The Ultimate Guide to Pricing Strategies - HubSpot Blog

Types of Pricing Strategies. Competition-Based Pricing; Cost-Plus Pricing; Dynamic Pricing; Freemium Pricing; High-Low Pricing; Hourly Pricing ... Logo-Full(Color) Skiptocontent English 日本語 Deutsch English Español Português Français ContactSales Login CustomerSupport About AboutUs Careers ContactUs InvestorRelations ManagementTeam Home Software Software TheHubSpotCRMPlatform AllofHubSpot’smarketing,salesCRM,customerservice,CMS,andoperationssoftwareononeplatform. FreeHubSpotCRM Overviewofallproducts MarketingHub Marketingautomationsoftware.Freeandpremiumplans SalesHub SalesCRMsoftware.Freeandpremiumplans ServiceHub Customerservicesoftware.Freeandpremiumplans CMSHub Contentmanagementsystemsoftware.Premiumplans OperationsHub Operationssoftware.Freeandpremiumplans AppMarketplace ConnectyourfavoriteappstoHubSpot.Seeallintegrations Pricing Resources Resources Education Blog Ebooks,Guides&More FreeCourses&Certifications InboundMethodology WhyHubSpot? CaseStudies WhyChooseHubSpot? Services Onboarding&ConsultingServices HireaServiceProvider UserResources PartnerPrograms DeveloperTools Community About About AboutUs Careers ContactUs InvestorRelations ManagementTeam Startfreeorgetademo English 日本語 Deutsch English Español Português Français ContactSales Login CustomerSupport Marketing Sales Service Website Subscribe SubscribetoOurBlog Stayuptodatewiththelatestmarketing,sales,andservicetipsandnews. SubscribeviaEmail SubscribeviaEmail Marketing Sales Service Website EmailAddress We'recommittedtoyourprivacy.HubSpotusestheinformationyouprovidetoustocontactyouaboutourrelevantcontent,products,andservices.Youmayunsubscribefromthesecommunicationsatanytime.Formoreinformation,checkoutourprivacypolicy. ThankYou! Youhavebeensubscribed. Startfreeorgetademo TheUltimateGuidetoPricingStrategies WrittenbyAllieDecker Discoverhowtoproperlypriceyourproducts,services,oreventssoyoucandrivebothrevenueandprofit. FreeSalesPricingCalculator Determinethebestpricingstrategyforyourbusinesswiththisfreecalculatorandtemplate. GetitNow 22 minremaining Pricingyourproductsandservicescanbetough. Setpricestoohigh,andyoumissoutonvaluablesales.Setthemtoolow,andyoumissoutonvaluablerevenue.Thankfully,pricingdoesn’thavetobeasacrificeorashotinthedark.Therearedozensofpricingmodelsandstrategiesthatcanhelpyoubetterunderstandhowtosettherightpricesforyouraudienceandrevenuegoals. That’swhywe’vecreatedthisguide. Whetheryou’reabusinessbeginnerorapricingpro,thetacticsandstrategiesinthisguidewillgetyoucomfortablewithpricingyourproducts.Bookmarkthisguideforlaterandusethechapterlinkstojumparoundtosectionsofinterest. PricingStrategy TypesofPricingStrategies PricingModelsBasedonIndustryorBusiness ConductingaPricingAnalysis PricingStrategyExamples PricingStrategy Apricingstrategyisamodelormethodusedtoestablishthebestpriceforaproductorservice.Ithelpsyouchoosepricestomaximizeprofitsandshareholdervaluewhileconsideringconsumerandmarketdemand. Ifonlypricingwasassimpleasitsdefinition—there’salotthatgoesintotheprocess. Pricingstrategiesaccountformanyofyourbusinessfactors,likerevenuegoals,marketingobjectives,targetaudience,brandpositioning,andproductattributes.They’realsoinfluencedbyexternalfactorslikeconsumerdemand,competitorpricing,andoverallmarketandeconomictrends. It’snotuncommonforentrepreneursandbusinessownerstoskimoverpricing.Theyoftenlookatthecostoftheirproducts(COGS),considertheircompetitor’srates,andtweaktheirownsellingpricebyafewdollars.WhileyourCOGSandcompetitorsareimportant,theyshouldn’tbeatthecenterofyourpricingstrategy. Thebestpricingstrategymaximizesyourprofitandrevenue. Beforewetalkaboutpricingstrategies,let’sreviewanimportantpricingconceptthatwillapplyregardlessofwhatstrategiesyouuse. FreeSalesPricingCalculator DeterminetheBestPricingStrategyForYourBusiness Filloutthisformtoaccessthefreetemplate. PriceElasticityofDemand