Category: Pricing Strategy

For a pricing strategy, it is best to think of pricing as one of the tools a company uses to achieves its strategy and how this tool is used changes as the use of the other tools change. Therefore, a pricing strategy should be set to help a company achieve its overall strategy. Rather than memorizing all the different pricing strategies, and there are a lot of them, it is best to develop a pricing strategy from first principles.

Think of the cost price of a product/service as the floor and the maximum price the market can accept, is the ceiling price t. Above the floor is the lowest price of a competitor and/or substitute. Pricing below the floor means selling at a loss. Going up from the lowest price of a competitor and/or substitute, we come to the maximum price of a competitor and/or substitute. There will be many competitor/substitute prices and they can plotted here. Assuming you have the higher price, going up you come to the ceiling. You can also price above the ceiling.

Within those ranges are the price points one can take. Choosing which range to price at is driven by the company strategy, and not by the pricing strategy. For example, if the goal is to price below cost to steal market share, serve as a loss leader and make a competitor’s profit engine obsolete, then prices should be set just above or even below cost price. That is pricing strategy: using pricing as a tool to help the overall company achieve its goal.