Pricing Strategy 101

If you are launching a new product you'll need to set the right price. Learn more about tiered pricing.

When determining the optimal price for a particular product or service, there are many complex factors to consider. These factors include: market conditions, competitor's pricing, pricing models, supply and demand, buying cycles, and much more.

For most marketers, the time and resources needed to do a proper pricing analysis are few and far between. So how can marketers make pricing decisions in a dynamic market with limited or no resources? Often the answer is simple- provide options for your buyer.

Successful companies provide a small variety of pricing levels around different products, product attributes, and services. By offering tiered pricing, you can accommodate different prospects who are interested in your product to varying degrees.

For example, suppose that Widget USA is launching a brand new widget onto the market where there are only two other competitors. We'll call them Competitor A and Competitor B. This new widget is called Widge-o-Matic and comes in a convenient self-carrying case. Other than the carrying case, Widge-o-Matic is similar to the widgets being offered by Competitor A and Competitor B.

Competitor A is offering their widget for $9.95. Competitor B, offers their widget for $8.95. Widget USA decides to roll out a tiered pricing strategy. In technical terms, they are actually using a variety of pricing strategies such as premium pricing, discount pricing, etc. But utilizing a tiered pricing strategy will give them the opportunity to field test all of these pricing models instead of relying on a single hit-or-miss strategy.

Widget USA sells the Widge-o-Matic at the following price points:

Tier 1: Widge-o-Matic with Carrying Case $12.95
Tier 2: Widge-o-Matic w/o Carrying Case $9.95
Tier 3: Widge-o-Matic Basic (batteries not included) $6.95

This tiered pricing strategy allows Widget USA to differentiate their pricing strategy and their product. Over time, Widget USA can experiment in chosen markets by moving tier prices slightly higher or lower and determining the impact on sales. For now however, they have entered the market with various pricing options that will give prospective consumers the flexibility they need to make a purchase and the price points necessary to compete.