Everything revolves around price in retailing. Price elasticity, or the way price changes affect demand, is essential information for formulating successful retail pricing strategies. Get it right and you have sales, profit margin and loyalty; get it wrong and you're quickly losing share to competition. A strategy whereby you are continuously monitoring competitors' prices can go a long way in determining the most effective price for selling as low as practically possible with proven loss of profit and opening doors in the customers' minds.
With all the different options that you have for a good price strategy, how do you know which one is most appropriate for your business? This guide discusses some of the popular 12 pricing strategies for small businesses to employ for their success in 2025. From value-based pricing to competition-based pricing, penetration, and psychological pricing, we will handle them comprehensively.
What are pricing strategies?
A pricing strategy is a systematic approach that guides a business in setting prices for its products or services. A good strategy will not just rely on simple mathematics but examine market trends, customer preferences, business costs, and company goals in developing price points for maximising revenues. More importantly, it acknowledges how customers view and respond to different price points.
A pricing strategy provides the answer to the question of utmost importance: How do you price a certain product to attract customers while maintaining the profitability of your company? Instead, it is about finding a sweet spot that will satisfy your bottom line and the customers' pockets.
12 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.
1. Competitive pricing
Competitive pricing is about using competitors' prices. The aim? Price the products smartly to secure sales from areas where there are closely similar products, and price could be the deciding factor. Think about it: Selling a product in an industry with many lookalike items. Your strategy involves pricing just below your competitors to lure potential buyers; however, it is nowhere near as straightforward as it seems.
Pros: Lower prices will attract customers if you can negotiate with your suppliers to reduce their costs, cut operational costs, and publicise the price benefit of your strategy.
Cons: This strategy is especially difficult to excel at for small retailers. Thinner profit margins translate into lower prices, which means all the more volumes to stay afloat. Note that customers don't just go for the cheapest item on the shelf if they believe that there are other really valuable features of the product.
2. Value-based pricing
In one sense, value-based pricing, or price-to-value pricing, is a method whereby prices are set based on how much the customer thinks a product or service is worth. In doing so, product value is determined by taking into consideration the wants and needs of the target market.
Companies selling unique or highly valued products are best positioned to utilise this type of pricing. Value-based pricing emphasises the perceived value of a product on the part of the customer – for example, how the product affects an individual's self-image – in return for a higher price.
It is one such pricing method widely practised in the markets where the products also impart more than sheer functionality. They serve as a wonderful example of this by charging marketers a luxury brand – it's not just the product, it's the experience. They show how consumers will pay more for goods that represent status, quality, or a particular lifestyle.
Pros: Value-based pricing enables you to charge more for unique goods. It's especially effective with luxury goods, art, fashion, collectibles, and other items. This method encourages you to develop creative goods that appeal to your target audience and create great brand value.
Cons: It can be challenging to justify added value for daily, ordinary goods. Making value-based pricing effective calls for something really unique. Your perceived value is personal and can change according to cultural, social, and financial influences outside your influence.
3. Price skimming
With a price skimming strategy, one charges the highest starting price clients will pay and then lowers it slowly as market rivalry and saturation grow. By exploiting early market dynamics, this strategy helps to produce bigger short-term earnings.
The main objective is to boost revenue during low competition and high demand. Apple is said to have used this pricing strategy to recover the whole development expense of new products, including the iPhone. Price skimming is most effective when a product is scarce, that is, when high demand combines with low supply to fetch premium costs that normally fall as supply catches up.
Pros: Starting a fresh, creative product, price skimming can produce significant near-term profits. For companies with a distinguished brand image, this approach helps preserve exclusivity and draw devoted clients willing to be first in line or enjoy a unique customer experience.
Cons: This strategy is dangerous in busy markets unless you provide genuinely distinctive characteristics that rivals cannot readily copy. This approach may quickly draw in new rivals, and lowering prices too severely may dissatisfy early adopters and perhaps harm your brand value.
4. Reduce pricing
Shoppers adore a great discount; therefore, across retail categories, discounting is among the most popular pricing strategies. One study revealed that before buying, 28% of internet consumers deliberately look for coupons. Discount pricing policies can draw price-conscious clients, remove unsold items, and boost foot traffic to your store. This adaptable method can generate buzz about your company and revitalise your product range.
Pros: Discounts are a fantastic means to move out-of-date or ageing inventory both online and in-store, as they successfully draw more customers to your business. Used wisely, these pricing strategies can generate good buzz and brief sales surges.
