategy. I did this in the beginning and it was okay, but I also quickly realized that the people I thought “knew it all” had no clue and were undercharging and shooting themselves in the foot.

Competition based pricing can be a great addition to your pricing model, or a “starting point” if you will.

3. Cost Based Pricing

Also known as:

What is Cost-Based Pricing?

A cost plus pricing strategy is where you set your prices based on what it costs you to produce or deliver. You take that number (i.e. your cost of goods sold or production costs) and add a percentage of profit or fixed profit amount to that price.

So if it takes 15 hours to deliver a product or service, and your contractors charges $75 per hour, then 15 x $75 = $1,125

From there you would add a profit margin on top of that figure, let’s say 15%, bringing the total price to $1294

So the name speaks for itself, its cost plus pricing as in you charge the cost plus a little extra for yourself 🙂

It’s not a perfect model, but it ensures that you are bringing in more than you are sending out in terms of revenue.

Who it’s best for:

The cost plus pricing model can be used by companies who are experiencing a ton of demand for their products and services. You are ensuring you are bringing in profit, but also scaling up prices in a simple way.

In my opinion, a cost-based pricing strategy by itself is not a great method. You are essentially ignoring all other factors of the market and might end up drastically undercharging or seriously overcharging for your time.

Advantages:

Disadvantages:

Examples:

Walmart is a great example of a company using cost-based pricing. They take the products they purchase and add a certain amount of profit on top and sell them to their customers for a lower price than competitors.

In a way, they are undercharging for their goods, but since they’ve branded themselves well as the “low cost” leader of those goods, they bring in more volume as people flock to their stores looking to save a few bucks.

4. Dynamic Pricing

Also known as:

What is Dynamic Pricing?

Businesses that use dynamic pricing can have a very competitive advantage when they are able to react quickly and efficiently to changing market conditions.

In the modern, fast-paced business world, this ability can be a major driver of their success. When you can dynamically change prices based on the current state of the market and industry, you become more competitive and increase your profits.

Who it’s best for:

Dynamic pricing is common with industries like rideshare services, hospitality, travel and tourism, entertainment, electricity, and public transportation. 

But other digital businesses like email marketing platforms also use this pricing strategy. This helps make sure large companies aren’t putting a heavy burden on their infrastructure while smaller businesses end up paying the same price and using a lot less.

Advantages:

Disadvantages:

Dynamic Pricing Strategy Examples:

Have you ever needed to get an Uber and all of the sudden it starts raining? You look at the price again and it’s about double what it was 25 minutes ago? You’ve definitely experienced dynamic or “surge” pricing.

Uber uses algorithms to account for demand, time of day, weather, and more factors that increase or decrease prices to fit the current market. When it rains, more people take rideshares or there aren’t as many drivers out and about to pick up customers. They adjust prices to make up for the extra demand on their infrastructure.

Another example is with landing page platforms. If you’re sending 100,000 visitors to your landing pages, some companies will charge you more than a small business sending around 500 visitors to their landing pages. Their pricing structure will account for the increase in use, and that is an example of dynamic pricing.

5. Economy Pricing

What is Economy Pricing?

Economy pricing is a pricing strategy where you have low prices and end up getting more customers because of that decreased price.

Who it’s best for:

Economy pricing is great for businesses who are in a large market and can bring in the quantity of customers needed to make a decent profit.

Advantages:

Disadvantages:

Examples:

Economy pricing is used by a lot of big box stores that can bring in and handle the increase in customers. Walmart, Costco and Sams Club are great examples of using this pricing strategy.

6. Freemium Pricing

What is Freemium Pricing?

Freemium pricing is a pricing strategy where you allow customers to use your product or service for free, with the hopes that they will eventually start paying down the line.

Who it’s best for:

Advantages:

Disadvantages:

Examples:

Evernote, ConvertKit, and even the Weather Channel mobile app are examples of businesses using a Freemium pricing strategy. You can start off with a lower plan that is free, but as you start using the product more and need more features and functionality, you’ll likely need to start paying for a higher tiered plan.

Evernote allows you to use their product or service for free at the beginning, but as you start using the product more and more you’ll want to upgrade to get more storage space or features.

