6 methods for strategic pricing

Pricing is one of the most delicate and strategic processes in managing any business. It determines not only profit, but also the way customers perceive the value of the product or service. A correctly set price can turn an ordinary product into a preferred choice, while a wrongly selected one can easily lead to a loss of market position. In a dynamic business environment where competition is fierce and customer habits change rapidly, conscious pricing is the key to sustainable growth. Therefore, understanding the different methods and their correct application is critical for any company, regardless of size.

1. Cost-Based Pricing

This method is based on the real costs of producing or providing the service and adds a desired percentage of profit. It is extremely easy to implement and ensures that the cost price is always covered. The disadvantage is that it does not take into account market dynamics – customers may not be willing to pay such a price or, conversely, be willing to pay more than calculated. This approach is suitable for businesses with stable and predictable costs, such as manufacturing or services with clear costing. Despite its limitations, it is a good starting point for calculating a minimum profitable price.

2. Value-Based Pricing

Here, the price is determined according to the value that the product brings to the customer, rather than according to the cost of production. This makes the method extremely profitable when the product solves an important problem, brings convenience or provides a unique advantage. The business must know the needs, pains and motivations of the customer well, because the perceived value can significantly exceed the actual cost. The method works especially well for premium products, technologies, software and consulting services. Although it requires more marketing research, the potential profit is significantly higher.

3. Competition-Based Pricing

In this method, the business sets a price oriented to market levels and competitors’ offers. The approach is effective in highly competitive markets where products are similar and customers compare primarily on price. A company can position itself with a lower price to gain market share, or with a higher price if it offers higher quality. However, this method is risky – if the competition operates with a low margin, copying prices can lead to losses. Nevertheless, it is an important guideline for understanding the “price range” acceptable to the customer.

4. Psychological Pricing

This approach uses principles from behavioral economics to influence the customer’s perception. Prices such as 9.99 leva seem significantly lower than 10 leva, despite the difference of one penny, which stimulates impulse purchases. Other psychological techniques include bundling, creating “premium” options or placing irresistible comparative price anchors. The method works well in online commerce and for products whose customers react emotionally to price. When used correctly, it can significantly increase sales without reducing real value or margin.

5. Dynamic Pricing

In dynamic pricing, prices change in real time according to demand, season, or customer behavior. It is common in airlines, hotels, and large online platforms. The method allows you to maximize profits during peak times and stimulate demand during downturns. However, it requires good software tools and a careful approach so as not to arouse distrust or doubts among customers. When managed properly, this is one of the most effective methods for increasing revenue.

6. Demand-Based Pricing

Here, the price is determined by the level of demand: when demand is high, the price increases; when it is low, it decreases. The method works great for seasonal goods, urgent services, or products with limited quantities. The advantage is that the business can adapt quickly to market trends and avoid losses from hard, fixed prices. However, one must anticipate the possible dissatisfaction of customers if they notice sudden price changes. Applied wisely, the method allows for flexibility and resilience in markets with variable demand.

TPA Bulgaria

+359 2 981 66 45/46/47

office@tpa-group.bg

128, G.S. Rakovski str, floor 2

1000 Sofia