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Prime 7 Product Pricing Methods Product Managers Have to Know

product pricing strategies

Setting a product worth is nothing lower than a balancing act – setting it too excessive would possibly result in lacking out on some variable gross sales, and stopping too low would possibly result in lacking out on some beneficial income. It’s thus essential for corporations to make sure that they use their most interesting sources to determine one of the best worth for his or her services or products. Whereas the accounting, advertising and marketing, and government administration staff play a pivotal function in pinning down the value, product administration professionals have a say on this course of as nicely. And to assist them make this choice successfully, I’ve labored on this text about product pricing methods. 

  1. What are product pricing methods?
  2. Why do Product Managers have to know product pricing methods?
  3. The best way to create a Product Pricing Technique
  4. The highest 7 product pricing methods that you must know
  5. Conclusion

What are product pricing methods?

In a nutshell, it’s the course of of creating the appropriate product worth, which then helps maximize revenue whereas additionally caring for shoppers and market demand. And for this, they should maintain sure components, corresponding to demand and worth of the product, rivals’ worth, and many others.

Why do Product Managers have to know product pricing methods?

Let’s settle for it: no person is aware of a product higher than a product supervisor as they’re concerned in a product’s life cycle. Totally different groups would possibly pay attention to the points of their very own work, however it’s the product supervisor who oversees the product at each stage. Therefore, it is just pure that they’ve a say within the pricing of their product.

The best way to create a Product Pricing Technique

There are a number of components that one should think about whereas deciding on the technique for use for product pricing. And talked about beneath are a few of them. 

1. Consider Pricing Potential

Pricing potential is the value {that a} services or products can attain, contemplating its value, demand, and many others. Whereas deciding the pricing technique, one wants to contemplate all components that have an effect on the potential worth and attain a quantity accordingly.

2. Know the Viewers

When deciding the product worth, one wants to contemplate why and the way clients will use the merchandise in keeping with their wants. Yet one more factor to be saved in thoughts is the worth that the shoppers will affiliate with the product, which is able to determine how a lot they’re prepared to pay for it.

3. Analyse Previous Knowledge

Examine the efficiency of the earlier product pricing methods. As soon as conscious of what has or has not labored previously, one can take its instance and create their current technique accordingly.

4. Have a look at the Competitors

You possibly can’t determine the value of your product with out first taking a look on the competitor’s worth. When you get an concept in regards to the worth distinction between your and the competitor’s merchandise/providers, you can also make both of the 2 decisions to remain forward of them:

  • Beat their worth – If the competitors is charging extra for the same product, worth your product decrease than theirs.
  • Beat their worth – In the event you provide extra worth than your competitor, you possibly can cost your product larger than the competitors, and clients will nonetheless purchase it.

The highest 7 product pricing methods that you must know

Like a number of components decide the value of a product, a number of product pricing methods can be utilized to introduce a product to the market.

Talked about beneath are the highest 7 product pricing methods which were examined earlier than and have given glorious outcomes.

  1. Worth-based Pricing Technique
  2. Premium Pricing Technique
  3. Freemium Pricing Technique
  4. Aggressive Pricing Technique
  5. Demand Pricing Technique
  6. Geographic Pricing Technique
  7. Skimming Pricing Technique

Learn on to know extra about these product pricing methods and their examples.

1. Worth-based Pricing Technique

It’s arguably probably the most customer-centric technique for the reason that costs are determined primarily based on what the shopper is prepared to pay for a product. Even when the corporate needs to cost the product larger, it will be unable to take action contemplating buyer curiosity and information. The most important advantage of this technique is that, if used accurately, it has the potential to extend buyer loyalty and sentiment towards the product and/or model. However there’s a catch: Implementing this technique requires continually being conscious of buyer profiles and shopping for behaviour to set the costs accordingly.

Instance of Worth-based Pricing Technique – Diamonds

Diamonds promote on three factors:
1. Their rarity
2. Their picture of representing a lifelong dedication
3. Their superlative qualities (hardest mineral, longest-lasting gem, and many others.)

All these factors create an impression within the patrons’ minds that they’re shopping for one thing that holds immense worth. The cash they pay for diamonds is therefore for the worth that the product holds of their minds.

2. Premium Pricing Technique

It is without doubt one of the prime product pricing methods utilized in as we speak’s digital instances. Because the title suggests, this technique focuses on pricing the merchandise larger to showcase them as premium or luxurious. The purpose is to construct a perceived worth of the product, usually larger than its precise worth. It’s a kind of product pricing methods which rely extremely on model worth and model notion.

The technique is very efficient in pricing style and know-how as a result of each of those could be marketed as unique, luxurious, and uncommon.

Instance of Premium Pricing Technique – Expertise

Smartphones, tablets, and computer systems are sometimes priced at larger charges than their market counterparts to make the shoppers really feel that they’re shopping for one thing premium for that extra cash. Whether or not that further quantity does or doesn’t add to the standard of the product is a special dialogue, however the buyer positive feels much more prosperous after having purchased such merchandise.

