Top 10 Common Pricing Strategies for Businesses in 2025

Finding the best pricing strategy for your products is a balancing act. Here are 10 pricing strategies to help you pick the perfect price for your products./p>

When starting a company, most entrepreneurs pour their creative energy into developing an idea and turning it into a product people want to buy.

But before you can start selling, you need to decide what your product is worth. This is where pricing strategy comes into play.

What are pricing strategies?

A pricing strategy is a systematic approach businesses use to set prices for their products or services. A great strategy looks beyond simple math—it considers market trends, customer preferences, your business costs, and company goals to find prices that maximize revenue. More importantly, it takes into account how customers think about and react to different price points.

At its core, a pricing strategy helps you answer a crucial question: How do you price your product to attract customers while ensuring your business remains profitable? It’s about finding the sweet spot that makes sense for both your bottom line and your customers’ wallets.

Why pricing strategy matters

Choosing the right pricing strategy can make or break your business. It’s not just about covering your costs—it’s about:

• Positioning your product in the market
• Attracting the right customers
• Communicating your product’s value
• Staying competitive
• Ensuring long-term profitability

Whether you’re launching a new product or looking to optimize your existing pricing, understanding different pricing approaches can help you make smarter decisions that support your business goals.

10 common pricing strategies to explore

Every business is unique, and so is its pricing approach. Here are ten strategies that can help you find the right pricing model for your store:

1. Cost-plus pricing 

Cost-plus pricing, also known as markup pricing, is the most straightforward way to price your products. Here’s how it works: calculate your total production costs, then add a fixed percentage to create your selling price. Let’s break down an example for an online t-shirt business aiming for a 35% profit margin:

• Material costs: $5
• Labor costs: $25
• Shipping costs: $5
• Marketing and overhead costs: $10

Total production costs: $45

Pricing calculation:

Cost ($45) x [1 + Markup (1.35)] = Selling price ($60.75)

Pros: Cost-plus pricing is simple to calculate, since you’re already tracking your production expenses. It can provide consistent returns when your costs remain stable.

Cons: This method doesn’t account for market conditions like competitor pricing or how customers perceive your product’s value. It’s a straightforward approach but may not always be the most strategic.

2. Competitive pricing

Competitive pricing is all about using your competitors’ prices as a benchmark. The goal? Price your products strategically to win customers in markets where products are similar and price becomes a key differentiator.

Imagine you’re selling a product in an industry with lots of look-alike items. Your strategy might be to set your price just below your competitors to catch potential buyers’ attention. However, this approach isn’t as simple as it sounds.

Pros: Competitive pricing can be effective if you can negotiate lower costs from suppliers, cut operational costs, and actively promote your pricing strategy.

Cons: This strategy can be difficult to sustain as a small retailer. Lower prices mean thinner profit margins, so you’ll need to sell more volume to stay profitable. Remember, customers don’t always choose the cheapest item on the shelf, especially if they perceive value in other aspects of the product.

3. Value-based pricing

Value-based pricing, or price-to-value, sets prices based on how much customers believe a product or service is worth. This approach considers your target market’s wants and needs when establishing product value.

Companies selling unique or highly valuable products are best positioned to benefit from this strategy. With value-based pricing, customers focus on a product’s perceived value—like how it enhances their self-image—and become willing to pay premium prices.

This approach is especially common in markets where products offer more than just functionality. Luxury brands like Gucci or Rolls-Royce excel by selling an experience, not just a product. They demonstrate how customers will pay more for items that represent status, quality, or a specific lifestyle.

Pros: Value-based pricing lets you set higher price points for distinctive products. It works particularly well for art, fashion, collectibles, and luxury items. This strategy pushes you to create innovative products that resonate with your target market and build strong brand value.

Cons: It can be tough to justify added value for everyday, standard products. You need something truly special to make value-based pricing work. Perceived value is subjective and can shift based on cultural, social, and economic factors beyond your control.

4. Price skimming

A price skimming strategy involves charging the highest initial price customers will pay, then gradually lowering it as market competition and saturation increase. This approach generates higher short-term profits by capitalizing on early market dynamics.

The primary goal is to drive more revenue while demand is high and competition is low. Apple has reportedly used this pricing model to recoup the full cost of developing new products like the iPhone. Price skimming works particularly well when product scarcity exists—high-demand, low-supply products can command premium prices that naturally decrease as availability catches up.

