How to Create a Powerful Competitive Pricing Strategy for Your Business

Developing and implementing a competitive pricing strategy for your business is key if you want to stay in the game long-term.

A retro graphic of the word price explodes to signify the importance of a competitive pricing strategy

Your pricing strategy will affect the goals you’re able to set and achieve, your profit margins, and the way you market your products to your consumers. 

However, determining effective pricing strategies isn’t as easy as it seems. It would be best if you considered your target audience, your competitors, the demand for your products, and overall market trends that could impact your sales, among other factors. Before choosing your business’s 
best pricing strategy, it’s important to know what options are available to you. 

Different Types of Pricing Strategies

There are many different business pricing strategies
 on the market. You encounter some of them every time you go to the grocery store or purchase a new cable or Internet package. However, not all of them will work for every type of business. Here is a list of the most common and effective pricing strategies that you’ll encounter in the wild:

  • Discount pricing strategy: Setting a price, then temporarily marking down that price for a special sale or promotion. This creates a sense of urgency that encourages customers to buy. 
  • High-low pricing
: Charging a higher price for an item when the demand is also high but lowering the price as demand decreases. 
  • Market penetration pricing: Offering a product for a low price initially to penetrate the market and set yourself apart from competitors, potentially raising the price later. 
  • Psychological pricing: You see this all the time in retail stores—marking an item as an insignificantly lower price, such as $4.97 instead of $5, to trick the mind into thinking that it’s more affordable. 
  • Premium pricing
: Artificially inflating a price to make a product seem exclusive and aspirational.
  • Dynamic pricing: Adjusting the pricing up or down as the market changes. It’s wise to make these adjustments from time to time, even if this isn’t your main strategy.  This is sometimes called variable pricing.  Many companies change their pricing based on demand.  Think about a seasonal beach or hotel business that flexes pricing based on the week of the year. 
Leader pricing: Setting a low price, even taking a loss, introducing customers to your brand or product for the first time. 
Cost-based (cost plus) pricing: Pricing your product so that you’ll turn a profit once you account for materials and labor costs. This is a very standard pricing model. 
  • Value pricing: Setting your prices based on how much your target audience thinks your product is worth. This requires some market research to pinpoint. 
Competition-based pricing: Pricing your products based on how much your competition is charging for theirs (and ideally offering a better value than they are).
  • Price skimming pricing strategy
: This competitive pricing strategy involves setting your prices at the maximum of what you know your target audience will pay, then slowly lowering it over time as those customers drop off to target new audiences. 
Everyday low pricing: Walmart is famous for this pricing strategy, wherein you offer a low price every day without making customers wait for a sale or special occasion. 
Demand-based pricing
: This one is self-explanatory—setting your prices based on your perceptions and studied customer demand observations. 
  • Differential pricing
: Setting different prices for different customers based on various factors, such as age, veteran status, loyalty programs, and more. 

  • Product bundle pricing
: Offering a discounted price when a customer buys more than one product. Have you succumbed to the buy one, get one free offer?
  • Geographical pricing: Setting different prices for different geographic locations. 
  • Promotional pricing: Temporarily reducing the price of a product due to a sale, special event, or another kind of promotion. 
  • Captive pricing: Charging what you want for a product or service because people will have no choice but to buy it. This only works if you have no real competitors. 
  • Freemium pricing: Offering a basic or limited version of your product for free, with customers later paying for more or better features. This can include offering a free trial.

Some of these strategies are less savory than others, but I’ve included them because it’s something many businesses choose to do. You should know what effective pricing strategies your competitors use so you can adjust yours accordingly. 

What is the Best Pricing Strategy for a New Business?

The competitive pricing strategy you choose will be dependent on your product, the market, your customer base, and a variety of other factors that are unique to your company. However, for a business that’s just starting, there are a few things you might want to consider. 

First, you’ll have a little less leeway because you haven’t yet established a reputation for your brand or product. Because of this, you’ll be limited in terms of the most common pricing strategies
 that you can realistically choose from. Freemium pricing is a great option, as it allows your customers to experience a taste of your product without committing to a high price point. 

Initially, you might want to consider strategies that involve setting your prices lower than your competitors to encourage their customers to give your product a try. Market penetration pricing was designed to help with this very tactic. 

Once you’ve established your place in the market, you can branch out to other effective pricing strategies if you choose. It will be easier for you to keep up with your competitors once you’re widely known as an alternative.

Whichever competitive pricing strategy you use in the long run, bear in mind that customer loyalty is the ultimate goal. The pricing strategy that nets you the most income might not be the one that encourages your target audience to return time and time. 

Don’t get so hungry for a profit that you isolate the customers who support you or resort to shady sales tactics. Ultimately, the most effective pricing strategies are the ones that allow you to operate your business with integrity and brand consistency. 

Determining a pricing strategy for your business can take some trial and error. An outside perspective can be a valuable resource. Please fill out my contact form for a complimentary coaching call with a professional business coach that can help you develop and refine your competitive pricing strategy.  I am not a fan of arbitrarily pricing at the low end of the market. Pricing is about imagery, and I like helping companies interested in positioning their business differently rather than just the cheapest.

Coach Dave


Dave Schoenbeck
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