7 Pricing Strategies For Business: Guide To Fix The Best Pricing

What Is A Pricing Strategy?

A pricing strategy means creating a plan to set the right price for your products or services.

The correct price depends on your costs, what customers are ready to pay, and what your competitors charge.

Your pricing decision shapes how much profit you make, how people see your brand, and how your business grows.

Without a proper strategy, you might be undercharging or overpricing, both of which can lead to financial loss. Remember that your pricing also affects other parts of your business, like your marketing approach or your brand positioning.

That’s why it’s important to understand the different ways you can price your products.

In this article, we’ll look at simple pricing strategies that can help you earn better, grow faster, and bring more stability to your business.

Importance of Pricing Strategy for Your Business

Pricing is not just about putting a price tag on your product. Getting your prices right can grow or slow down your business. This shows the importance of pricing in marketing strategy.

Here’s why right pricing matters so much-

Did you know that adjusting your price by even 1% can increase your profits by up to 11%? That’s how powerful pricing can be.
Research in Kenya shows that pricing can influence nearly 40% of your business’s performance compared to others in the same space.
You don’t always need to spend heavily to grow. Optimising your pricing is often more cost-effective than other growth tactics and can deliver excellent returns.
A good pricing strategy helps you maximise profits while staying ahead of the competition.
Many times, customers judge your product based on its price. If it’s too low, they may assume it’s low quality. If it’s too high, they might not buy it at all.
Smart pricing allows you to reinvest in your business, improve your offerings, and accelerate growth.
It also helps your business weather tough economic conditions, protecting your profits and keeping you competitive regardless of market changes.

A strong pricing strategy means understanding your costs, your customers, and the value you provide, then setting your prices with confidence.

Why Is Knowing Your Costs Important Before Setting A Price?

If you don’t know how much it costs to make your product or offer your service, how do you know if you’re making a profit?

Smart pricing comes from smart cost tracking.

When you understand your fixed and variable costs, you can-

Price more accurately
Stay profitable
Avoid unnecessary stress
Know exactly how much you need to sell to break even

So let’s understand the different types of costs involved in your business.

Types of Costs You Should Know

Fixed Costs – Costs that remain constant no matter how much you produce or sell.
- For example, paying rent for an office or store, salaries of permanent staff, insurance premiums, and loan payments.

Variable Costs – Costs that change depending on how much you produce or sell.
- For example, raw materials like fabric used by a clothing maker, wages paid to workers involved in production, packaging materials, and sales commissions.

Direct Costs – Costs that can be directly connected to the production of goods or services.
- For example, the cost of ingredients used to prepare a dish in a restaurant, the pay of an artisan crafting a specific product.

Indirect Costs (Overheads) – General costs of running the business that cannot be easily traced to a specific product or service.
- For example, office rent, electricity bills, water bills, office supplies, administrative salaries, and marketing expenses.

Semi-Variable Costs (Mixed Costs) – Costs that have both fixed and variable components.
- For example, a telephone bill includes a fixed line rental and additional charges for each call.

Key Factors That Influence Your Pricing (Costs, Customers, Market, Competition)

Costs – Define Your Price Floor

To define your price floor, you need to know every single cost involved in keeping your business running. This helps you figure out the lowest price you can sell at without losing money.

Customer – What Do They Think It’s Worth?

To understand what customers think your product is worth, you need to do some simple market research to understand what people are willing to pay.

Your pricing should feel fair to them, where they believe the value matches the money spent.

Market – What’s Happening in the Industry?

To understand if demand is going up or down, you must stay alert to market trends and adjust your pricing accordingly.

And when the economy is struggling and people have less money, offering more competitive prices can help you attract buyers.

Competition – What Are They Charging?

You need to know what other businesses like yours are charging for similar products or services.

But don’t just copy their prices. Base your pricing on the value you offer and your own cost structure to remain fair and stand out.

Pricing isn’t something you do just once. When pricing a product, you must continuously balance your costs, customers, market conditions, and competitors. Ignoring any of these factors could cost you money or your customers.

Basic Ways To Decide Your Pricing

Before you fix your price, it’s good to know the basic ways of pricing. Here are the three main types-

Cost-Plus Pricing
Value-Based Pricing
Competition-Based Pricing

Let’s start by discussing Cost-Plus Pricing, as it’s one of the simplest pricing methods to begin.

Cost Plus Pricing

In this method, you evaluate the cost of making or buying a product, then add a fixed profit margin over that cost to decide the selling price.

Example- If buying a toolset costs Rs. 500 and you add Rs. 200 to cover your profit, the final price becomes Rs. 700. That Rs. 200 is your profit.

