Getting your pricing right is one of the most important business decisions you’ll ever make. It affects everything from product perception and sales volumes to customer loyalty and your bottom line.
This guide explores common sales pricing strategies, who they’re best suited for and how to choose the right one based on your goals, market and customers.
What is a price strategy (and why is it important)?
A sales pricing strategy is a structured plan for setting and adjusting prices over time to meet business goals.
More than just picking numbers to get more revenue, pricing influences how customers view your product, how you compete in the market and how you hit your sales targets.
A strong pricing strategy in marketing or sales helps you stand out, attract the right buyers and scale sustainably. A poor one will erode profit margins and push customers toward competitors.
For example, if you price too low in a premium market, buyers will assume your product lacks quality and look elsewhere. If you price too high in a budget market, your audience will choose cheaper alternatives.
The best pricing strategies aren’t fixed; they evolve with their products and markets. Building a great one means thinking beyond immediate costs to consider the broader picture.
Here are the main factors that shape your sales pricing strategy:
Market conditions – such as market saturation, size of sales potential, price elasticity and broader economic trends. These factors set the context for what your customers will accept.
Competitive landscape – including your position relative to rivals, competitors’ unique selling propositions (USPs) and the market price sensitivity level. The competitive landscape also considers how easy it is for customers to switch.
Brand positioning – your desired market position, perceived quality and brand image all influence how much new customers are willing to pay (i.e., the level of buyer or consumer demand).
Target audience – their purchasing power, expectations and the strength of any network effects (e.g., value growing with more users to unlock price increases).
Product characteristics – including your production volume, stage in the product lifecycle and potential for cost efficiencies or scalability.
Once you’ve weighed these factors, you’ll see which pricing approach fits best.
Sometimes, that might mean going low to win market share quickly. In others, it could mean charging more to signal higher value.
For example, Spotify offers a free plan and promotes “music for everyone”. The company prioritizes market share by targeting a broad audience with a simple, accessible service.
Here’s how it looks in search results (part of its content marketing):
TIDAL, a competitor, only offers paid plans and advertises “high-fidelity music streaming”. It aims to be the premium option and targets a narrower audience of DJs and audiophiles.
Here’s how TIDAL shows up in search results:
Both companies successfully target customers with thoughtful price strategies and marketing content.
Key questions you should ask yourself:
Do you want to take over price leadership in the long term as a market leader and set the framework for competition?
Do you want to create market entry barriers for subsequent competitors?
How should you react to new competition, changing market trends and technological innovations with your pricing?
These are just a few pain points to consider when you choose a pricing strategy. As you can see, you shouldn’t only set it once. Keep it continuously in view and check its relevance.
7 pricing strategy examples to consider
There’s no one-size-fits-all approach to pricing. The right choice depends on your product, target market and performance objectives.
Some sales and marketing price strategies focus on launching fast and gaining as much business as possible. Others aim to build long-term value and reinforce a premium brand position. Neither is better nor worse than the other – they just fit different scenarios.
Here are seven competitive pricing strategies in use today, including their benefits, challenges and who they’re best for.
1. Skimming pricing strategy
The skimming strategy starts with a high initial price that decreases over time.
This approach allows you to target each buyer segment sequentially, starting with early adopters willing to pay more for access and moving to more price-sensitive customers later.
This strategy works best for new, innovative or in-demand products with few immediate competitors.
For example, a new SaaS platform with unique AI functionality might launch at a higher subscription price before dropping to attract small businesses.
Challenge: During the early high-price phase, competitors with similar products may capture a portion of your target market with lower-priced alternative offers. By undercutting you, they may cause you to lose momentum before you’ve reached a broader audience.
2. Penetration pricing strategy
Penetration pricing flips the price-skimming approach (see the graph below). You start with a low initial price to win attention, attract early customers and quickly gain market share.
Once your offer is firmly established and competition has been thwarted, you can raise markups to increase profit. Here’s a visual representation of how penetration and price skimming contrast:
Penetration pricing is useful in crowded or mature markets where low pricing will help you stand out or deter new challengers. For example, a graphic design tool offering competitive features at a much lower price might use penetration pricing to break into an established category.