Cons: Regularly discounting could damage the reputation of your brand and position you as a "bargain retailer". This can turn off consumers from paying full price, therefore hurting your brand's perceived worth. Attractive pricing and implying inferior quality
5. Cost penetration pricing
For emerging companies wanting to enter a market, a penetration pricing strategy is helpful. With the goal of raising prices over time, this strategy offers a new product at a reduced price to capture market share. To explore such strategies in depth, the British Academy for Training and Development offers the "Retailing and Its Types Based on Marketing Strategies" course, which helps professionals understand how to align pricing models with effective retail marketing strategies.
Pros: This strategy improves brand recognition and distinguishes you among a crowded market. Setting yourself appealingly will help you to acquire new clients and maybe syphon off some competitors.
Cons: Bringing a product at a cheaper price point can make it difficult to raise prices later without running the risk of losing consumers. Short-term price cuts might also give up near-term profit and income.
6. Dynamic pricing
Have you ever seen Uber rates increase on a Friday evening? Dynamic pricing is that action. By means of this approach, costs are regularly changed according to variables including competitor pricing, supply, and consumer demand, all aiming at maximising company profit margins.
Fares for companies like Uber change depending on factors including route time, distance, traffic, and current rider-to-driver demand. Prices are set using self-improving algorithms that examine these many variables as well as by complex regulations.
Pros: Dynamic pricing automatically adjusts prices using machine learning to meet market obstacles. It allows price customisation to match current market circumstances, saves time by automation, and has the potential to maximise revenues while enhancing customer satisfaction.
Cons: For small companies, dynamic pricing can be difficult to implement due to upfront expenses like software specialisation and market research spending. Usually best for big merchants with hundreds of SKUs. Furthermore, causing unfavourable customer reactions that might affect total income are frequent price adjustments.
7. Psychological Pricing
Psychological pricing, also known as charm pricing, comprises different pricing techniques that attempt to manipulate consumer spending behaviour with a view to increasing sales and revenue. One of the classical tactics is the pricing of products at amounts that have their last digits as “9999”- – a product priced at $4. 99 appears much cheaper at first sight as opposed to a product priced at $5.
Pros: 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.
Cons: Overusing this strategy can make consumers less inclined to pay higher prices in the future, which can be obviously bad for long-term sales.
8. Premium Pricing
Most brands apply premium pricing by identifying their competing prices and then kicking up the prices for their products to make the products look more luxurious, glamorous and exclusive compared to others. It is actually an example of this; it is doing well in deriving a lot more than its competition, such as Dunkin', simply by positioning itself as a more premium experience.
But the efficacy differs depending on the market. Highlighting the need for knowing your target audience, Netflix found that premium pricing is not always effective in price-sensitive markets with lower consumer incomes. The secret is to concentrate on the distinct value you offer and be sure of yourself. Higher costs can be supported by great customer service, powerful branding, and distinctive product characteristics.
Pros: Premium pricing approaches have a major effect on consumer perception. Greater pricing lets your goods be seen as superior quality compared to your rivals, therefore possibly increasing sales and profit margins.
Cons: Your target audience's tastes will greatly determine the success of premium pricing. It becomes difficult if consumers are price-sensitive or have several options. Determining whether this approach will resonate with your particular target audience depends on extensive market research.
9. Economic Pricing
One pricing plan entails pricing items cheaply and producing income by means of great sales volume. Usually suited for commodity goods with low production expenses, that is, groceries or generic drugs, this method Selling consistently big volumes of goods to both new and returning clients is the basis of the business model.
Pros: Attracting price-sensitive consumers, especially effectively with economy pricing, is straightforward to do. By providing the most inexpensive choice, it can enable companies to gain ground in fiercely contested marketplaces.
Cons: Profit margins are generally quite small; therefore, a constant and constant inflow of fresh consumers is needed. The cheap pricing may also lead customers to view products as lower quality, therefore affecting long-term brand image.
10. Omnichannel Pricing
Customers engage with companies via several means in the present retail environment, including internet portals, physical shops, and mobile apps. Consistent pricing across all of these channels is guaranteed by an omnichannel approach. Pricing and promotion alignment creates a flawless buying experience for consumers and fosters trust and loyalty.
11. Data-driven Pricing
Setting prices that appeal to the target audience requires market knowledge and client data exploitation. Companies that embrace data-driven pricing can make informed decisions and improve their pricing tactics to boost sales and maximise revenues by using pricing optimisation software and predictive analytics. Retailers can obtain insightful information about consumer behaviour, market trends, and pricing dynamics with predictive analytics and pricing optimisation software.
12. Bundle Pricing
Bundle pricing, commonly identified as multiple pricing, is the sale of a number of merchandise together, for example, a three-pack of socks or a five-pack of underwear. Retailers use bundle pricing to plan marketing campaigns with ease and to attract customers. However, it possesses the potential to hurt the sale of individual items and stir up a little cognitive dissonance in the minds of consumers.