How to Build a great Product Pricing Strategy?

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This blog will explain the concept around product pricing, practical strategies to apply, and examples of pricing strategies that worked for companies.

Imagine entering a market crowded with sellers of various goods and observing as you move through the market  that some sellers draw large crowds of customers while others find it difficult to close a single deal. 

You may be wondering how they manage to achieve a single sale while others find it impossible–It all boils down to their pricing strategy. 

What is a pricing strategy?

A pricing strategy is an important part of any business plan because it involves a company’s decision-making process to determine the price for a product. 

Using a pricing strategy makes it simpler to maximise profits and maintain your competitive edge over other businesses.

Types of pricing strategy

Your consumer base, products or services, company model, and individual tastes will all influence how you price your goods and services.

Here are some type of pricing strategy to look into:

Valued based pricing

The goal of a value-based pricing strategy is understanding how your target audience views your products and services– Most customers are likely to buy a product or service if they believe it to be valued.

For example, if a customer knows or feels that a particular brand of candy offers them value in form of nutrition, taste or superior quality and they feel they are paying a reasonable price for that value – They will mostly purchase the candy over competing brands. 

Cost plus pricing

Cost plus pricing is the process of figuring out your production costs and adding the amount of profit you want to make.

Imagine the following situation: you want to sell a product that costs you  $10 to produce, in order to make a profit the products must be sold for more than $10.

Following the example above,your product should be priced at $12 if you want a 20% profit margin and $15 if you want a 50% profit margin.

Competitive pricing

Comparing your prices  to those of other companies that offer similar goods or products  is known as a competitive pricing strategy. 

Businesses frequently employ three (3) methods to develop a competitive pricing strategy: 

Three (3) method  are commonly used by businesses to establish a competitive pricing strategy: 

  • Put prices lower than those of your competitors.
  • Set your prices competitively with others.
  • Place rates a little higher than those of your competitors

Dynamic pricing

Businesses using dynamic pricing must adjust their rates on a regular basis in response to various market conditions as well as other variables including supply, location, time, customer behaviour, and many more.

When attempting to schedule a ride using a ridesharing app, you might have observed that different pricing is presented for the same journey depending on the time of day. 

In response to demand, rideshare businesses adjust their prices which demonstrates the implementation of dynamic pricing. 

Price skimming

Price skimming means charging a high price to your first consumers and then gradually decreasing the price from there. While it may appear to be paradoxical, planning and aligning with market demand provides potential for increased revenue generating.

Price skimming allows you to enter a low-competition market by targeting a very specific group of clients and stressing the value of the product or service. (This necessitates a significant initial expenditure in marketing and promotion.)

As the market becomes more saturated  you can lower the price of your  product to get a larger share of the market.

Market penetration pricing

The opposite of price skimming is a market penetration pricing strategy– When you use market penetration, you start out low in a market and gradually increase pricing.

You can win a large market share by offering a lower price than anybody else in the market. This approach is effective in areas with high levels of competition, but it will take a lot of marketing work to develop brand recognition.

You can switch from a market penetration strategy to a competition-based strategy if your brand is well-established.

Premium pricing

In premium pricing, you raise the price to give the goods a feeling of status and elegance Instead of keeping prices as low as possible

Your target audience needs to be persuaded that your product offers more value and status than those of your competitors—Main  reason why you should have a customer acquisition funnel

Freemium pricing

The freemium approach is the inverse of premium. Rather than charging more for your product, which might be software or a service, you entice your clients with a free offer.

Businesses that set their prices using a freemium model make money by: 

  • Single-time purchases and microtransactions
  • Upselling free users on premium goods or service packages

Bundle pricing

Businesses that offer a variety of goods or services may choose to implement bundle pricing, often known as the product-bundle pricing strategy.

In addition to offering a discount over ordering things separately, bundling can help businesses stand out from the competition.

Some companies deliberately market bundles, particularly when they want to entice clients away from a competitor through discounts and offers.

Steps in developing a pricing strategy that works

1. Know your market

Understand what your target audience wants, their readiness to pay, how your product fits the market  and examine what your  competitors pricing looks like and the value your product offers in comparison to others in the market.

You can do this by creating a feedback loop or creating surveys that your customers will answer, this is an opportunity for you to get to know them more and what they really think about your product.

2. Competitor price research

Next, research the main competitors in your industry–How do they position and price their similar goods and services?

If there is a lot of competition in your industry, you should determine the pricing range for your goods. This will therefore affect the kind of marketing you will need to conduct in order to set your brand apart.

3. Look into macroeconomics trends

Once your target market has been identified and the goods and services they might be interested in buying have been taken into account, you should study macroeconomic factors that could affect sales and production.

 Consider the following questions for yourself: 

  • Considering the cost of production and sourcing, will I be able to set my product’s price at an appealing level?
  • Are sourcing and manufacturing expenses expected to change significantly over the course of the upcoming year?
  • Is the rate of unemployment rising? Are businesses cutting back on spending? Will this affect the people to whom I can provide my goods or services?
  • What categories of products and enterprises are investors and consumers anticipating making investments in the upcoming year? In what way can I support this?