Priceelasticityofdemandisusedtodeterminehowachangeinpriceaffectsconsumerdemand. Ifconsumersstillpurchaseaproductdespiteapriceincrease(suchascigarettesandfuel)thatproductisconsideredinelastic. Ontheotherhand,elasticproductssufferfrompricingfluctuations(suchascableTVandmovietickets). Youcancalculatepriceelasticityusingtheformula: %ChangeinQuantity÷%ChangeinPrice=PriceElasticityofDemand Theconceptofpriceelasticityhelpsyouunderstandwhetheryourproductorserviceissensitivetopricefluctuations.Ideally,youwantyourproducttobeinelastic—sothatdemandremainsstableifpricesdofluctuate. Now,let’scoversomecommonpricingstrategies.Aswedoso,it’simportanttonotethatthesearen’tnecessarilystandalonestrategies—manycanbecombinedwhensettingpricesforyourproductsandservices. TypesofPricingStrategies Competition-BasedPricing Cost-PlusPricing DynamicPricing FreemiumPricing High-LowPricing HourlyPricing SkimmingPricing PenetrationPricing PremiumPricing Project-BasedPricing Value-BasedPricing BundlePricing PsychologicalPricing GeographicPricing Now,let'sdiveintothedescriptionsofeachpricingstrategy—manyofwhichareincludedinthetemplatebelow—soyoucanlearnaboutwhatmakeseachofthemunique. DiscoverhowmuchyourbusinesscanearnusingdifferentpricingstrategieswithHubSpot'sfreesalespricingcalculatorsoyoucanchoosethebestpricingmodelforyourbusiness. DownloadTemplate 1.Competition-BasedPricingStrategy Competition-basedpricingisalsoknownascompetitivepricingorcompetitor-basedpricing.Thispricingstrategyfocusesontheexistingmarketrate(orgoingrate)foracompany’sproductorservice;itdoesn’ttakeintoaccountthecostoftheirproductorconsumerdemand. Instead,acompetition-basedpricingstrategyusesthecompetitors’pricesasabenchmark.Businesseswhocompeteinahighlysaturatedspacemaychoosethisstrategysinceaslightpricedifferencemaybethedecidingfactorforcustomers. Withcompetition-basedpricing,youcanpriceyourproductsslightlybelowyourcompetition,thesameasyourcompetition,orslightlyaboveyourcompetition.Forexample,ifyousoldmarketingautomationsoftware,andyourcompetitors’pricesrangedfrom$19.99permonthto$39.99permonth,you’dchooseapricebetweenthosetwonumbers. Whicheverpriceyouchoose,competitivepricingisonewaytostayontopofthecompetitionandkeepyourpricingdynamic. Competition-BasedPricingStrategyinMarketing Consumersareprimarilylookingforthebestvaluewhichisn’talwaysthesameasthelowestprice.Pricingyourproductsandservicescompetitivelyinthemarketcanputyourbrandinabetterpositiontowinacustomer’sbusiness.Competitivepricingworksespeciallywellwhenyourbusinessofferssomethingthecompetitiondoesn’t—likeexceptionalcustomerservice,agenerousreturnpolicy,oraccesstoexclusiveloyaltybenefits. 2.Cost-PlusPricingStrategy Acost-pluspricingstrategyfocusessolelyonthecostofproducingyourproductorservice,oryourCOGS.It’salsoknownasmarkuppricingsincebusinesseswhousethisstrategy“markup”theirproductsbasedonhowmuchthey’dliketoprofit. Toapplythecost-plusmethod,addafixedpercentagetoyourproductproductioncost.Forexample,let’ssayyousoldshoes.Theshoescost$25tomake,andyouwanttomakea$25profitoneachsale.You’dsetapriceof$50,whichisamarkupof100%. Cost-pluspricingistypicallyusedbyretailerswhosellphysicalproducts.Thisstrategyisn’tthebestfitforservice-basedorSaaScompaniesastheirproductstypicallyofferfargreatervaluethanthecosttocreatethem. Cost-PlusPricingStrategyinMarketing Cost-pluspricingworkswellwhenthecompetitionispricingusingthesamemodel.Itwon’thelpyouattractnewcustomersifyourcompetitionisworkingtoacquirecustomersratherthangrowingprofits.Beforeexecutingthisstrategy,completeapricinganalysisthatincludesyourclosestcompetitorstomakesurethisstrategywillhelpyoumeetyourgoals. 3.DynamicPricingStrategy Dynamicpricingisalsoknownassurgepricing,demandpricing,ortime-basedpricing.It’saflexiblepricingstrategywherepricesfluctuatebasedonmarketandcustomerdemand. Hotels,airlines,eventvenues,andutilitycompaniesusedynamicpricingbyapplyingalgorithmsthatconsidercompetitorpricing,demand,andotherfactors.Thesealgorithmsallowcompaniestoshiftpricestomatchwhenandwhatthecustomeriswillingtopayattheexactmomentthey’rereadytomakeapurchase. DynamicPricingStrategyinMarketing Dynamicpricingcanhelpkeepyourmarketingplansontrack.Yourteamcanplanforpromotionsinadvanceandconfigurethepricingalgorithmyouusetolaunchthepromotionpriceattheperfecttime.YoucanevenA/Btestdynamicpricinginreal-timetomaximizeyourprofits. 