Understanding the Different Types of Pricing Strategies

Setting the right price is crucial for profitability and competitiveness. Explore different pricing strategies such as cost-plus, value-based, competition-based, and time-based pricing to determine which approach makes the most sense for your business.

Your pricing strategy may change over time, depending on a variety of factors. Regardless of the approach you adopt, you should be open to make adjustments based on current events. In this video, we discuss some of the main types of pricing models and begin to explore how you can incorporate them into your business.

Cost-Plus Pricing

Cost-plus pricing is a basic and very common strategy that is often used by retail-based establishments. This approach involves establishing a baseline cost and adding a markup to the cost of producing your goods or services.

While it ensures that you cover basic costs and earn a profit, it does come with more risks because it often relies on factors outside of your control. It is also very simple and may not take into account all of the variables needed to be effective.

Competition-Based Pricing

Competition-based pricing has a mixture of complexity and is often used by eCommerce businesses. This approach utilizes the pricing of direct competitors to implement a similar strategy.

This model tends to be the most dynamic and hands-on pricing approach, since you will need to be tracking pricing across a variety of fronts to ensure you remain competitive. Things like sales, product demand, and other volatile circumstances may warrant frequent and inconsistent changes in price.

Time-Based Pricing

Time-based pricing is a strategy linked to a particular time that is often used by the hospitality and travel industry. This approach looks to determine pricing based on a combination of supply, demand, and the period of use.

This model can be extremely dynamic because it combines aspects of competition-based pricing, cost-plus pricing, and real-time scenarios that are largely out of your control. However, when implemented effectively, it can be very effective.

Value-Based Pricing

Value-based pricing is a sophisticated approach that is often used by agencies and service-based organizations. This approach considers a variety of factors, like value for time, costs of goods sold, and customer-specific metrics to outline a strategy.

This model tends to be extremely successful for many businesses, creating a scalable model that you can adjust over time. However, it does require a significant amount of time, research, and effort to create and maintain.