7. Geographic Pricing

Also known as:

What is Geographic Pricing?

Geographic pricing is a pricing strategy where you charge different fees based on where your customers are located.

The difference in priced could be based on a few different factors:

Who it’s best for:

Geographic pricing is great for companies who serve customers all over the globe as you net the same per customer. It’s also generally used in physical product businesses as digital services can be delivered without these increased costs.

Advantages:

Disadvantages:

8. High-Low Pricing

Also known as:

What is High-Low Pricing?

High-low pricing is a pricing strategy where a company will charge a higher cost for their product or service up front, but then discounts that price using sales, promotions, or markdowns.

Who it’s best for:

This pricing strategy is used by large retailers like Nike and Reebok to keep up with the high competition in the fashion industry.

Small businesses can also use this strategy to make it seem like customers are getting a discount when they really just mark up the price so they could mark it down later and sell for what they would have initially sold the product for.

Anchor pricing is when you have multiple tiers knowing that people will usually go for the middle tier, and this could be considered a version of high-low pricing.

Advantages:

Disadvantages:

Examples:

Macy’s and Nordstrom, as noted above, are great examples of this. There is always some kind of sale going on in these retailers because consumers have begun to expect it.

Kohl’s is another great example of using this pricing strategy as you can always get Kohl’s cash or find a sale and get the same item for a lower price.

9. Hourly Pricing

Also known as:

What is Hourly Pricing?

Hourly pricing is a strategy where you charge based on the number of hours a job takes.

Who it’s best for:

Advantages:

Disadvantages:

Examples:

A great example of hourly pricing is a contractor or plumber who charges based on the number of hours it took to complete a project.

Lawyers are another example of this model since they charged based on billable hours.

A lot of freelancers who are just getting started will charge based on the hour as well. If a website takes 15 hours to build, they’ll multiply their hourly rate by that price and know what to charge the customer. The downside to this comes when you start working on multiple projects for clients and can only charge based on the hours worked.

This is why a lot of freelancers eventually move to value based pricing, which is discussed later in this article.

10. Keystone Pricing

Also known as:

What is Keystone Pricing?

Keystone pricing is often used in retail businesses. It’s a pricing method where you essentially double the price of your wholesale cost and use that as your price. This markup makes sure you’re turning a profit and is often the goal price target for large retailers.

It started as a rule of thumb for businesses, but some don’t always get to charge a double price for their product.

Who it’s best for:

Retail stores and large chain establishments that have static prices for their goods.

Advantages:

Disadvantages:

11. Loss Leader Pricing

Also known as:

What is Loss Leader Pricing?

Loss leader pricing is a strategy used to get your target customers in the door to purchase more products.

Who it’s best for:

Larger businesses who can handle some risk, or those who are certain that customer’s will purchase their other products when they come to you for that cheaper option.

Advantages:

Disadvantages:

Examples:

One of the most famous examples of loss leader pricing is that of Sam Walton and Walmart selling their cornish hens for a super cheap rate to get people in the door. This was a super new concept and most people hadn’t seen a pre-cooked chicken/hen ready to serve for dinner, so they sold like hotcakes.

They knew that once someone was in the store they would end up buying more and more products, so losing money on this initial purchase was no problem for them.

Another example is Black Friday deals, where companies drastically reduce the price of a certain item knowing that once someone is in the store they will purchase more products to go with that item.

12. Penetration Pricing

What is Penetration Pricing Strategy?

Penetration pricing strategy is when you charge a lower price for your product or service to start getting a larger market share in the beginning. After a certain amount of time, you increase prices to start building more profits for the business.

A penetrating pricing strategy can work because consumers will switch brands to be at the lower price, and if switching costs are high enough, they might just stay with you for the long term.

Some companies will grandfather their early adopters into that pricing model if they can afford to lose profits on them in order to keep their business.

Who it’s best for:

Advantages:

Disadvantages:

Examples:

Software companies often use the penetration pricing strategy by giving early customers a “beta users” discount. This helps the brand learn what issues need to be fixed before acquiring more customers, and can get early adopters in to help spread the message about your brand.