4.FreemiumPricingStrategy Acombinationofthewords“free”and“premium,”freemiumpricingiswhencompaniesofferabasicversionoftheirproducthopingthatuserswilleventuallypaytoupgradeoraccessmorefeatures.Unlikecost-plus,freemiumisapricingstrategycommonlyusedbySaaSandothersoftwarecompanies.Theychoosethisstrategybecausefreetrialsandlimitedmembershipsofferapeekintoasoftware’sfullfunctionality—andalsobuildtrustwithapotentialcustomerbeforepurchase. Withfreemium,acompany’spricesmustbeafunctionoftheperceivedvalueoftheirproducts.Forexample,companiesthatofferafreeversionoftheirsoftwarecan’taskuserstopay$100totransitiontothepaidversion.Pricesmustpresentalowbarriertoentryandgrowincrementallyascustomersareofferedmorefeaturesandbenefits. FreemiumPricingStrategyinMarketing Freemiumpricingmaynotmakeyourbusinessalotofmoneyontheinitialacquisitionofacustomer,butitgivesyouaccesstothecustomerwhichisjustasvaluable.Withaccesstotheiremailinboxes,phonenumber,andanyothercontactinformationyougatherinexchangeforthefreeproduct,youcannurturethecustomerintoabrandloyaladvocatewithaworthwhileLTV. 5.High-LowPricingStrategy Ahigh-lowpricingstrategyiswhenacompanyinitiallysellsaproductatahighpricebutlowersthatpricewhentheproductdropsinnoveltyorrelevance.Discounts,clearancesections,andyear-endsalesareexamplesofhigh-lowpricinginaction—hencethereasonwhythisstrategymayalsobecalledadiscountpricingstrategy. High-lowpricingiscommonlyusedbyretailfirmswhosellseasonalitemsorproductsthatchangeoften,suchasclothing,decor,andfurniture.Whatmakesahigh/lowpricingstrategyappealingtosellers?Consumersenjoyanticipatingsalesanddiscounts,hencewhyBlackFridayandotheruniversaldiscountdaysaresopopular. High-LowPricingStrategyinMarketing Ifyouwanttokeepthefoottrafficsteadyinyourstoresyear-round,ahigh-lowpricingstrategycanhelp.Byevaluatingthepopularityofyourproductsduringparticularperiodsthroughouttheyear,youcanleveragelowpricingtoincreasesalesduringtraditionallyslowmonths. 6.HourlyPricingStrategy Hourlypricing,alsoknownasrate-basedpricing,iscommonlyusedbyconsultants,freelancers,contractors,andotherindividualsorlaborerswhoprovidebusinessservices.Hourlypricingisessentiallytradingtimeformoney.Someclientsarehesitanttohonorthispricingstrategyasitcanrewardlaborinsteadofefficiency. HourlyPricingStrategyinMarketing Ifyourbusinessthrivesonquick,high-volumeprojects,hourlypricingcanbejusttheincentiveforcustomerstoworkwithyou.Bybreakingdownyourpricesintohourlychunks,customerscanmakethedecisiontoworkwithyoubasedonalowpricepointratherthanfindingroomintheirbudgetforanexpensiveproject-basedcommitment. 7.SkimmingPricingStrategy Askimmingpricingstrategyiswhencompanieschargethehighestpossiblepriceforanewproductandthenlowerthepriceovertimeastheproductbecomeslessandlesspopular.Skimmingisdifferentfromhigh-lowpricinginthatpricesareloweredgraduallyovertime. Technologyproducts,suchasDVDplayers,videogameconsoles,andsmartphones,aretypicallypricedusingthisstrategyastheybecomelessrelevantovertime.Askimmingpricingstrategyhelpsrecoversunkcostsandsellproductswellbeyondtheirnovelty,butthestrategycanalsoannoyconsumerswhoboughtatfullpriceandattractcompetitorswhorecognizethe“fake”pricingmarginaspricesarelowered. SkimmingPricingStrategyinMarketing Skimmingpricingstrategycanworkwellifyousellproductsthathaveproductswithvaryinglifecyclelengths.Oneproductmaycomeinandoutofpopularityquicklysoyouhaveashorttimetoskimyourprofitsinthebeginningstagesofthelifecycle.Ontheflipside,aproductthathasalongerlifecyclecanstayatahigherpriceformoretime.You’llbeabletomaintainyourmarketingeffortsforeachproductmoreeffectivelywithoutconstantlyadjustingyourpricingacrosseveryproductyousell. 