The FOUR Pricing Strategies

When getting ready to release a product, one of the most important aspects you must consider is the price. There are four key pricing strategies: Economy, Penetration, Skimming and Premium. There are of course a lot more strategies, but these four are the most commonly used and are the most important.



Economy pricing means keeping the price of a product as low as possible. This includes lowering its selling price by lowering the cost of its production and limiting the amount you spend on promoting it. You see these products throughout every supermarket, such as products in the Tesco Value range. If your business can create and sell a lot of products cheaply, then this may be the pricing strategy for you. However, the balance of keeping the price low whilst still making a profit can be tricky, especially if you don’t think you can sell a very large number of your products.



Penetration pricing means setting the price of a product artificially low to gain a good market share, and then increasing the price. This can give you a big share of the market quickly, not giving your competitors a lot of time to react. However, once you have gained your market share, it can be difficult to raise the price. Consumers will have bought your products/services because of its very low price, and not all of them will stick around if the price increases. The type of businesses that use this pricing strategy are usually broadband or phone services. They offer a low initial monthly cost, and then increase it after some time.



Price Skimming is a pricing strategy where businesses set a high cost for a product initially, and then lower it over time. This can only be done if the demand for the product is already high – which would be achieved with a lot of advertising up to and after its release date. The higher price is usually used to cover the cost of that advertising. Once that has been covered, the price decreases to account for the decrease in demand after its launch. Companies that sell electronics use this strategy a lot. After announcing a new product, such as a gaming console, there is always a lot of attention around their business, meaning they can set the price high initially and then reduce it when the hype decreases.



Premium pricing means setting the price of a product artificially high to encourage favourable perceptions amongst buyers. People associate a higher price with higher quality, which is why some people would be willing to pay that price. Premium brands like to convey a sense of exclusivity. A high price is enough to generate discussion around that product and get the word about it round. With a higher price tag, you will not be able to sell a huge number of products easily. However, this does not matter for companies such as Chanel, who only have to sell a few clothing items weekly per store if they are to make a profit. If you are confident about the quality of the product and its luxuriousness, don’t shy away from this pricing strategy.


Like I mentioned earlier, these aren’t the only pricing strategies. However, they are definitely worth considering when releasing a new product.


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