Pricing Strategies in Marketing

Cost-plus pricing is one of the original models for consumer packaged goods businesses. This product pricing strategy could be used in the B2B space for physical goods like technology hardware or office furniture.

Businesses must first calculate the cost to produce a product and its customer acquisition cost (CAC) before adding a percentage price increase or markup. Doing so ensures the company can cover all costs and make significant profit margins using the new pricing strategy.

Cons of cost-plus pricing

This product pricing strategy does not factor in opportunities where demand is higher or lower than the industry average. For example, when brands introduce a new cutting-edge laptop that no other business offers, they can benefit in the short term by charging more, which is where the next pricing strategy example is beneficial.

Price skimming can be a lucrative strategy in marketing when businesses launch an innovative product or service that cannot be found anywhere else. This model charges a premium price for enthusiastic early adopters willing to pay more to gain access and be among an exclusive group of users.

For example, the first smartphones were highly sought after by consumers and business buyers alike. Manufacturers cashed in by charging a premium price to “get it first.”

Cons of price skimming

Over time, price skimming can be risky because other businesses may launch a similar product to steal market share, often at a fraction of the cost. It has undoubtedly happened in the smartphone industry, as well as with laptops, internet service providers, and more.

Market penetration pricing is the opposite of price skimming. In this case, businesses will launch a new version of an existing product they know is already in demand. They will then price the product or service at a lower fee to gain quick entry into the market and amass a large volume of customers.

Once consistent sales are established, most businesses will slowly raise their prices to increase profits.

Cons of market penetration pricing

Price-savvy customers may quickly abandon a product or service when businesses raise prices, especially when multiple products are on the market to choose from at varying costs.

When businesses take the time to ask customers what they are willing to pay for a product or service, this model is called value-based pricing. It’s helpful for companies offering a unique product or service because they can gauge a customer’s perceived value of the item and how market demand will influence its price.

Value-based pricing also allows businesses to focus on improving and differentiating the perceived value of their product or service from competitors to justify price increases over time.

Again, many SaaS businesses use this approach to steal users from the competition by offering greater value. Some ways to boost value include more user logins, faster speeds or load times, better team collaboration tools, advanced analytics insights for search functionality, and more.

Cons of value-based pricing

If a business’s primary goal is to serve an existing market at a cheaper price, then this pricing model won’t be their preferred option. For example, wholesale businesses that want to sell items for the best price at a high volume are not always focused on product value, such as advanced product features or support services.

Big box companies that sell a high volume and variety of goods, such as a B2B retail business that sells office supplies, are often in the business of price matching (e.g., pricing items to be slightly lower than or equal to competitors’ prices). This approach helps them secure long-term customer loyalty.

Cons of competitive pricing

When businesses prioritize offering the lowest price, they will make lower margins or profits on specific items. They could also end up in financial trouble without selling at least some higher-valued products at a premium. 

For example, an ecommerce retailer that sells business or professional development books at the lowest price might also want to sell proprietary items like branded electronic readers or tablets.

Psychological pricing is used to persuade customers to make an immediate purchase. It works by reducing the price slightly to a number that is perceived as a better deal. For example, businesses will charge $499 for a new product or service instead of $500 to make customers feel better about purchasing.

Other psychological pricing tactics include creating a sense of urgency to buy (e.g., the sale is on “Today only!” or “Only 10 hours left to buy!”). Or businesses might remove the decimal point from a price (e.g., charging $100 vs. $100.00) because the decimal tricks the mind into thinking one is paying more for something. These are all excellent ecommerce pricing strategies to consider.

Cons of psychological pricing

Because businesses have been using these tactics for a long time, many customers are savvy about these methods and may not be easily swayed.

When businesses sell more than one product or service, there may be opportunities to bundle them together to reward customers for purchasing multiple items at a discounted price. For example, an internet service provider may also sell mobile phone plans and teleconferencing services to other businesses. 

When B2B customers buy all business solutions together, the service provider can give them a special deal or offer based on specific requirements like the number of 1-800 numbers or phone plans needed.

Cons of bundle pricing

The challenge comes with how solutions are packaged and whether the price is competitive enough to buy the whole package together with one provider over another. It’s advantageous to offer individual product or service pricing in addition to bundles, especially if one of the items in the bundle is a premium solution.