8.PenetrationPricingStrategy Contrastedwithskimmingpricing,apenetrationpricingstrategyiswhencompaniesenterthemarketwithanextremelylowprice,effectivelydrawingattention(andrevenue)awayfromhigher-pricedcompetitors.Penetrationpricingisn’tsustainableinthelongrun,however,andistypicallyappliedforashorttime. Thispricingmethodworksbestforbrandnewbusinesseslookingforcustomersorforbusinessesthatarebreakingintoanexisting,competitivemarket.Thestrategyisallaboutdisruptionandtemporaryloss…andhopingthatyourinitialcustomersstickaroundasyoueventuallyraiseprices. (Anothertangentialstrategyislossleaderpricing,whereretailersattractcustomerswithintentionallylow-priceditemsinhopesthatthey’llbuyother,higher-pricedproducts,too.ThisispreciselyhowstoreslikeTargetgetyou—andme.) PenetrationPricingStrategyinMarketing Penetrationpricinghassimilarimplicationsasfreemiumpricing—themoneywon’tcomeinovernight.Butwithenoughvalueandagreatproductorservice,youcouldcontinuetomakemoneyandscaleyourbusinessasyouincreaseprices.Onetipforthispricingstrategyistomarketthevalueoftheproductsyousellandletpricebeasecondarypoint. 9.PremiumPricingStrategy Alsoknownasprestigepricingandluxurypricing,apremiumpricingstrategyiswhencompaniespricetheirproductshightopresenttheimagethattheirproductsarehigh-value,luxury,orpremium.Prestigepricingfocusesontheperceivedvalueofaproductratherthantheactualvalueorproductioncost. Prestigepricingisadirectfunctionofbrandawarenessandbrandperception.Brandsthatapplythispricingmethodareknownforprovidingvalueandstatusthroughtheirproducts—whichiswhythey’repricedhigherthanothercompetitors.Fashionandtechnologyareoftenpricedusingthisstrategybecausetheycanbemarketedasluxurious,exclusive,andrare. PremiumPricingStrategyinMarketing Premiumpricingisquitedependentupontheperceptionofyourproductwithinthemarket.Thereareafewwaystomarketyourproductinordertoinfluenceapremiumperceptionofitincludingusinginfluencers,controllingsupply,anddrivingupdemand. 10.Project-BasedPricingStrategy Aproject-basedpricingstrategyistheoppositeofhourlypricing—thisapproachchargesaflatfeeperprojectinsteadofadirectexchangeofmoneyfortime.Itisalsousedbyconsultants,freelancers,contractors,andotherindividualsorlaborerswhoprovidebusinessservices. Project-basedpricingmaybeestimatedbasedonthevalueoftheprojectdeliverables.Thosewhochoosethispricingstrategymayalsocreateaflatfeefromtheestimatedtimeoftheproject. Project-BasedPricingStrategyinMarketing Leadingwiththebenefitsacustomerwillderivefromworkingwithyourbusinessonaprojectcanmakeproject-basedpricingmoreappealing.Althoughthecostoftheprojectmaybesteep,theone-timeinvestmentcanbeworthit.Yourclientswillknowthatthey’llbeabletoworkwithyouuntiltheprojectiscompletedratherthanuntiltheirallottedhoursaredepleted. 11.Value-BasedPricingStrategy Avalue-basedpricingstrategyiswhencompaniespricetheirproductsorservicesbasedonwhatthecustomeriswillingtopay.Evenifitcanchargemoreforaproduct,thecompanydecidestosetitspricesbasedoncustomerinterestanddata. Ifusedaccurately,value-basedpricingcanboostyourcustomersentimentandloyalty.Itcanalsohelpyouprioritizeyourcustomersinotherfacetsofyourbusiness,likemarketingandservice. Ontheflipside,value-basedpricingrequiresyoutoconstantlybeintunewithyourvariouscustomerprofilesandbuyerpersonasandpossiblyvaryyourpricesbasedonthosedifferences. Value-BasedPricingStrategyinMarketing Marketingtoyourcustomersshouldalwaysleadwithvalue,sohavingavalue-basedpricingmodelshouldhelpstrengthenthedemandforyourproductsandservices.Justbesurethatyouraudiencesaredistinctenoughinwhatthey’rewillingtopayfor—youdon’twanttorunintotroublebychargingmoreorlessbasedonoff-limitscriteria. 12.BundlePricingStrategy Abundlepricingstrategyiswhenyouoffer(or"bundle")twoormorecomplementaryproductsorservicestogetherandsellthemforasingleprice.Youmaychoosetosellyourbundledproductsorservicesonlyaspartofabundle,orsellthemasbothcomponentsofbundlesandindividualproducts. Thisisagreatwaytoaddvaluethroughyourofferingstocustomerswhoarewillingtopayextraupfrontformorethanoneproduct.Itcanalsohelpyougetyourcustomershookedonmorethanoneofyourproductsfaster. BundlePricingStrategyinMarketing Marketingbundledealscanhelpyousellmoreproductsthanyouwouldotherwisesellindividually.It’sasmartwaytoupsellandcross-sellyourofferingsinawaythatisbeneficialforthecustomerandyourrevenuegoals. 