Pricing strategies: Tailoring prices for market success

David Banks
Authored by David Banks
Posted: Sunday, May 19, 2024 - 09:33

Pricing strategies can be defined as the methods or strategies used by businesses to set prices for products and services and achieve their objectives. 

One significant aspect of pricing strategies is that they help grade products or services as high value or premium, which can lead to brand recognition and more customers.

This can influence a customer's perception. Tailoring prices for market success requires understanding your target customers, competitors, and propositions. 

Common Market princing strategies

There are several market pricing strategies that top businesses around the world use. However the price strategies you adopt sould suit your kind of business. Meanwhile, here are the common market pricing strategies you sould know.

Cost-Based Pricing

This involves setting the price on the products or services based on the cost of production, manufacturing, and distribution, i.e., overhead cost, supplies, labour, and materials. This is to say, calculating your cost and adding a mark-up percentage. Cost-based pricing can either be full-cost or direct-cost pricing, depending on the company's factors. Companies that use Cost-Based pricing include Automobile companies, Airlines, Construction companies, Electricity companies, and B2B manufacturing companies.

However, cost-based pricing can be good in terms of simplicity and profit control, but it doesn't meet customers' market demand, which can lead to competition and underpricing of products or services.

Advantages of Cost-Based Pricing

  • It is easy to understand and calculate. Small companies with limited resources and data can use Cost-Based pricing strategies without stress and market research.
  • It doesn't need external data, which makes it easy to implement.
  • It allows you to account for production costs, which shows that you are making profits daily. 

Disadvantages of Cost-Based Pricing

  • It doesn't consider customer demand; it ignores market demand by setting prices based on production costs. 

Value-Based Pricing

This is a method of setting prices for products or services based on customers' perceptions of their value. The value of the product focuses on the benefits it offers customers. An example of a company that practices a value-based pricing strategy is Adobe Creative Cloud.

Advantages of Value-Based Pricing

  • It helps to build a better product. When your customers value your products, the profit increases. Your customers get a good-quality product, and you make huge profits or money from it.
  • The customer's needs are better than the market value. Customers become loyal When they know you care about their budget and needs.
  • It allows you to set prices higher, and because your customers are always willing to pay, you make more money.
  • You learn more about your customers' needs and how to go about it.

Disadvantages of Value-Based Pricing

  • It is complex and requires a deep understanding of your customers before setting product prices.
  • Customers' perceptions are very important before making any product available on the market.

Competition-Based Pricing

This is a strategy where prices are set based fees other competitors in the market charge. It focuses on the market instead of the cost price of goods. So prices are either set below or above competition or on competition.

Strategies considered for adopting competitive-based pricing

  1. Market positioning
  2. Pricing decisions or cost considerations.
  3. Monitoring the market dynamics
  4. Pricing decisions should align with the brand image.

A perfect example of an that makes use of competitive-based pricing strategy is Walmart. Walmart is a retail giant, and its pricing plays a vital role in attracting customers and maintaining market shares. Its competitors are Amazon, Costco, and other online retailers. 

If Amazon or Costco reduces their prices, Walmart may either undercut or keep its prices the same. Walmart uses pricing algorithms and data analytics to track the prices of products of other online companies to attract and retain customers through competitive strategy.

Dynamic Pricing

Dynamic pricing entails adjusting prices depending on demands, supply, or market conditions. In real time, technology facilitates dynamic pricing by providing tools and infrastructure that can collect, analyze, and respond to large amounts of data.

Devices like machine learning, Artificial Intelligence (AI), pricing Algorithms, and others can be used to optimize and automate pricing decisions in market dynamics. When this is done, revenue is maximized, and customers are also satisfied.


In every business, pricing strategy plays a vital role. However, the price can determine the value and quality of products or services, which in turn influences the customer's the decision to purchase them.

Businesses must tailor their pricing strategies listed above for market success, maximizing prices and maintaining a competitive edge.