Pros of Cost-Plus Pricing

Easy- This method doesn’t require much research or complex calculations. It’s straightforward and simple to use.
Covers Your Cost- You can be sure the price you set will cover what you spent to make or source the product.
Steady Profits- When your costs stay about the same, you can count on earning the same profit from every sale.
Easy to Explain Price Changes- If your cost goes up, it’s easy to inform customers why your prices need to rise, too.

Cons of Cost-Plus Pricing

Doesn’t Think About Customer- This method doesn’t consider how much customers think your product is worth.
Doesn’t Look at Market- It doesn’t pay attention to what others are charging or how much people want your product..
Might Lose to Smarter Pricing- If your competitors are smarter with their pricing, they could pull more customers away from you..

Best suited for New MSMEs with limited market data and businesses with many low-value, standardized products.

We’ve talked about pricing by looking at your costs. Now, let’s discuss another powerful way to set your prices,” Value-Based Pricing”.

Value-Based Pricing

Value-Based Pricing means fixing your price based on how much value your product or service delivers to the customer. It’s less about your costs and more about the benefits customers receive.

Example-
If you’re a service provider who helps businesses improve their marketing, and you can show that your ideas directly lead to, say, Rs. 50,000 more in sales, your pricing can reflect a fair share of the value you helped create.

Pros of Value-Based Pricing

More Profit- When you clearly communicate the value you provide, you can easily explain a higher price to the customers and earn more.
Happier Customer- When your price matches customers’ needs, they usually become more satisfied and loyal.
Fair Pricing- This method helps ensure that the price you set matches the actual advantages you deliver to customers.

Cons of Value-Based Pricing

It’s More Complicated- It takes effort to understand customer psychology and do good market research, which can be tough for MSMEs with limited time and resources.
Not for All Products- This method may not be ideal if you sell very basic products that are almost the same as those of your competitors.
Hard to Measure on Value- Emotional or intangible benefits can be difficult to quantify, making it harder to price confidently.

Best suited for MSMEs with unique/differentiated products or services offering clear benefits

We’ve discussed pricing based on costs and pricing based on what your customer believes it’s worth. Now, let’s look at a third common method, “Competition-Based Pricing.”

Competition-Based Pricing

In Competition-Based Pricing, you set your prices by looking at what your competitors charge. You can price lower, higher, or the same, depending on what other businesses charge for the same goods or services.

Example-
If you run a local grocery store, you’d likely check the prices of common items at other nearby grocery stores to decide your own prices for those items.

Pros of Competition-Based Pricing

Easy to Do- You can easily find out what your competitors are charging, so setting your prices is relatively straightforward.
Keeps You in Competition- It helps you stay competitive, especially in markets where customers are very sensitive to price differences.
Good for Quick Moves- It lets you enter a new market or respond quickly if a competitor changes prices.

Cons of Competition-Based Pricing

Risk of Copying Blindly- You assume that your competitors have set the “right” price. What if they’re making a mistake or their costs are very different from yours?
Can Lead to Price Wars- When everyone just tries to be the cheapest, it often causes a “price war” in which prices keep falling and profits shrink for everyone.
Ignores Your Own Costs- This method might make you overlook your own business expenses, which can hurt profitability.

Best suited fr MSMEs in highly competitive markets with similar products aiming for market share.

Pricing Your Products Vs. Pricing Your Services

Main Difference	Setting Prices for PRODUCTS	Setting Prices for SERVICES
What You Sell	Physical products like food, clothing, or other tangible items.	Your time, skills or expertise like consulting, repairs, etc
Customer Experience	They can touch, see, or inspect it before buying.	They experience it while it happens or after it’s done.
Main Cost	Costs include materials, packaging, shipping, and labour	Your time, knowledge, and operational costs (like software)
Stock Needed	You need to handle and store stock	You don’t need inventory, but your time is a limited resource
Price Based On	Costs to make/buy + margin and competitor prices	Your expertise, time spent, and value given to the customer
Biggest Challenge	Managing costs, unsold stock or returns	Hard to show value, fear of overcharging
Pro Tip	Track all related costs closely	Clearly explain the benefits you offer.

Popular Pricing Strategies Explained

Understanding different kinds of pricing will give you an advantage.

Let’s break down popular pricing methods in simple words, so you can pick what works best for your MSME.

Skimming Pricing (Start High, Go Lower)

When you launch something new, you start with a high price to attract early buyers who love new things. Later, as the excitement cools or more options appear, you slowly lower the price to attract more everyday customers.