Challenge: Your brand might become associated with poor quality due to the initial low prices. Additionally, fierce price wars (sparked by others drastically cutting their costs to compete) could drive down margins across the board.
3. Fixed pricing strategy
Fixed pricing means setting prices relative to the market you’re operating in.
Depending on your goals and positioning, your fixed pricing could be higher (i.e., premium), lower (budget) or around the average (mid-market).
Premium pricing
A premium pricing strategy sets high prices and anticipates a lower sales volume. It is based on differentiation and distinction from the competition through higher quality, superior benefits and strong USPs.
Brand management is also crucial here. You can achieve a willingness to pay higher prices by delivering a better customer experience and not just by developing new product features.
Best for: Brands targeting high-income consumers or niche markets where quality and exclusivity matter most (e.g., luxury goods, innovative tech).
Budget pricing
A low-price strategy (or economy pricing) increases sales volume through lower prices.
Margins here are thin, and brand perception may need to take a back seat. It takes tight cost control and lots of sales to stay profitable at scale.
Best for: Price-sensitive markets or businesses competing on volume (e.g., discount retailers, bulk suppliers).
Mid-market pricing
Many small businesses position their offerings near the average price, achieving a medium margin at a medium sales volume.
If you use this and competitors’ prices drop, you’ll need to follow suit to protect deals, but doing that could hurt your margins.
Best for: Companies aiming for steady growth with moderate pricing in competitive, mainstream markets.
Challenge: Fixed pricing puts you at the mercy of the market average. Fluctuations in that equilibrium price make fixed strategies harder to maintain and can quickly erode profit margins if you’re unprepared. You may need to adjust your prices frequently or risk being undercut by competitors with lower-priced offerings.
4. Luxury pricing strategy
Luxury pricing defies classic supply-and-demand laws by setting high prices to make products more attractive to potential customers. Higher prices are used as a kind of benefit because they convey prestige and status.
This strategy is common in high-end markets like art and jewelry. It relies on buyers seeing price as a form of exclusivity (and having the money to spend), which only works when the product has status connotations. Classic examples are rare paintings and Rolex watches.
Challenge: Your brand must convey the right signals, like trust, high-quality craftsmanship and exclusivity to engage select audiences who associate price with status. Otherwise, you risk making your offer seem overpriced or inaccessible rather than desirable.
5. Price competition strategy
Price competition means closely tracking the market leader’s pricing and matching or undercutting it to capture market share. You might follow the dominant price point or act as a challenger seller trying to disrupt the space.
For example, retailer Aldi claims to offer the “lowest prices of any national grocery store”:
This claim is part of Aldi’s price competition strategy and a bold attempt to disrupt the U.S. grocery market, having entered as a challenger from Germany.
Price competition suits companies in highly commoditized or competitive markets. For example, cloud storage firms often compete on price per gigabyte because their core features are similar, buyers are highly cost-sensitive and users can easily switch providers.
Challenge: Mutual undercutting can significantly deteriorate a previously profitable market if too many competitors get involved. It creates a race to the bottom that makes the entire market unsustainable.
6. Price differentiation strategy
Price differentiation means that you adapt pricing based on buyer, context or volume instead of offering one fixed cost.
This flexible approach suits companies with diverse customer segments, like travel, hospitality, publishing and B2B services firms. It helps them maximize revenue across different groups and contexts without making catch-all pricing decisions.
Common types of price differentiation include:
Geographical differentiation. You define prices for different regions. Typical examples include different prices for books and press products in different American states. Local economics often guide this.
Personal differentiation. Members of certain groups pay different prices. Examples include discounts for students (like Amazon offers) or rates for disability insurance, which can be prohibitively expensive for professions like pilots or mountain guides.
Seasonal differentiation. Products cost more when market demand is high. For example, travel and hotel rooms are much more expensive during the peak season than off-peak.
Volume-based differentiation. Customers pay according to the amount or number purchased. By offering lower prices for larger orders, companies can pass the cost savings directly to their customers.
