The first thing you do when you purchase any product is compare the prices of different products with each other. However, it’s not a simple chore to set if you’re on the opposite side of the negotiation.
Price significantly impacts how clients decide whether to buy from you. You risk losing out on more sales if it is higher than your competitors’. Meanwhile, you may retain sales and maintain your brand’s reputation because consumers sometimes equate a higher price with higher quality. This equity is judging products negatively. However, even if this isn’t always the case, this is nevertheless a widespread belief among individuals.
Our previous article, “Products: The First P in the Marketing Mix,” discussed the first P in the marketing mix: product. This article will explain the second P in the marketing mix, Price, with all its setting strategies and techniques.
Pricing Strategies
There are three pricing techniques or strategies: cost-based, competition-based, and customer-based.
1. Cost-based Pricing
Cost-based pricing is the first strategy. It occurs when you determine how much your company will pay to create that product or provide that service. Besides the cost, you add a profit margin, and you get to decide on that percentage. Depending entirely on how you want to position your product in the market, you can add a huge percentage to make your product premium-priced or a small percentage to make it a value product.
2. Competition-based Pricing
Competition-based pricing is the second pricing strategy. It occurs when you conduct a market analysis, checking how much each competitor charges for similar products. Then, you can decide whether you want to have the same price, less, or more. Again, it relies on your product and the positioning you wish to have in the market.
3. Customer-based Pricing
Customer-based pricing is the third type of pricing strategy. It occurs when you perform market research, ask customers directly, or speak with them in focus groups about how much they are willing to spend for your product, as the customer will ultimately be the one to make the purchase.
According to an intriguing study conducted a few years ago among marketing professionals, most businesses utilise cost-based pricing, with competition-based pricing coming in second. Of course, you can employ multiple pricing strategies for various products, which is entirely up to you. However, you should consider that both internal business considerations and external environmental influences impact pricing decisions.
Value-based Pricing: The Modern Approach
Beyond traditional methods, value-based pricing focuses on the perceived value your product or service delivers to customers. This approach considers features, benefits, brand reputation, and competitive advantages.
Value-based pricing works exceptionally well for digital services where the outcome—increased revenue, improved efficiency, or enhanced brand recognition—far exceeds the service cost.
“Value-based pricing allows agencies to align their success with client outcomes, creating partnerships rather than vendor relationships. When clients see measurable results, price becomes less of a concern than value delivery,” explains Ciaran Connolly, Director of ProfileTree.
Companies can also employ various tactical approaches:
Bundling: Offering multiple services at a discounted rate encourages higher-value purchases whilst simplifying customer decision-making.
Skimming: Launching with premium pricing to capture early adopters, then gradually reducing prices to reach broader markets.
Penetration Pricing: Setting lower initial prices to gain market share, often followed by gradual increases once customer loyalty is established.
B2B and B2C companies require different pricing approaches. B2B transactions typically involve complex negotiations, service contracts, and volume discounts tailored to specific client needs. B2C pricing focuses on individual consumer purchases with more straightforward pricing structures.
Internal Business Considerations
Internal business considerations refer to the factors, aspects, and decisions a company or an organisation addresses within its operations and structure. These considerations are often within the company’s control and directly impact its performance, efficiency, and overall success. Here are some of these considerations:
“The biggest mistake I see businesses make is focusing solely on cost rather than value creation. When we work with clients on their marketing mix strategy, we always start with understanding their business goals first, then align pricing models that reflect the value we’re delivering. Price isn’t just a number—it’s a strategic tool communicating your market position,” explains Ciaran Connolly, Director of ProfileTree.
2. Financial Factors
Understanding cost structures is fundamental to effective pricing. Fixed costs remain constant regardless of production or service delivery volume, whilst variable costs fluctuate with activity levels.
Digital agencies face unique cost considerations:
Staff salaries and benefits (typically the most significant expense)
Management must understand how costs change with different client loads and service volumes. As fixed costs are spread across more clients, the per-client cost decreases, allowing for more competitive pricing or improved margins.
3. Organisational Factors
Pricing responsibility varies significantly between organisations. Small businesses often centralise pricing decisions with senior management, whilst larger corporations may delegate pricing authority to divisional managers or product specialists.
In digital agencies, pricing decisions might involve:
Finance teams are calculating profitability thresholds
Industrial markets often permit salespeople to negotiate within predetermined ranges, whilst consumer markets typically maintain fixed pricing structures.
Large corporations in pricing-sensitive industries may establish dedicated pricing departments reporting to senior management or marketing divisions. These teams analyse market conditions, competitive responses, and profitability implications of pricing decisions.
External Environmental Influences
External environmental influences are the factors, conditions, and events outside an organisation that significantly impact its operations, performance, and decision-making. These influences are often beyond the organisation’s control but must be considered when planning, strategising, and managing operations. Here are some of them:
1. Supply and Demand
A critical factor in pricing decisions is the link between price and demand since it establishes the maximum value for a good or service compared to its advantages. Pure, monopolistic, and oligopolistic competition have particular pricing techniques, so different market types bring varied pricing issues.