13.PsychologicalPricingStrategy Psychologicalpricingiswhatitsoundslike—ittargetshumanpsychologytoboostyoursales. Forexample,accordingtothe"9-digiteffect",eventhoughaproductthatcosts$99.99isessentially$100,customersmayseethisasagooddealsimplybecauseofthe"9"intheprice. Anotherwaytousepsychologicalpricingwouldbetoplaceamoreexpensiveitemdirectlynextto(either,in-storeoronline)theoneyou'remostfocusedonselling.Oroffera"buyone,getone50%off(orfree)"dealthatmakescustomersfeelasthoughthecircumstancesaretoogoodtopassupon. Andlastly,changingthefont,size,andcolorofyourpricinginformationonandaroundyourproductshasalsobeenproven,invariousinstances,toboostsales. PsychologicalPricingStrategyinMarketing Psychologicalpricingstrategyrequiresanintimateunderstandingofyourtargetmarkettoyieldthebestresults.Ifyourcustomersareinclinedtodiscountsandcoupons,appealingtothisdesirethroughyourmarketingcanhelpthisproductmeettheirpsychologicalneedtosavemoney.Ifpayingforqualityisimportanttoyouraudience,havingthelowestpriceontheshelfmightnothelpyoureachyoursalesgoals.Regardlessofthemotivationsyourcustomershaveforpayingacertainpriceforaproduct,yourpricingandmarketingshouldappealtothosemotivations. 14.GeographicPricingStrategy Geographicpricingiswhenproductsorservicesarepriceddifferentlydependingongeographicallocationormarket. Thisstrategymaybeusedifacustomerfromanothercountryismakingapurchaseoriftherearedisparitiesinfactorsliketheeconomyorwages(fromthelocationinwhichyou'resellingagoodtothelocationofthepersonitisbeingsoldto). GeographicPricingStrategyinMarketing Marketingageographicallypricedproductorserviceiseasythankstopaidsocialmediaadvertising.Segmentingbyzipcode,city,orevenregioncanbeaccomplishedatalowcostwithaccurateresults.Evenasspecificcustomerstravelorpermanentlymove,yourpricingmodelwillremainthesamewhichhelpsyoumaintainyourmarketingcosts. Downloadourfreeguidetocreatingbuyerpersonastoeasilyorganizeyouraudiencesegmentsandmakeyourmarketingstronger. Likewesaidabove,thesestrategiesaren’tnecessarilymeanttostandalone.Weencourageyoutomixandmatchthesemethodsasneeded. Now,let’sdiscusshowtoapplythesestrategiestodifferentbusinessesandindustries. PricingModelsBasedonIndustryorBusiness Noteverypricingstrategyisapplicabletoeverybusiness.SomestrategiesarebettersuitedforphysicalproductswhereasothersworkbestforSaaScompanies.Hereareexamplesofsomecommonpricingmodelsbasedonindustryandbusiness. ProductPricingModel Unlikedigitalproductsorservices,physicalproductsincurhardcosts(likeshipping,production,andstorage)thatcaninfluencepricing.Aproductpricingstrategyshouldconsiderthesecostsandsetapricethatmaximizesprofit,supportsresearchanddevelopment,andstandsupagainstcompetitors. 👉🏼Werecommendthesepricingstrategieswhenpricingphysicalproducts:cost-pluspricing,competitivepricing,prestigepricing,andvalue-basedpricing. DigitalProductPricingModel Digitalproducts,likesoftware,onlinecourses,anddigitalbooks,requireadifferentapproachtopricingbecausethere’snotangibleofferingoruniteconomics(productioncost)involved.Instead,pricesshouldreflectyourbrand,industry,andoverallvalueofyourproduct. 👉🏼Werecommendusingthesepricingstrategieswhenpricingdigitalproducts:competition-basedpricing,freemiumpricing,andvalue-basedpricing. RestaurantPricingModel Restaurantpricingisuniqueinthatphysicalcosts,overheadcosts,andservicecostsareallinvolved.Youmustalsoconsideryourcustomerbase,overallmarkettrendsforyourlocationandcuisine,andthecostoffood—asallofthesecanfluctuate. 👉🏼Werecommendusingthesepricingstrategieswhenpricingatrestaurants:cost-pluspricing,premiumpricing,andvalue-basedpricing. EventPricingModel Eventscan’tbeaccuratelymeasuredbyproductioncost(notunlikethedigitalproductswediscussedabove).Instead,eventvalueisdeterminedbythecostofmarketingandorganizingtheeventaswellasthespeakers,entertainers,networking,andtheoverallexperience—andtheticketpricesshouldreflectthesefactors. 