Pros: Price skimming can generate substantial short-term profits when launching a new, innovative product. For businesses with a prestigious brand image, this strategy helps maintain exclusivity and attracts loyal customers eager to be first in line or have an exclusive customer experience.

Cons: This approach is risky in crowded markets unless you offer truly standout features that competitors can’t easily replicate. This strategy can quickly attract new competitors, and dropping prices too dramatically might disappoint early adopters and potentially damage your brand equity.

5. Discount pricing

Shoppers love a good sale—that’s why discounting is a top pricing method across retail sectors. One survey found that 28% of online shoppers actively seek out coupons before making a purchase.

Discount pricing strategies can help increase foot traffic to your store, clear out unsold inventory, and attract price-conscious customers. It’s a versatile approach that can breathe new life into your product lineup and create excitement around your brand.

Pros: Discount strategies effectively draw more customers to your store and provide an excellent way to move out-of-season or older inventory both in-store and online. When used strategically, these pricing tactics can create positive buzz and temporary spikes in sales.

Cons: Frequent discounting can potentially harm your brand’s reputation, positioning you as a “bargain retailer.” This might deter customers from purchasing at full price and can negatively impact your brand’s perceived value. There’s a fine line between attractive pricing and suggesting lower quality.

6. Penetration pricing 

A penetration pricing strategy is valuable for new brands trying to break into a market. This approach introduces a new product at a low price to gain market share, with the intention of increasing prices over time.

Pros: This tactic helps you stand out in a crowded marketplace and strengthen brand awareness. By positioning yourself attractively, you can gain new customers and potentially draw some away from competitors.

Cons: Introducing a product at a lower price point can make it challenging to raise prices later without risking customer churn. Short-term price reductions may also sacrifice immediate profit and revenue.

7. Dynamic pricing

Ever noticed Uber prices spike on a Friday night? That’s dynamic pricing in action. This strategy involves continuously adjusting prices based on factors like competitor pricing, supply, and consumer demand—all with the goal of maximizing business profit margins.

For brands like Uber, fares fluctuate based on variables such as route time, distance, traffic, and current rider-to-driver demand. Prices are determined by sophisticated rules or self-improving algorithms that analyze these complex factors.

Pros: Dynamic pricing allows retailers to automatically scale pricing, using machine learning to address market challenges. It enables price customization to meet current market conditions, saves time through automation, and has the potential to maximize profits while improving customer satisfaction.

Cons: Implementing dynamic pricing can be financially challenging for small businesses, due to upfront costs like specialized software and market research investments. It’s typically more suitable for large retailers with thousands of SKUs. Frequent price changes can also provoke negative consumer reactions that might impact overall revenue.

8. Psychological pricing

Psychological pricing, or charm pricing, leverages pricing techniques to influence consumer spending behavior with the goal of increasing business sales and revenue. A classic strategy is pricing items to end with “99”—a product priced at $4.99 appears substantially cheaper at first glance than one priced at $5.

Pro: Charm pricing can trigger impulse buys. Ending prices with an odd number gives shoppers the perception of getting a better deal, a psychological trick that can be remarkably effective.

Con: Overusing this strategy can make consumers less inclined to pay higher prices in the future, potentially negatively impacting long-term sales.

Learn more: Psychological Pricing: Tactics, Strategies and Key Examples

9. Premium pricing

With premium pricing, brands benchmark their competition and price products higher to create an impression of being more luxurious, prestigious, or exclusive. Starbucks exemplifies this approach, successfully charging more than competitors like Dunkin’ by positioning itself as a more premium experience.

However, the effectiveness varies by market. Netflix discovered that premium pricing doesn’t always work in price-sensitive markets with lower consumer incomes—highlighting the importance of understanding your target audience.

The key is to be confident and focus on the differentiated value you provide. Excellent customer service, strong branding, and unique product features can help justify higher prices.

Pros: A premium pricing strategy can significantly impact consumer perception. By pricing higher, you can position your products as higher quality compared to your competitors, potentially driving higher profit margins and sales.

Cons: Implementing premium pricing depends heavily on your target audience’s preferences. It becomes challenging if customers are price-sensitive or have multiple alternatives. Thorough market research is crucial to determine if this strategy will resonate with your specific customer base.

10. Economy pricing

An economy pricing strategy involves pricing products low and generating revenue through high sales volume. This approach typically works best for commodity goods with low production costs, such as groceries or generic medications. The business model relies on selling large quantities of products to both new and returning customers consistently.