Challenge: Companies must ensure that the cost savings from larger orders outweigh any price reductions offered elsewhere. Managing multiple price points also adds operational complexity. You’ll need clear rules and strong systems to stay organized.
7. Target cost pricing strategy
Target cost pricing works similarly to price differentiation. However, here you determine what each customer will pay and try to achieve the maximum from each individual. It’s a dynamic pricing strategy, and also a form of value-based pricing.
The selling price of a product varies for different customers depending on their needs, readiness to pay and negotiating skills.
Target cost pricing is best suited to industries where sellers offer highly tailored solutions and pricing isn’t typically public, like professional services and consulting. For example, some business owners and coaches use this real-time pricing tactic to sell costly consulting programs.
Challenge: Customers may perceive pricing as unfair or discriminatory, potentially harming long-term customer relationships and brand reputation, especially if pricing details become known between clients.
How to choose the right pricing strategy
The right pricing structure depends on your market, customers and goals. Choosing requires some simple market research.
Start by asking:
Who are you selling to and what matters most to them (e.g. price, quality, speed, support)?
How unique is your offer?
Do you want to grow fast or build long-term value?
How sensitive is your audience to price changes?
Ultimately, your strategy should match your position in the market.
New entrants looking to build customer bases often use penetration price strategies, for example.
Established brands with strong recognition might use premium or skimming models to protect margins.
Price competition or volume-based differentiation can help you stay relevant in highly competitive spaces.
There’s no perfect formula, but by thinking about your goals, product and audience, you can choose a strategy that supports growth without damaging your brand or bottom line.
Effective pricing strategy options: a quick comparison
Got some ideas but in a rush?
Here’s a quick comparison of common pricing strategies, including when they work best and what to watch out for.
Strategy | Details |
Skimming pricing strategy | Price level: High transitioning to lower Best for: Innovative or in-demand products Challenge: Competitors may undercut before prices drop |
Penetration pricing strategy | Price level: Low transitioning to higher Best for: New entrants seeking fast growth Challenge: Brand may be seen as low quality, risk of price wars |
Fixed pricing strategy (premium) | Price level: High Best for: Differentiated offers with strong competitive advantages Challenge: Must justify higher price or risk losing customers |
Fixed pricing strategy (mid-market) | Price level: Medium Best for: Broad appeal with steady margins Challenge: Market shifts can erode markets or cause undercutting |
Fixed pricing strategy (budget) | Price level: Low Best for: High-volume sales with tight cost control Challenge: Thin margins, brand perception may suffer |
Luxury pricing strategy | Price level: Very high Best for: Status-driven or niche markets Challenge: Only works if brand signals exclusivity and value |
Price competition strategy | Price level: Low or matched to the market leader Best for: Commoditized markets or challenger brands Challenge: Can trigger a market-damaging race to the bottom |
Price differentiation strategy | Price level: Varies by buyer group Best for: Broad or segmented audiences Challenge: Complex to manage, risk of inconsistent margins |
Target cost pricing strategy | Price level: Varies by customer Best for: Bespoke or high-touch offers (e.g., consulting) Challenge: Can appear unfair or inconsistent if exposed |
Our comparison table is a simple starting point, but the best pricing method aligns with your goals, market and customers, all of which could change as your business evolves.
Revisit your pricing strategy annually or quarterly to ensure it remains competitive, profitable and meets buyer expectations.
Note: Other pricing models, like cost-plus pricing, bundle pricing, freemium pricing, psychological pricing and loss leader tactics, can also be effective, especially in e-commerce or high-volume markets. However, these approaches tend to be more niche or situational, so we’ve focused our guide on the most broadly relevant pricing strategies.
Final thoughts
Proper pricing is crucial to a business’s success and competitiveness.
However, you must consider several factors: the market, overhead costs (i.e., production costs), your target group, your offering’s strengths and your positioning.
With this information, you can select from different pricing strategies. Strategic brand management is not just a complement to your pricing strategy but an integral component. Strong brand messaging can elevate the perceived value of your products or services, increasing profitability by allowing for higher markup pricing.