You will need to account for macroeconomic trends in your pricing and revenue calculations if you find that they indicate elements that will affect your pricing or the purchasing power of your clients.

4. Determine the revenue for each client.

After determining the cost of creating your product, think about how much money you want to make off of each sale.

Are there products and services that your potential clients frequently buy? Are most of the buyers in your industry one-time or repeat customers?These are questions you should answer. 

After that you may start figuring out where your price point should be and how much money one purchase will bring in by determining the average lifetime value of your target client.

5. Consider Psychological Pricing

To impact buyer perception, use psychological pricing methods such as pricing just below a round figure (e.g., $9.99 instead of $10.00).

6. Monitor and adjust

Monitor market trends, client input, and cost adjustments on a regular basis. Prepare to change your pricing approach when needed to remain competitive and profitable.

Examples of pricing strategies implemented by some companies

These are some popular companies that you might want know how they operate with their pricing strategy:

  • Google
  • Nike
  • Amazon
  • Apple

Let’s examine each company’s strategies in more detail.


Apple has made a name in the tech industry, especially the iphone which is always marketed at  a premium price point.

The company spends over $60 million a year in digital advertising. Initially, the iPhone was positioned as a status symbol in this positioning.

When they release a new product, such as the iPhone or MacBook, they start with a high initial price, a practice known as “skimming” the market.

Apple finds both early adopters and loyal customers that are willing  to pay a premium for their products. 

They steadily lower the price over time in order to acquire a larger consumer base. This technique enables Apple to maximise revenue from initial demand for its breakthrough goods while also maintaining brand exclusivity.


Google’s primary software suite programs like Gmail, Google Drive, and Google Docs are all priced under a freemium model. 

All of Google’s programs are free for personal users, and they also get 15 GB of storage for all kinds of files.

Currently, Google employs two strategies to turn a large number of its free users into paying clients: 

  • Users have to buy extra if they use up all of their free file storage space. Google charges a price for more capacity: 100 GB may be had for as little as $2 a month.
  • When customers realise how much they rely on Google for many of their daily chores, they decide to buy a Google Pixel phone, Nest thermostat, or smart speaker in order to access their data in new and useful ways.


Amazon use a range of pricing techniques, such as:

  • Competitive: In various areas, such as electronics, toys, and video games, Amazon’s pricing can be up to 14% less expensive than those of other major retailers.
  • Dynamic: Prices on Amazon changes based on a range of demand and demographic factors.
  • Bundling: When buying an electrical device with the Amazon brand, like a Kindle, customers have the option to get official accessories at a discounted price.
  • Penetration: Amazon has a price strategy of penetration, particularly in its e-commerce and Amazon Web Services (AWS) sectors. They lower prices for  goods and services than their competitors.


Nike makes use of price-skimming and premium strategies. The sports gear shop can precisely target recognized, loyal customers, like sneakerheads who regularly purchase Air Jordan shoes, by offering products in limited quantities at a premium price point.

When a product’s price drops, its perceived value increases due to its exclusivity, drawing more buyers into Nike stores to purchase it.


Spotify uses a freemium pricing model. They provide a free edition with advertisements and a premium version without advertisements.

With the free version, shopify attracts a huge user base while making cash through advertisements.

 They then convert free users into paying members by providing extra services such as offline listening, improved audio quality, and no advertisements. This strategy has contributed to Spotify’s dominance in the music streaming sector.

These pricing methods highlight how organisations price their products and services differently depending on their industry, target market, and company objectives.

5 mistakes startup makes when it comes to pricing

1. Waiting too long to monetize

The main goal  of building a product is to create value and offer a solution, you deserve to be compensated. Most startups are vulnerable and want to start out free in order to attract people, but waiting too long to put a price on your product is quite bad because you wouldn’t know how to improve or be better with your product.

Putting a price ealy lets your customers give you sincere feedback on what they are paying for. 

2. Underpricing

Always match your price with your value, it helps you understand who you are building for and helps you target different custom segments.

3. Not being flexible

Pricing decisions require flexibility because it allows your company to respond to changes in demand and adjust your prices as needed to fit the changing market. 

You can set up a pricing committee that comes together every 3-6 months to discuss how you can add a price to probably an update in your product. This team should also be responsible for talking to customers and increasing feedback loops.

4. Ignoring the competition

Another mistake  is failing to undertake competitive analysis.

Most startups do not conduct extensive research into how their competitors price similar products or services.

As a result, pricing may be set excessively high, discouraging potential clients, or too low, resulting in missed income possibilities.

5. Failure to segment the market

Businesses frequently make the mistakes of adopting a one-size-fits-all pricing strategy forgetting that  not every consumer is willing to pay a fixed price..

You can separate your product  into groups according to the preferences, behaviours, and demographics of your customers  so that you can modify your price plan for each group. 

Wrapping up

An effective product pricing plan is necessary for representing the value of the product and meeting revenue targets. 

The strategic approach listed in this blog  guarantees that your price is consistent with your business objectives and market positioning and most importantly contributes to your product’s long-term success.

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