The pricing formula is straightforward:

Production cost + Profit margin = Price

Pros: Economy pricing is easy to implement and particularly effective for attracting price-sensitive customers. It can help businesses establish a foothold in competitive markets by offering the most affordable option.

Cons: Profit margins are typically very low, requiring a consistent and steady flow of new customers. Additionally, consumers may perceive products as lower quality due to the low price point, which can impact long-term brand perception.

Pricing strategies for different industries

Pricing isn’t one-size-fits-all. Different industries use unique strategies to attract customers and maximize revenue.

Ecommerce and retail

Bundling and upselling

Retailers often create package deals that provide slight discounts to encourage larger purchases. Glossier’s Night Out Set is a perfect example— selling a bundle of lip gloss, lip liner, pomade pencil, and perfume at a price lower than buying each item separately. 

This strategy is clever: customers feel like they’re saving money while actually spending more overall. Stores can also suggest complementary items during checkout to increase total purchase value.

Loyalty pricing

Many retailers reward regular customers through loyalty programs. These might include:

• Free shipping
• Special discounts
• Point systems that accumulate with each purchase

The goal is to keep customers coming back to the same store by offering tangible benefits for their continued business.

Software as a service (SaaS) and digital products

Freemium models

Software companies often use a freemium approach, offering a basic version of their product for free. Canva illustrates this perfectly—users can create simple designs at no cost, but must pay to access advanced tools, premium images, and additional icons.

Tiered pricing

Digital products typically offer multiple pricing levels:

• Basic: Essential features for small businesses
• Pro: More advanced tools and capabilities
• Enterprise: Comprehensive features with premium support

This approach recognizes that different customers have different needs and budgets.

Hospitality and travel

Yield management is the pricing strategy of choice in this industry. Prices fluctuate based on demand, with rates increasing during peak times like holidays and decreasing during slower periods.

Companies continuously monitor bookings and competitor pricing to adjust their rates. An airline might charge more during a major event or offer discounts on under-booked flights.

Manufacturing and wholesale

B2B ecommerce relies heavily on volume-based pricing. The more a customer orders, the lower the per-unit cost becomes.

A wholesaler might offer a 5% discount at 500 units, then 10% at 1,000 units. This strategy encourages customers to place larger orders, benefiting both the seller and the buyer.

Professional services

Professionals like lawyers and designers typically use three pricing models:

• Hourly: Charging for time spent plus additional expenses
• Per project: A fixed price for the entire project
• Retainer: A set periodic fee for ongoing work

Food and beverage

Menu engineering is a subtle pricing strategy where restaurants position their most profitable dishes in prime menu locations. They also use appealing descriptions to make dishes sound more attractive, like the “Chef’s special.”

Strategic menu pricing helps restaurants maximize revenue while maintaining customer choice.

Entertainment 

Entertainment pricing has evolved with technology. Pay-per-view remains popular for specific events like sports and concerts. 

Streaming services also use bundle packaging to encourage broader subscriptions. For example, Disney+ offers packages that include Hulu and ESPN+, making bundled purchases more attractive than individual selections.

How to choose a pricing strategy

Selecting the right pricing strategy is crucial for your business success. Whether you’re launching your first business or refining an existing approach, follow these key steps to develop a pricing strategy that works.

Understand your costs

Your pricing journey begins with a clear understanding of the costs involved in bringing your product to market. 

If you’re ordering products, calculating the cost per unit is straightforward—this is your cost of goods sold.

For those creating products in-house, the process is more complex. You’ll need to: 

• Calculate the cost of raw materials
• Determine how many products you can make from each material batch
• Factor in the time you spend developing and producing your product

Key costs to consider include:

• Cost of goods sold (COGS)
• Production time
• Packaging (both retail and ecommerce)
• Promotional materials
• Shipping
• Short-term expenses like loan repayments

Your pricing strategy must account for these costs to ensure your business remains profitable.

Define your commercial objective

Think of your commercial objective as a compass for pricing decisions. It guides you toward your ultimate business goals and helps maintain a consistent brand strategy.

Ask yourself: 

• What is my ultimate goal for this product?
• Do I want to position myself as a luxury retailer? 
• Am I aiming to create an affordable, fashionable brand?

Identify this objective early and keep it in mind as you determine your pricing.

