Three Ways to Rethink Your Business Pricing Strategy
Pricing is the moment of truth. As marketing expert E. Raymond Corey once said, it’s the single point where every bit of your marketing effort comes into focus. Think of it like a farmer at harvest time. An entire year of labor hinges on that final act of gathering the crops. For a business, pricing is how you harvest the value you’ve painstakingly created. It’s the only way to bring in the revenue that keeps the lights on.
Yet, so many businesses still treat pricing as an afterthought. This is especially risky today, in an environment far tougher than in Corey’s time. Technology and globalization have redrawn industry lines, competition is fiercer than ever, and it’s almost always centered on price. Customers have more information and are savvier about using it. We’ve all become value-shoppers.
It’s easy to feel helpless. How do you negotiate with a customer who knows your cost structure? What’s your move when a competitor is willing to undercut you by 50%? While the challenges are real, the situation is far from hopeless. In fact, businesses today have gained more than they’ve lost. We can now gather and process incredible amounts of consumer data, allowing for deeper customer understanding than ever before. We can personalize offers and create individualized experiences in ways previously unimaginable. This flexibility gives us unprecedented freedom to experiment with pricing. This is vital whether you're building a or . The key is to use these new capabilities in a smart, innovative way.
The experience of countless companies, from tiny startups to global giants, points to three core lessons for getting pricing right.
1. It All Starts With Your Customer
In pricing, just like every other part of marketing, a sharp customer focus is non-negotiable. To be smart about pricing, you first have to know who you’re dealing with. Radiohead’s “pay as you wish” model only worked because they knew their fans were devoted and fair-minded. Muhammad Yunus knew the villagers in Bangladesh were frugal and trustworthy, which is why micro-loans became such a powerful tool for change. A strong is built on this same deep understanding of its clients.
A customer focus also means knowing what people actually value about your product. Once you know what they value, you understand why, which tells you how to create value and communicate it effectively. Donald Trump knew that for a high-end condo, the value wasn’t just the location but the prestige of the neighbors, so he priced units in Trump Tower extraordinarily high to attract the rich and famous. Google understood that what advertisers want is the focused attention of a user at the exact moment of a search, so it lets them bid for keywords.
Finally, you have to pay close attention to customer buying behavior. Understanding how, what, where, and how often they buy can point you toward the perfect pricing mechanism for a long-term relationship. This is essential when or managing a . Amazon’s Subscribe & Save program is a perfect example. By creating a subscription for recurring purchases, it accommodates customer behavior instead of trying to change it. There are countless opportunities to apply this model to other regular purchases, from diapers and cosmetics to gasoline and groceries.
2. One Price Rarely Fits All
One of the most consistent truths in business is that different customers are willing to pay different prices for the exact same thing. It’s true for clothes, plane tickets, software, and just about everything else. Because of this, setting a single price is rarely a smart move. You either leave money on the table from those willing to pay more or lose out on sales from those who can’t meet your price.
A smart manager often keeps three price points in mind: low, medium, and high. This kind of tiered structure ensures you can serve customers with different price sensitivities, helping you build one of the . When the internet first emerged, many predicted it would destroy this kind of differentiated pricing. In reality, technology has created even more opportunities to do it well, making it easier to build .
We’ve seen plenty of innovative examples. “Pay as you wish” lets fans with different budgets pay what they can. Automatic markdown systems charge more to fashion-forward customers who want an item now and less to patient bargain hunters. Priceline’s “name your own price” model allows it to segment even among price-sensitive customers. Targeted pricing takes this to the next level, using customer data to offer different prices at a granular level.
3. Get Creative With
Perhaps the most liberating lesson is that no matter what you sell, there are multiple ways to price it. The publisher of a book, for instance, could sell it for a fixed price. Or they could rent it out, sell it by the chapter, or charge based on the time someone spends reading it online. They could even bundle it into a subscription service. There are dozens of possibilities.
The trick is to choose the pricing metric that ties most closely to the value your customers receive. Making that choice often requires breaking away from long-held industry traditions. This can be intimidating for anyone , but the rewards are significant. Radiohead was rewarded for bypassing industry gatekeepers. Time-sharing models for jets and vacation homes redefined ownership. These innovators weren’t just financially successful; they transformed their industries.
Getting pricing right is ultimately both an art and a science. It’s a mix of deep customer knowledge, good economic intuition, and a healthy dose of street smarts. While a bad pricing metric can destroy value faster than almost anything else, the right one can become the foundation for a successful and enduring .