👉🏼Werecommendusingthesepricingstrategieswhenpricingliveevents:competition-basedpricing,dynamicpricing,andvalue-basedpricing. ServicesPricingModel Businessservicescanbehardtopriceduetotheirintangibilityandlackofdirectproductioncost.Muchoftheservicevaluecomesfromtheserviceprovider’sabilitytodeliverandtheassumedcaliberoftheirwork.Freelancersandcontractors,inparticular,mustadheretoaservicespricingstrategy. 👉🏼Werecommendusingthesepricingstrategieswhenpricingservices:hourlypricing,project-basedpricing,andvalue-basedpricing. NonprofitPricingModel Nonprofitsneedpricingstrategies,too—apricingstrategycanhelpnonprofitsoptimizeallprocessessothey’resuccessfuloveranextendedperiodoftime. Anonprofitpricingstrategyshouldconsidercurrentspendingandexpenses,thebreakevennumberfortheiroperation,idealprofitmargin,andhowthestrategywillbecommunicatedtovolunteers,licensees,andanyoneelsewhoneedstobeinformed.Anonprofitpricingstrategyisuniquebecauseitoftencallsforacombinationofelementsthatcomefromafewpricingstrategies. 👉🏼Werecommendusingthesepricingstrategieswhenpricingnonprofits:competitivepricing,cost-pluspricing,demandpricing,andhourlypricing. EducationPricingModel Educationencompassesawiderangeofcoststhatareimportanttoconsiderdependingonthelevelofeducation,privateorpubliceducation,andeducationprogram/discipline. Specificcoststoconsiderinaneducationpricingstrategyaretuition,scholarships,additionalfees(labs,books,housing,meals,etc.).Otherimportantfactorstonotearecompetitionamongsimilarschools,demand(numberofstudentapplications),numberandcostsofprofessors/teachers,andattendancerates. 👉🏼Werecommendusingthesepricingstrategieswhenpricingeducation:competitivepricing,cost-basedpricing,andpremiumpricing. RealEstatePricingModel Realestateencompasseshomevalueestimates,marketcompetition,housingdemand,andcostofliving.Thereareotherfactorsthatplayaroleinrealestatepricingmodelsincludingpotentialbiddingwars,housingestimatesandbenchmarks(whichareavailablethroughrealestateagentsbutalsothroughfreeonlineresourceslikeZillow),andseasonalshiftsintherealestatemarket. 👉🏼Werecommendusingthesepricingstrategieswhenpricingrealestate:competitivepricing,dynamicpricing,premiumpricing,andvalue-basedpricing. AgencyPricingModel Agencypricingmodelsimpactyourprofitability,retentionrates,customerhappiness,andhowyoumarketandsellyouragency.Whendevelopingandevolvingyouragency’spricingmodel,it’simportanttotakeintoconsiderationdifferentwaystooptimizeitsoyoucandeterminethebestwaytoboostthebusiness'sprofits. 👉🏼Werecommendusingthesepricingstrategieswhenpricingagencies:hourlypricing,project-basedpricing,andvalue-basedpricing. ManufacturingPricingModel Themanufacturingindustryiscomplex—thereareanumberofmovingpartsandyourmanufacturingpricingmodelisnodifferent.Considerproductevolution,demand,productioncost,saleprice,unitsalesvolume,andanyothercostsrelatedtoyourprocessandproduct.Anotherkeyparttoamanufacturingpricingstrategyisunderstandingthemaximumamountthemarketwillpayforyourspecificproducttoallowforthegreatestprofit. 👉🏼Werecommendusingthesepricingstrategieswhenpricingmanufacturing:competitivepricing,cost-pluspricing,andvalue-basedpricing. EcommercePricingModel Ecommercepricingmodelsarehowyoudeterminethepriceatwhichyou’llsellyouronlineproductsandwhatit'llcostyoutodoso.Meaning,youmustthinkaboutwhatyourcustomersarewillingtopayforyouronlineproductsandwhatthoseproductscostyoutopurchaseand/orcreate.Youmightalsofactorinyouronlinecampaignstopromotetheseproductsaswellashoweasyitisforyourcustomerstofindsimilarproductstoyoursontheecommercesitesofyourcompetitors. 