Consumers love penetration pricing because they can often get valuable products and services at a steep discount by being an early user.

13. Premium Pricing

Also known as:

What is Premium Pricing?

Premium pricing is a strategy used to increase the perceived value of a product or service. You essentially charge higher prices from the beginning to make people think it must be better than your competitors because it costs more. 

Who it’s best for:

Companies who have a product or service that is equal or better than it’s competition. You have to at least give some reason that you are charging more, especially if its the same product.

Advantages:

Disadvantages:

Examples:

Wine

Why do some wines cost $10 and some cost $250? Is the more expensive wine really that much better? Probably not. The quality of the grapes might be slightly better and they may have been produced in a more sustainable way, but the average consumer can’t tell the difference between the two bottles in a blind taste test. 

So why do people pay more? It is the perceived value and the increase level of “class” that comes with paying more for something. 

apple premium pricing strategy

Apple Products

Are iPhones actually doubly as amazing as Android phones? No. But their high price have withstood market fluctuations because of the community and perceived value around them. 

Apple users tend to feel like they have a superior product, when in fact while they might have a slightly better product, they paid more

14. Psychological Pricing

What is Psychological Pricing?

Psychological pricing is when you use odd numbers at the ned of your prices to make customers feel like they are getting a great deal.

$3.99 feels drastically cheaper than $4.00 for some reason. This leads us to feel like we need that thing right now because it’s a sale price!

Target can afford to “discount” their retail price points by a few cents to get customers to buy more items.

Thanks for screwing me over, brain! 🙂

Who it’s best for:

Retailers and businesses looking to increase their sales volume while being able to afford to discount products below retail price.

Advantages:

Examples:

Target is a great example of using psychological pricing. Have you ever walked into Target and come out with 900 other things you didn’t need?

Yep, you just experienced this pricing strategy. They often charge prices that feel lower than other stores by using odd numbers at the end.

15. Project-Based Pricing

What is Project-Based Pricing?

Project based pricing is a strategy where you charge based on the project, regardless of how many hours it takes to complete.

Who it’s best for:

Businesses and freelancers who work to deliver an end result for their customer.

Advantages:

Examples:

Website developers often choose project based pricing because they know how long something takes and can charge accordingly. Clients like project pricing because they know how much it will cost up front.

16. Skimming Pricing

Also known as:

What is Skimming Pricing?

A price skimming strategy is when a company charges a high price initially and over time lowers that price to meet demand.

Price skimming is very common for consumer electronics like TVs and cell phones. Remember when flat screen TVs first came out and the retail price was thousands of dollars? Now you can get an awesome model for mere hundreds.

The brands who came out with the first models “skimmed” the top layer of consumers they knew would buy at a high price, while knowing eventually they could drop the price and get the next level of customers, and so on.

Advantages:

Disadvantages:

Examples:

The iPhone is a great example of price skimming. As Apple releases new models of the phone, they discount the older ones, and usually launch the new phone at a higher price.

17. Value Based Pricing

Also known as:

What is Value Based Pricing?

Value-based pricing is an effective way to promote your product or service because it allows you to charge what the customer deems as a fair price.

Value-based pricing can be a powerful tool in business because it allows you to make profits while also providing an excellent experience for customers.

Who it’s best for:

Companies who know they can deliver great results that end up providing a ton of value for their customer.

Service based providers do well with value based pricing because they can afford to be wrong once in a while.

Advantages:

Disadvantages:

Examples:

Digital marketing consultants often charge based on the value they are able to provide their clients. If they can get a client $10,000 in profit from this project, they are able to charge a % of that and still have the client feeling like they made a great decision.

Which Pricing Strategy is Best for Your Business?

I’d suggest trying out one of these which most resonates with your industry and products or services. A great idea is to combine a few of these pricing strategies so you aren’t stuck in one for the long term.

You can always change your pricing model, as I have done a few times.

I started off with project based, and then moved to a combo of project based with a value based component on top of that.

Chenell Tull helps course creators with paid traffic campaigns. She quit her day job in June of 2017 and has been learning the wild world of entrepreneurship ever since. She's sharing what she's learned while building her own business from side hustle to full-time, and the software and marketing tools she can't live without.
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