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Top 7 pricing strategies and when to use them

Introducing Momentive. Elevate your brand and build winning products with AI-insights delivered in hours, not months. Learn more about our Pricing Optimization (Van Westendorp) solution that can help you determine the optimal price point for your product.

Below, you’ll find out how to optimize prices, outline the top 7 pricing strategies, and when to use them.

Perhaps one of the most confusing and challenging decisions to make in business is the pricing decision. If you make the wrong decision, it can be very costly: price your product too high, and you stand to lose lucrative customers, but underprice it, and you’ll be missing out on additional revenues and profit. 

Before we go into the specifics of the pricing decision, let’s start by thinking about how to optimize prices. Price optimization establishes the foundation for a sound pricing decision. Even armed with knowledge about what pricing strategies are and how they’re used, you’ll still need to consider price optimization before settling on a pricing approach.

Price optimization is essentially a fact-finding process that you should follow in order to find the best possible price point for a product or service. The challenge of pricing is that it essentially involves a tradeoff. 

Low prices usually mean better value for the customer, which drives higher volumes of sales, but can represent a loss to you in terms of revenue that each individual sale brings in. 

Higher price points may mean that each sale represents higher overall profit, but if customers see the higher price as representing lower value for money, overall sales volumes will be lower. What price optimization does is help you to find that lucrative sweet spot between value and volumes, and that’s a precarious balance that can have a major impact on customer satisfaction, loyalty, sales, and ultimately—profitability and growth.


Shape what’s next with an AI-powered platform that allows business leaders to gain accurate insights in record time.

Price optimization isn’t a game of trial and error. In order to get it right, you’ll need hard facts and data. The types of data you should think about gathering and incorporating into your analysis includes:

  • Customer survey data

This is the best way to find out what customers are willing to pay, and to determine the linkages between willingness to pay at different price points, purchase frequency, likely customer churn, and the amount that customers will likely spend with you. The types of survey questions you might ask include customers’ perceptions of your current pricing, their ideas about what constitutes value for money, and their likely reactions to loyalty programs, sales tactics, discounts, or promotions.

  • Demographic/psychographic data

When gathering survey data, don’t forget to capture demographic and psychographic information like age, gender, household income and lifestyles. This will be crucial because different segments and categories of consumers will likely respond differently to different price points. Price optimization often means not just setting one price, but setting several. 

  • Historic sales data

If you’re already running your business, great news: you already have access to some very powerful data. Analysis of historical sales data can help you understand whether and the extent to which sales have changed in response to price changes. 

  • Operating costs

Profitable businesses need to cover their operating costs, so feed this information into your analysis too. This is especially the case if you’re using a cost-plus pricing strategy, or some kind of price designed to appear low in the minds of consumers, like penetration pricing or competitive pricing.

  • Inventories

It may not seem obvious but consider how many products or supplies you have in stock before you embark on your price optimization journey. Many companies have inadvertently undermined their reputations in the minds of consumers by heavily discounting prices, and driving heavy levels of sales, only to find that they quickly went out of stock, disappointing customers. 

  • Machine learning outputs

Some companies may find that they can use machine learning models to optimize prices. Machine learning can gather together and automate very large datasets in order to reach optimal prices quickly, efficiently, and with limited manual effort. 

  • Subscription lifetime value and churn data

If your business follows a subscription based model, don’t overlook the lifetime value of existing customers, as well as their churn rate. If you find that customers sign up and then quickly leave, you may find it is because prices are high compared to competitors, or that you need to lower prices in order to maximize subscription length, and hence customer value.

So, what do you need to optimize for? In addition to your basic, everyday pricing, we recommend performing price optimization for the following three types of price strategies:

  1. Starting Prices

The point at which your product first launches is vital to establishing it in the market and in the minds of customers. If you start with too low a price, you may gain some early traction, but you could lose sales in the long run as you begin to raise prices, as customers begin to think you no longer represent value for money. Alternatively, too high a starting price could cause you to miss out on sales from that lucrative innovator/early adopter segment of consumer.

  1. Discounted Prices 

In order to drive sales, you might think a discount is the way forward. That’s often the case, but what level of discount should you offer? A 5% discount might be seen as measly by customers but could protect your bottom line. A 50% discount could be seen as a bonanza, but might undermine long term profit. Price optimization is a delicate process when it comes to discounts.

  1. Promotional Prices

Which is better: slashing prices to half of their original price, or offering a buy one get one free (BOGOF) deal? On paper, both strategies have the potential to yield the same revenues, but practice and paper are very different beasts. Price optimization can help you determine the most effective and profitable approach to promotional prices.

Price optimization is crucial for a myriad of reasons, all of which make a contribution to your bottom line. Here are a few other reasons:

  • Non-existent price optimization can lead to problems, missed opportunities, and low revenue.

Under- or over-pricing products and services are among some of the biggest causes of business failure and lack of profitability. 

  • Optimizing price is a high-impact growth lever. 

In contrast, if you optimize your prices, you’ll be best placed to grow quickly, because you’ll not only have the revenues to leverage growth, but you’ll also have a loyal customer base that you know is willing to pay the prices you set. 

  • Having a strong pricing strategy in place can help better meet customer expectations and convince them to buy. 

Failure to meet customers’ expectations is a surefire way to drive them to competitors. You can only meet customers’ needs if you understand what those needs are, and that includes the prices they expect from you.

  • Pricing optimization will result in a repeatable process. 

Research to support price optimization can be complex, but once you’ve got the data, you’ll be able to replicate the analysis over and over again, saving you time and driving sales in the long run.

  • Portrays value. 

Optimal prices are the best way to portray that your prices are value for money. For example, there is a fine line between what customers consider a bargain, and what they consider to be too cheap. It’s not worth trying to guesstimate where that sweet spot lies—use hard facts and data to help you.

If you’re just starting out with optimizing prices, take into consideration the following tips and guidance:

  • Get to know your customers

Offer a price that conveys value for money, and that customers are willing to pay (as well as a price that covers your costs!) and you’ve reached an optimal price. You’ll never be able to achieve that fine balance unless you get to know your customers. 

  • Quantify value

What is value in the minds of your customer? This is actually a pretty difficult question to answer. The best way to answer this, of course, is to ask them directly. Using tools like the Van Westendorp Price Sensitivity Meter, you’ll learn a lot about what customers consider to be too cheap, what they consider a bargain, and what they think represents value for money.

  • Analyze data

Customer demands, needs, expectations, and their willingness to pay your prices are not static, and as a consequence, your pricing should be dynamic. Make it a habit to continually analyze data in order to make sure your pricing is always optimal. 

  • Adjust pricing and monitor

After reviewing your data and adjusting your prices, make sure you monitor impact. Did that discount land effectively? Did that promotional sale help you acquire new customers, and how many? Price optimization is a long-term process so don’t forget to keep an eye on the consequences. 

  1. Price skimming

Price skimming is a medium to long term pricing strategy in which you launch a new product or service at a higher price point initially, gradually lowering the price over time. Let’s take a look at some of the benefits of this approach.

  • Attracts early adopters

Imagine you’re bringing a new premium or highly innovative product to the market. Products like these have the potential to appeal to broader market segments, but your first task is to capture the interest of trendsetters or early adopters. Why? This important segment can influence others to buy because their ​​decision to purchase essentially acts as a stamp of approval.  

  • Can drive long-term sales