👉🏼Werecommendusingthesepricingstrategieswhenpricingecommerce:competitivepricing,cost-basedpricing,dynamicpricing,freemiumpricing,penetrationpricing,andvalue-basedpricing. PricingAnalysis Pricinganalysisisaprocessofevaluatingyourcurrentpricingstrategyagainstmarketdemand.Generally,pricinganalysisexaminespriceindependentlyofcost.Thegoalofapricinganalysisistoidentifyopportunitiesforpricingchangesandimprovements. Youtypicallyconductapricinganalysiswhenconsideringnewproductideas,developingyourpositioningstrategy,orrunningmarketingtests.It'salsowisetorunapriceanalysisonceeveryyearortwotoevaluateyourpricingagainstcompetitorsandconsumerexpectations—doingsopreemptivelyavoidshavingtowaitforpoorproductperformance. HowtoConductaPricingAnalysis 1.Determinethetruecostofyourproductorservice. Tocalculatethetruecostofaproductorservicethatyousell,you’llwanttorecognizeallofyourexpensesincludingbothfixedandvariablecosts.Onceyou’vedeterminedthesecosts,subtractthemfromthepriceyou’vealreadysetorplantosetforyourproductorservice. 2.Understandhowyourtargetmarketandcustomerbaserespondtothepricingstructure. Surveys,focusgroups,orquestionnairescanbehelpfulindetermininghowthemarketrespondstoyourpricingmodel.You’llgetaglimpseintowhatyourtargetcustomersvalueandhowmuchthey’rewillingtopayforthevalueyourproductorserviceprovides. 3.Analyzethepricessetbyyourcompetitors. Therearetwotypesofcompetitorstoconsiderwhenconductingapricinganalysis:directandindirect. Directcompetitorsarethosewhoselltheexactsameproductthatyousell.Thesetypesofcompetitorsarelikelytocompeteonpricesotheyshouldbeaprioritytoreviewinyourpricinganalysis. Indirectcompetitorsarethosewhosellalternativeproductsthatarecomparabletowhatyousell.Ifacustomerislookingforyourproduct,butit’soutofstockorit’soutoftheirpricerange,theymaygotoanindirectcompetitortogetasimilarproduct. 4.Reviewanylegalorethicalconstraintstocostandprice. There’safinelinebetweencompetingonpriceandfallingintolegalandethicaltrouble.You’llwanttohaveafirmunderstandingofprice-fixingandpredatorypricingwhiledoingyourpricinganalysisinordertosteerclearofthesepractices. Analyzingyourcurrentpricingmodelisnecessarytodetermineanew(andbetter!)pricingstrategy.Thisapplieswhetheryou'redevelopinganewproduct,upgradingyourcurrentone,orsimplyrepositioningyourmarketingstrategy. Next,let’slookatsomeexamplesofpricingstrategiesthatyoucanuseforyourownbusiness. PricingStrategyExamples Pricingmodelscanbehardtovisualize.Below,we’vepulledtogetheralistofexamplesofpricingstrategiesasthey’vebeenappliedtoeverydaysituationsorbusinesses. 1.DynamicPricingStrategy:ChicagoCubs IliveinChicagofiveblocksawayfromWrigleyField,andmyfriendsandIlovegoingtoCubsgames.Findingticketsisalwaysinteresting,though,becauseeverytimewecheckprices,they’vefluctuatedabitfromthelasttime.Purchasingticketssixweeksinadvanceisalwaysadifferentprocessthanpurchasingthemsixdaysprior—andevenmoresoxfpricing atthegate. Thisisanexampleofdynamicpricing—pricingthatvariesbasedonmarketandcustomerdemand.PricesforCubsgamesarealwaysmoreexpensiveonholidays,too,whenmorepeoplearevisitingthecityandarelikelytogotoagame. (AnotherprimeexampleofdynamicpricingisINBOUND,forwhichticketsgetmoreexpensiveastheeventnears.) 2.FreemiumPricingStrategy:HubSpot HubSpotisanexampleoffreemiumpricingatwork.There'safreeversionoftheCRMforscalingbusinessesaswellaspaidplansforthebusinessesusingtheCRMplatformthatneedawiderrangeoffeatures. Moreover,withinthosemarketingtools,HubSpotprovideslimitedaccesstospecificfeatures.ThistypeofpricingstrategyallowscustomerstoacquaintthemselveswithHubSpotandforHubSpottoestablishtrustwithcustomersbeforeaskingthemtopayforadditionalaccess. 3.PenetrationPricingStrategy:Netflix Source Netflixisaclassicexampleofpenetrationpricing:enteringthemarketatalowprice(doesanyonerememberwhenitwas$7.99?)andincreasingpricesovertime.SinceIjoinedacoupleofyearsago,I’veseenafewpriceincreasenoticescomethroughmyowninbox. Despitetheirincreases,Netflixcontinuestoretain—andgain—customers.Sure,Netflixonlyincreasestheirsubscriptionfeeby$1or$2eachtime,buttheydosoconsistently.Whoknowswhatthefeeswillbeinfiveortenyears? 4.PremiumPricing:AWAY Therearelotsofexamplesofpremiumpricingstrategies…Rolex,Tesla,Nike—younameit.OnethatIthoughtofimmediatelywasAWAYluggage. Doesluggageneedtobealmost$500?I’dsayno,especiallysinceIrecentlypurchasedatwo-pieceSamsonitesetforone-thirdthecost.However,AWAYhasstillbeenverysuccessfuleventhoughtheychargeahighpricefortheirluggage.ThisisbecausewhenyoupurchaseAWAY,you’repurchasinganexperience.TheuniquebrandingandtheimageAWAYportraysforcustomersmakethevalueoftheluggagematchthepurchaseprice. 