Different types of pricing strategies in marketing

A pricing strategy is the method a business uses to set the price of a product or service. The most common types are penetration, economy, premium, skimming, psychological, bundle, geographic, captive product and dynamic pricing. Most companies combine a few of them, starting from a base price set on costs, competitors or the value customers see.

Price is one of the four Ps of the marketing mix. It is the only one that brings money in, so it shapes revenue, margin and how customers judge quality.

What should a pricing strategy take into account?

Before choosing a strategy, be clear on:

• your costs and target profit margin;
• your revenue goals;
• your target customers and what they are willing to pay;
• competitors' prices and offers;
• where the product is in its life cycle;
• economic conditions and demand.

How do you set the base price?

Three approaches sit underneath every strategy:

• Cost-plus pricing: add up direct materials, labour and overhead, then apply a markup. Simple, but it ignores what customers would pay.
• Competition-based pricing: price in line with, above or below competitors.
• Value-based pricing: price according to the value the product has for the customer, not what it costs to make. It suits products such as B2B software, where the value of saved time or extra revenue can be much higher than the cost of serving one more customer.

Penetration pricing

Penetration pricing launches a new product at a low price to win customers and market share quickly. Once the product is established, the price rises. OpenStax's example is Netflix in the late 1990s: a low monthly subscription let people try the new service with little financial risk.

Watch out: low prices can start a price war, and customers may resist when prices go up. In some countries, pricing below cost to push out competitors (predatory pricing) can break competition law. See strategies for market penetration.

Economy pricing

Economy pricing keeps prices low by keeping costs low: minimal advertising, simple packaging and high volume. Store-brand groceries and no-frills airlines that charge extra for luggage are typical examples. It works when you can run leaner than competitors and sell at scale.

Premium (prestige) pricing

Premium pricing sets prices high to signal quality, status or exclusivity. It is common for luxury goods and for service providers with a strong reputation, such as top consultancies. In B2B, an enterprise plan priced well above competitors can signal that a vendor is built for large customers. The product, support and brand have to justify the price.

Price skimming

Price skimming launches a product at a high price for the buyers who will pay the most, then lowers it step by step to reach the next segments. OpenStax's example: Sony launched the PlayStation 3 at $599 and cut the price each year until it reached $299. Skimming works best when competition is limited and the brand is strong. Read more about price skimming.

Psychological pricing

Psychological pricing uses how people perceive numbers. The classic form is odd-even pricing: prices ending in odd numbers, like $49.99, suggest a bargain, while round prices, like $50, suggest quality. That is why luxury items often use round prices. Other forms include anchoring a plan next to a more expensive one, and showing a monthly price for an annual plan. It overlaps with neuromarketing and FOMO marketing. Keep it honest: misleading price displays can break consumer protection law.

Bundle pricing

Bundle pricing sells several products together for less than they would cost separately. A fast-food value meal that costs only a little more than the burger alone is the textbook example. In software, suites and add-on packs work the same way. Bundles raise the average order value and help customers try products they would not buy on their own. See our cross-selling examples and upselling techniques.

Product line pricing

Product line pricing sets different price points for related products, so each version reaches a different group of buyers. The good-better-best plans on many SaaS pricing pages are product line pricing: a basic plan for small teams, a middle plan for growing companies and an enterprise plan with extra controls.

Geographic pricing

Geographic pricing charges different prices in different regions, based on local purchasing power, costs, taxes, shipping or competition. Some software companies show local currencies and adjust prices by country. Make sure you understand each market, and be transparent about why prices differ.

Captive product pricing

Captive product pricing applies when a core product needs a separate product to work. The core product is priced attractively and the captive product, which customers buy repeatedly, carries more of the margin. The textbook example is a low-priced printer and its ink. In B2B, a low-cost platform with paid usage credits follows the same logic.

Dynamic pricing

Dynamic pricing uses algorithms to change prices automatically in response to demand, competitor prices or other data. Airlines, hotels and event tickets are common examples. Use it carefully: sharp price rises during emergencies can damage trust, and some regulators require the full price to be shown clearly.

Freemium

Freemium offers a basic version free of charge and charges for advanced features, more capacity or more users. It is common for digital products and SaaS, where serving one more free user costs little. It works when enough free users upgrade to cover the cost of serving the rest.

Are there legal limits on pricing?

Yes. Pricing must not mislead. In the US, the FTC's Rule on Unfair or Deceptive Fees took effect on 12 May 2025. It doesn't ban any fee or pricing strategy, but businesses selling live-event tickets or short-term lodging that advertise prices must show the total price, including mandatory fees, up front. Predatory pricing and price fixing can also break competition law. Check the rules in each market you sell to.

How do you choose the right pricing strategy?

1. Know your costs so you know your floor.
2. Understand the value customers get, from interviews, win-loss analysis and usage data.
3. Map competitors' prices and how buyers compare them.
4. Pick a primary strategy that fits your goal: market share (penetration), margin (premium or skimming), or volume (economy).
5. Test and review. Try changes on new customers or one segment first, and revisit prices at least once a year.