Identify your customers

Understanding your target market goes beyond just setting a profit margin. You need to know what your customers are willing to pay.

Consider the financial nuances of your audience:

• Some customers may have lower disposable incomes.
• Some customers may be more price sensitive, while others are happy to pay a premium for specific items or brands.

Your pricing strategy must balance your business goals with your customers’ perceived value and willingness to spend.

Learn more: How To Reach Your Target Audience: 8 Strategies

Find your value proposition

Your value proposition is what truly sets you apart from competitors. It’s this unique benefit that makes your product special and justifies your pricing strategy.

Take direct-to-consumer brand Tuft & Needle, for example. The company disrupted the mattress market by offering high-quality mattresses at affordable prices. A clear value proposition—exceptional mattresses without the premium price tag—became a powerful differentiator.

Learn more: How To Write a Compelling Value Proposition: 5 Examples (2025)

Pricing strategy examples

Real-world examples can help you understand how different pricing strategies work. Here’s how top brands approach pricing.

Premium pricing: Gucci

Gucci stands as a premier example of premium pricing in the luxury fashion world. The Italian fashion house has built an empire on exclusivity, creativity, and uncompromising quality.

Key attributes of Gucci’s pricing strategy include:

• Exceptional product quality
• Innovative design
• Unique customization options

Gucci’s products are stylish and exclusive, especially appealing to high-income consumers. The brand maintains its prestige by rarely offering sales through official retailers—this keeps the brand feeling special and high end.

Value-based pricing: Fashion Nova

Fashion Nova became popular through smart influencer marketing. The brand works with influencers worldwide, showcasing clothing in luxurious locations and partnering with celebrities for special collections.

This marketing strategy has made Fashion Nova a status symbol. Customers buy into the brand’s image and what they feel it adds to their life. This lets Fashion Nova set prices based on the perceived value of its products.

Penetration pricing: Netflix

Netflix used penetration pricing to beat competitors. In the late 1990s, DVD rentals were popular, with Blockbuster leading the market.

Blockbuster had two big problems: late fees and limited movie selections. Netflix solved these issues by offering:

• Online DVD rentals
• No late fees
• Better movie selection
• Low prices (less than $16 per month for four movies at a time)

Compared to Blockbuster’s $4.99 three-day rental, Netflix’s model quickly gained market share. The company eventually raised prices after building a loyal customer base and launching its streaming service in 2007.

Competitive pricing: Costco

Costco is famous for discounts on everything from groceries to electronics and travel packages. The brand uses a competitive pricing strategy based on current market conditions. 

Costco aims to offer the lowest prices for bulk and wholesale purchases compared to other retailers. Shoppers get these discounts through a membership that has a nearly 93% renewal rate.

Find the best pricing strategy for you

There’s no one-size-fits-all approach to pricing. Not every strategy works for every retail business. It’s up to you as an entrepreneur to research and decide what works best for your products, marketing, and target customers.

Understanding these different pricing strategies can help you make smarter decisions and create more personalized shopping experiences for your customers.

Pricing strategies FAQ

Why is a pricing strategy important?

A pricing strategy helps define your product’s value to customers while considering production costs. It’s crucial for maximizing profit margins and creating a competitive advantage. The right strategy helps you maintain market share and set prices that make sense for your business.

What are examples of pricing strategies?

Different pricing strategies include:

• Keystone pricing
• Multiple pricing
• Penetration pricing
• Loss-leading pricing
• Psychological pricing
• Bundle pricing
• Economy pricing
• Cost-plus pricing
• Premium pricing

What does MSRP stand for?

MSRP stands for manufacturer’s suggested retail price. It’s the price a manufacturer recommends for selling its product, also known as the list price.

What are the characteristics of effective pricing?

Great pricing strikes a balance between customer perception and business profitability. Your price needs to:

• Cover your production costs
• Generate a reasonable profit
• Feel fair to customers
• Reflect the product’s perceived value

How to determine your pricing strategy?

Start by understanding your costs. Carefully calculate what you spend to produce your product—every expense matters. This gives you a solid foundation for pricing that ensures your business stays profitable.

Then, dig deep into your customers’ perspective. How much are they willing to pay? What do they value in your product?

If you’re looking to attract new customers, consider starting with lower prices to generate initial interest. For unique or high-quality products, you have more flexibility to charge premium rates. Keep testing different prices to find what works best.