5.CompetitivePricingStrategy:Shopify Shopifyisanecommerceplatformthathelpsbusinessesmanagetheirstoresandselltheirproductsonline.Shopify—whichintegrateswithHubSpot—hasacompetitivepricingstrategy. Thereareanumberofecommercesoftwareoptionsonthemarkettoday—Shopifydifferentiatesitselfbythefeaturestheyprovideusersandthepriceatwhichtheyofferthem.Theyhavethreethoughtfully-pricedversionsoftheirproductforcustomerstochoosefromwithanumberofcustomizableandflexiblefeatures. Withtheseextensiveoptionstailoredtoanyecommercebusiness'needs,thecostofShopifyishighlycompetitiveandisoftenthesameasorlowerthanotherecommerceplatformsonthemarkettoday. 6.Project-BasedPricingStrategy:CourtneySamuelEvents Anyonewho'splannedaweddingknowshowcostlytheycanbe.I'minthemidstofplanningmyown,andI'vefoundthatthebundled,project-basedfeesaretheeasiesttomanage.Forexample,myweddingcoordinatorCourtneychargesoneflatfeeforherservices.Thispricingapproachfocusesonthevalueoftheoutcome(e.g.,anorganizedandstresslessweddingday)insteadofthevalueofthetimespentoncalls,projects,ormeetings. BecausevendorslikeCourtneytypicallydeliveravarietyofservices—weddingplanning,day-ofcoordination,physicalmeetings,etc.—inadditiontospendingtimeansweringquestionsandprovidingthoughtfulsuggestions,aproject-basedfeebettercapturesthevalueofherwork.Project-basedpricingisalsohelpfulforclientsandcompanieswho'dratherpayaflatfeeormonthlyretainerthandealwithtrackedhoursorweeklyinvoices. 7.Value-BasedPricingStrategy:INBOUND WhileINBOUNDdoesn'tleavetheultimateticketpriceuptoitsattendees,itdoesprovidearangeofticketsfromwhichcustomerscanchoose.Byofferingmultipleticket"levels,"customerscanchoosewhatexperiencetheywanttohavebasedonhowtheyvaluetheevent. INBOUNDticketschangewithtime,however,meaningthispricingstrategycouldalsobeconsidereddynamic(liketheCubsexampleabove).AstheINBOUNDeventgetscloser,ticketstendtoriseinprice. 8.BundlePricing:StateFarm StateFarmisknownforitstongue-in-cheekadvertisementsanditsbundledealsforhomeandautoinsurance.Youcanreceiveaquoteononeortheother,butgettingaquoteonbothcansaveyoumoneyonyourpremiums. StateFarmbenefitsfrombundlepricingbysellingmorepolicies,andconsumersbenefitbypayinglessthantheynormallywouldiftheyusedtwodifferentinsuranceprovidersforhomeandautocoverage. 9.GeographicPricing:Gasoline Gasolineisnotoriousforhavingawiderangeofpricesaroundtheworld,butevenwithintheUnitedStates,pricescanvarybyseveraldollarsdependingonthestateyoulivein.InCaliforniaforexample,gaspriceshaveconsistentlyhoveredaround$3inthesummermonthsforthepast10years.Ontheotherhand,gaspricesinIndianahavebeeninthe$2rangeduringthesametimeperiod.Laws,environmentalfactors,andproductioncostallinfluencethepriceofgasolineinCaliforniawhichcausesthegeographicdisparityinthecostofthefuel. GetYourPricingStrategyRight Thinkingabouteverythingthatgoesintopricingcanmakeyourheadspin:competitors,productioncosts,customerdemand,industryneeds,profitmargins…thelistisendless.Thankfully,youdon’thavetomasterallofthesefactorsatonce. Simplysitdown,calculatesomenumbers(likeyourCOGSandprofitgoals),andfigureoutwhat’smostimportantforyourbusiness.Startwithwhatyouneed,andthiswillhelpyoupinpointtherightkindofpricingstrategytouse. Morethananything,though,rememberpricingisaniterativeprocess.It’shighlyunlikelythatyou’llsettherightpricesrightaway—itmighttakeacoupleoftries(andlotsofresearch),andthat’sOK. Editor'snote:ThispostwasoriginallypublishedinMarch2019andhasbeenupdatedforcomprehensiveness.   OriginallypublishedJun8,20211:45:00PM,updatedJune082021 Topics: PricingStrategy Don'tforgettosharethispost! RelatedArticles Cost-PlusPricing:WhatItIs&WhentoUseIt Sales  |3minread B2BPricingModels&Strategies[+ProsandConsofEach] Sales  |6minread DiscountPricing:ItsStrategies&PracticalExamples Sales  |5minread ExpandOffer ctaSalesPlanTemplate Getitnow Getitnow DownloadforLater