Pricing decisions are heavily influenced by how consumers perceive value and cost. Effective buyer-oriented pricing requires knowing how much value customers place on the advantages they receive from the product and determining a price that corresponds to this value.
Customers will ultimately decide whether a product’s price is appropriate. Companies frequently need help to quantify the values consumers associate with their products, yet they do so to assess a product’s pricing.
The demand curve displays how many units consumers purchase over a specific period at various possible prices. Demand and price typically have an inverse relationship, meaning that the greater the cost, the lower the demand. Occasionally, the demand curve can slope upward for prestigious goods because buyers believe more expensive items are of higher quality.
Marketers also need to understand price elasticity, which is the degree to which demand will respond to changes in price. Demand is elastic if it changes significantly with a slight fee change, whereas it is inelastic if it barely varies. Thus, firms must understand the link between supply and demand to set fair fees.
2. Competitors’ Prices
Additional external factors influencing the company’s pricing decisions are expenses, prices, and potential competitive responses to the company’s pricing adjustments. The business must consider other aspects of its surrounding environment when choosing prices.
The state of the economy might significantly impact the company’s pricing strategy. Economic factors like booms, busts, inflation, and interest rates impact pricing decisions because they affect both production expenses and how consumers perceive the price and value of a product.
The business must also consider how its prices may affect other parties in its environment and how retailers will respond to different prices. Companies should set prices that allow resellers to make a reasonable profit, promote their support, and aid them in successfully selling the product.
Other significant external factors that affect price decisions are the government and social considerations. A company’s short-term ambitions for sales, market share, and profit may need to be balanced by broader societal issues when determining prices.
Price Adjustment Techniques
Companies typically modify their base prices to reflect the varied consumer variations and shifting circumstances. In the following lines, we list six techniques: psychological, segmentation, discount, allowance, geographical, and international.
1. Psychological Pricing
Many customers evaluate quality based on price. When customers assess a product’s quality or rely on prior usage, they use quality judgment more than the cost. However, when consumers cannot evaluate quality because they lack the knowledge or expertise, the price has great significance, becoming a quality signal.
Reference pricing, which refers to costs consumers hold in their minds and use while considering a particular product, is a component of psychological pricing. It may be established by noting current prices, recalling previous ones, or analysing the purchasing environment. So, sellers can impact or use these customers’ reference prices when pricing their products.
For instance, a business might place its product next to more expensive ones to suggest it is in the same category. Women’s clothing is frequently sold in several categories in department stores, each with a different price range, because consumers believe the clothes in the more expensive section are of higher quality.
Companies can also affect consumers’ reference prices by quoting high manufacturers’ suggested pricing, noting that the item was previously considerably more expensive, or mentioning a competitor’s product that is being sold at a higher price.
2. Segmentation Pricing
Despite variances in costs, corporations use segmented pricing to offer a range of rates for their goods and services. A product can be priced based on various factors, including client segmentation, product form, location, and time.
Competitors should not undersell the products in the section when they are being charged a higher price, and the market must be segmented with varying demand levels.
Segmenting must also be legitimate and consider actual variations of how customers perceive value. However, it must avoid creating anger or badwill among customers.
3. Discount
Businesses frequently offer discounts and reductions to customers as a reward for behaviours like on-time bill payments, bulk purchases, and off-season shopping.
Cash discounts are available to customers who pay their invoices on time, whereas quantity discounts are offered to customers who purchase large quantities. Trade channel participants who execute particular tasks are given functional discounts, whereas customers who buy goods or services out of season are given seasonal discounts.
These price changes enhance the seller’s cash flow, lower bad debts, and preserve production stability. These reductions are typical in many businesses and are necessary to keep customers happy.
4. Allowance Pricing
Another way to lower the stated price is through allowances. Trade-in allowances are discounts for exchanging an old item when purchasing a new one. Although they are also granted for other durable products, trade-in allowances are most frequently given in the automotive industry.
Promotional allowances are payments or price reductions given to dealers in exchange for their participation in marketing and sales support initiatives.
5. Geographical Pricing
A business must also choose how to value its goods for buyers in various places. The Free On Board (FOB) pricing proponents contend that it is just the price of goods or services at the frontier of the exporting country or the one provided to a non-resident. This means drawbacks include high expenses for faraway clients.
Under uniform-delivered pricing, which is simple to operate and available nationwide, all consumers pay the same amount for goods. Between uniform-delivered pricing and FOB-origin pricing is zone pricing, meaning all customers within a defined region are charged the same price.
Basepoint pricing eliminates price rivalry by charging customers the shipping fees from a particular city to their location. For flexibility, some businesses establish numerous branch sites. Freight absorption pricing absorbs all or a portion of freight costs to attract customers, enabling the company to retain average expenses and remain competitive in increasingly competitive industries.