3. Freemium Pricing Technique

Freemium, a mixture of free and premium, is extremely prevalent in pricing digital merchandise. Because the title says, this product pricing technique incorporates providing some product options or/and providers without spending a dime with the hope that the shopper will need to swap to the premium model, as soon as the free trial ends.

By offering a free trial, a buyer will get an concept in regards to the product’s performance, usually making them go for the paid model. Earlier than pinning down this technique, corporations want to make sure that they have to hold the costs for the paid model in sync with the concept that the shopper is transitioning from a free trial section and therefore can’t be anticipated to pay a big quantity.

Instance of Freemium Pricing Technique – Audio/Video Streaming Platforms

The music or video streaming platforms that present free trials for just a few days/weeks/months work on the freemium technique. Their concept is to make clients like their product and construct your belief of their model in order that they will swap to the paid variations as soon as the trial is over. 

4. Aggressive Pricing Technique

Not like the aforesaid product pricing methods, this one doesn’t give attention to the shopper demand or product worth however fairly on costs quoted by rivals. Companies that normally use this methodology are those that function in an setting the place even a slight distinction within the worth can determine the curiosity of shoppers.

It’s not at all times obligatory to cost your product beneath your competitor’s. You possibly can hold them the identical as or near the value of your rivals as nicely. The thought is to be on prime of the competitors by preserving your worth dynamic and making the shoppers imagine that you’re offering them with one of the best worth for his or her cash.

Instance of Aggressive Pricing Technique – Milk

In the event you go to a grocery retailer and try the milk packets of various manufacturers, you’ll discover that there’s little or no distinction between their costs. For instance, low-fat milk from model A shall be priced inside one or two rupees of low-fat milk from model B. It’s because, in a market the place the shopper can swap manufacturers for as little as one or two rupees, the manufacturers need to watch out about their rivals’ costs and worth their merchandise accordingly.

5. Demand Pricing Technique

Generally often known as Dynamic Pricing, Time-based Pricing, or Surge Pricing technique, it operates on buyer demand and market circumstances. This is without doubt one of the commonest product pricing methods that we will see day by day within the pricing of utility-based merchandise. A number of components determine what the shopper can or can pay for a product at a sure time limit. Corporations analyse these components and transfer the costs of their merchandise to match the shopper willingness and market demand of the second.

Instance of Demand Pricing Technique – Air Tickets

Throughout competition season or round an extended weekend, the airfares are at all times instantly associated to the willingness of individuals to journey. Airways continually monitor their potential clients’ pursuits and doable instances of journey and manoeuvre their costs accordingly. Because the demand for air tickets goes up, so do the fares. It’s the commonest type of demand-based pricing technique.

6. Geographic Pricing Technique

Because the title suggests, pricing merchandise in another way for various geographies is named Geographic Pricing Technique. A number of causes clarify how and why geographies dictate product demand and worth. For bodily merchandise, it’s largely used relying on the price the corporate must bear to get the product to the shoppers in several geographical areas. However within the context of digital merchandise, since there’s just about no transportation value, the pricing is determined by the disparity in components just like the economic system and wages of the shoppers.

Instance of Geographic Pricing Technique – Fruits

Everyone knows that the costs of fruits differ loads in several geographies. For instance, apples shall be priced decrease in larger altitude areas as in comparison with the plains or coastal areas. And this state of affairs would be the actual reverse within the case of coconuts. There might be many causes for this variation. The price of fruits normally fluctuates primarily based on the next components:
1. Availability of the fruit (relying upon the local weather, cultivability, and many others.)
2. Transportation prices
3. Demand for the fruit in a area

All these components are virtually completely depending on the geography of the area the place fruits are grown and that of the area they’re provided to. Therefore, we see a distinction within the costs of fruits throughout geographies. This distinction relies on the geographic pricing technique.

7. Skimming Pricing Technique

Skimming pricing can also be a kind of product pricing methods that purpose to maintain the value variable. Corporations cost the very best worth for his or her product when it’s launched, after which hold decreasing the value as the recognition of the product decreases over time. This technique can also be extremely prevalent within the pricing of digital services and products, the place the relevance of the merchandise decreases with time. Skimming pricing permits companies to proceed promoting merchandise even after their novelty is lengthy over.

Instance of Skimming Pricing Technique – Gaming Consoles

Each new launch of a gaming console sees a worth larger than the sooner, however it retains happening with time as newer know-how, video games, and options hold coming in. With the launch of the following gaming console, whether or not from the identical model or from the competitors, the value of the prevailing console takes an additional dip. Therefore, a skimming pricing technique is adopted by means of your entire lifecycle of such merchandise.


We hope that the product pricing methods talked about above have given a greater concept about the best way to determine on the pricing of the product. To get intimately information about product pricing methods and numerous different aspects associated to product administration, enrol within the PG Program in Product Administration and Analytics. This system focuses on creating an analytical mindset in its learners, by the advantage of which they are going to have the ability to construct progressive merchandise.



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