6. International Pricing
International businesses must also base the pricing they charge for their goods on many variables, including the economy, competition, laws, regulations, consumer preferences, and marketing goals.
Costs are a significant factor in determining international prices, as travellers may discover less expensive goods in other nations with higher expenses. It may be caused by the increased selling expenses in foreign markets, such as those associated with product modification, shipping, insurance, import duties, exchange rate fluctuation, and physical distribution costs.
Examples of a Brand Using Pricing to Support its Marketing Efforts
Value-based pricing and additional pricing strategies come alive when applied to real-world scenarios. Let’s explore how well-known brands leverage these approaches and explore some B2B vs. B2C pricing considerations.
Value-based pricing
Rolex: This luxury watch brand exemplifies value-based pricing. While the production cost of a Rolex is significant, the price also reflects the brand’s heritage, craftsmanship, prestige, and status symbol association. Customers pay a premium for the perceived value and exclusivity that a Rolex represents.
Bundling: Microsoft Office offers a bundled subscription that includes various software programs like Word, Excel, and PowerPoint at a lower cost than purchasing them individually. This incentivises customers to buy the entire suite rather than specific programs.
Skimming: Apple is known for skimming with new iPhone releases. The initial launch price is high, targeting early adopters who value having the latest technology. Later, Apple often lowered the cost of reaching a broader customer base.
Penetration Pricing: Many streaming services, like Netflix or Disney+, initially offered low introductory pricing to gain subscribers and establish a user base. They might gradually increase subscription fees after securing a critical mass of users.
B2B vs. B2C considerations
B2B (GE Healthcare): General Electric negotiates complex service contracts with hospitals for their medical equipment. Pricing considers specific equipment, maintenance needs, and volume discounts for bulk purchases.
B2C (Amazon): Amazon employs dynamic pricing, frequently adjusting prices based on real-time factors like competitor offerings, product demand, and customer behaviour. This approach is more common in B2C settings where individual consumer purchases are the focus.
Additional Considerations
Psychological Pricing: Many retailers use this tactic. For example, pricing an item at $9.99 instead of $10 creates a perception of a lower price point.
Loss Leaders: Grocery stores might sell certain items at a loss to attract customers who will likely purchase other higher-margin products.
Measuring Pricing Success: ROI and Performance Metrics
Effective pricing strategies must be measurable. Return on Investment (ROI) provides the most unambiguous indication of whether your pricing decisions drive business success.
Digital agencies and professional service providers face unique ROI measurement challenges:
Intangible Benefits: Services often deliver value that’s difficult to quantify immediately, such as improved brand recognition, better search rankings, or enhanced customer relationships.
Long-term Value Creation: Many digital marketing efforts compound over time, potentially misleading short-term ROI calculations.
Client Success Metrics: For agencies, ROI often depends on client success rather than internal metrics alone. Successful client outcomes lead to retention, referrals, and premium pricing opportunities.
Investment Recovery Periods: Understanding how long it takes different pricing strategies to generate positive returns helps inform pricing decisions and client expectations.
Conclusion
Price is a critical element of the marketing mix that influences how customers purchase from a business. It is essential to compare pricing tactics and techniques to ensure the company’s prices are reasonable and in line with customers’ expectations. There are three primary pricing techniques: cost-based, competition-based, and customer-based.
Internal business considerations include marketing objectives, monetary concerns, organisational issues, and environmental influences. Companies should set prices to achieve marketing objectives such as maximising short-term earnings, retaining market share domination, and setting the bar for product quality. Fixed and variable costs are also financial elements that impact pricing at various output levels.
Ready to Apply Strategic Pricing to Your Digital Marketing?
Understanding pricing theory is one thing—implementing it effectively is another. At ProfileTree, we don’t just talk about value-based pricing; we live it. Our digital marketing strategies are designed to deliver measurable results that justify every pound invested.
Whether you need SEO to drive qualified traffic, web design to convert visitors into customers, or AI training to transform your business operations, we align our pricing with the value we create for your business.
Our Value-Driven Services Include
Strategic Web Design – Websites that communicate your value and convert at higher rates
Professional Video Production – Content that demonstrates your expertise and justifies premium pricing
Content Creation & Strategy – Messaging that reinforces your value proposition across all channels
AI Implementation & Training – Smart tools for pricing analysis, customer insights, and operational efficiency
SEO & Local SEO – Visibility strategies that position you as the premium choice in your market
Digital Training & Workshops – Empower your team with pricing psychology and digital marketing skills
Get started with a free digital strategy consultation where we’ll:
Show you exactly how our services deliver measurable ROI
Don’t leave your digital success to chance. Contact ProfileTree today and discover how strategic pricing and expert digital marketing can accelerate your business growth.
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