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112 Pricing Strategy Essay Topic Ideas & Examples

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Pricing strategy is a crucial aspect of any business, as it directly impacts the profitability and success of a company. Choosing the right pricing strategy can help a business attract customers, increase sales, and stay ahead of the competition. However, coming up with pricing strategies can be challenging, as it requires a deep understanding of market dynamics, consumer behavior, and competitive landscape.

To help you get started on your pricing strategy essay, we have compiled a list of 112 pricing strategy essay topic ideas and examples. Whether you are a student studying business, marketing, or economics, or a business owner looking to refine your pricing strategy, these topics will provide you with valuable insights and inspiration.

• The role of pricing strategy in business success
• Pricing strategies for new product launches
• Psychological pricing techniques and their impact on consumer behavior
• Dynamic pricing: How companies adjust prices in real-time
• Price skimming vs. penetration pricing: Which strategy is more effective?
• The importance of value-based pricing in today's competitive market
• Freemium pricing model: Pros and cons for businesses
• Subscription pricing models: How companies can create recurring revenue streams
• Price discrimination: Is it ethical for businesses to charge different prices to different customers?
• Competitive pricing strategies: How to position your product in a crowded market
• The role of pricing in brand positioning and differentiation
• Pricing strategies for luxury brands: How to maintain exclusivity while maximizing profits
• The impact of pricing on customer loyalty and retention
• The role of discounts and promotions in pricing strategy
• Price bundling: How companies can increase sales and margins through package deals
• The pricing strategies of e-commerce giants like Amazon and Alibaba
• The impact of inflation on pricing strategy
• How to set prices for a new business: Tips for startups
• The pricing strategies of successful companies like Apple, Nike, and Starbucks
• The role of price transparency in consumer decision-making
• Pricing strategies for international markets: How to adapt to different cultural norms and economic conditions
• The impact of pricing on profitability: How to calculate and optimize profit margins
• The role of pricing in supply chain management
• The impact of pricing on customer satisfaction and brand perception
• How to conduct pricing research and analysis to inform pricing decisions
• The pricing strategies of disruptor brands like Uber and Airbnb
• How to use pricing to drive sales and achieve business goals
• The impact of price wars on industry dynamics and profitability
• Dynamic pricing in the travel and hospitality industry: How companies adjust prices based on demand
• The impact of pricing on customer lifetime value and long-term profitability
• How to use pricing as a tool for market segmentation and targeting
• The role of pricing in product positioning and market positioning
• The impact of pricing on customer acquisition and retention costs
• How to optimize pricing for different distribution channels and sales channels
• The role of pricing in revenue management and yield management
• Pricing strategies for service-based businesses: How to price intangible products
• The impact of pricing on business growth and scalability
• The role of pricing in pricing wars and competitive strategy
• How to use pricing as a tool for pricing optimization and revenue optimization
• The impact of pricing on customer satisfaction and customer loyalty
• How to use pricing as a tool for pricing strategy and pricing tactics
• The role of pricing in pricing strategy and pricing models
• The impact of pricing on pricing psychology and pricing perception
• How to use pricing as a tool for pricing strategy and pricing analysis
• The role of pricing in pricing strategy and pricing decisions
• The impact of pricing on pricing strategy and pricing implementation
• The role of pricing in pricing strategy and pricing tactics
• The impact of pricing on pricing strategy and pricing psychology

We hope these pricing strategy essay topic ideas and examples have inspired you to explore this important aspect of business further. Whether you are a student looking to write a research paper or an entrepreneur looking to refine your pricing strategy, these topics will provide you with valuable insights and perspectives. Good luck with your essay writing!

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The Ultimate Guide to Pricing Strategies & Models

Discover how to properly price your products, services, or events so you can drive both revenue and profit.

FREE SALES PRICING CALCULATOR

Determine the best pricing strategy for your business with this free calculator and template.

Pricing your products and services can be tough. Set prices too high, and you miss out on valuable sales. Set them too low, and you miss out on valuable revenue.

Thankfully, pricing doesn’t have to be a sacrifice or a shot in the dark. There are dozens of pricing models and strategies that can help you better understand how to set the right prices for your audience and revenue goals.

That’s why we’ve created this guide.

Whether you’re a business beginner or a pricing pro, the tactics and strategies in this guide will get you comfortable with pricing your products. Bookmark this guide for later and use the chapter links to jump around to sections of interest.

Pricing Strategy

Types of pricing strategies, how to create a pricing strategy, pricing models based on industry or business.

Conducting a Pricing Analysis

Pricing Strategy Examples

A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand.

If only pricing was as simple as its definition — there’s a lot that goes into the process.

Pricing strategies account for many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.

It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS) , consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy.

The best pricing strategy maximizes your profit and revenue.

Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use.

Free Sales Pricing Strategy Calculator

• Cost-Plus Pricing
• Skimming Strategy
• Value-Based Pricing

You're all set!

Click this link to access this resource at any time.

Determine the Best Pricing Strategy For Your Business

Fill out this form to access the free template., price elasticity of demand.

Price elasticity of demand is used to determine how a change in price affects consumer demand.

If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic .

On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets).

You can calculate price elasticity using the formula:

% Change in Quantity ÷ % Change in Price = Price Elasticity of Demand

The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate.

Cost, Margin, & Markup in Pricing

To choose a pricing strategy, it’s also essential to understand the role of cost, margin, and markup — especially if you’d like your pricing to be cost-based . Let’s dive into the definition for each.

Cost refers to the fees you incur from manufacturing, sourcing, or creating the product you sell. That includes the materials themselves, the cost of labor, the fees paid to suppliers, and even the losses. Cost doesn’t include overhead and operational expenses such as marketing, advertising, maintenance, or bills.

Margin (in this case, gross margin) refers to the amount your business earns after you subtract manufacturing costs.

Markup refers to the additional amount you charge for your product over the production and manufacturing fees.

Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services.

• Competition-Based Pricing
• Dynamic Pricing
• High-Low Pricing
• Penetration Pricing
• Skimming Pricing
• Psychological Pricing
• Geographic Pricing

Now, let's dive into the descriptions of each pricing strategy — many of which are included in the template below — so you can learn about what makes each of them unique.

Discover how much your business can earn using different pricing strategies with HubSpot's free sales pricing calculator so you can choose the best pricing model for your business.

Download Template

1. competition-based pricing strategy.

Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate ) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand.

Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers.

With competition-based pricing , you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software , and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers.

Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic.

Competition-Based Pricing Strategy in Marketing

Consumers are primarily looking for the best value which isn’t always the same as the lowest price. Pricing your products and services competitively in the market can put your brand in a better position to win a customer’s business. Competitive pricing works especially well when your business offers something the competition doesn’t — like exceptional customer service, a generous return policy, or access to exclusive loyalty benefits .

2. Cost-Plus Pricing Strategy

A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS . It’s also known as markup pricing since businesses who use this strategy “markup” their products based on how much they’d like to profit.

To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%.

Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them.

Cost-Plus Pricing Strategy in Marketing

Cost-plus pricing works well when the competition is pricing using the same model. It won’t help you attract new customers if your competition is working to acquire customers rather than growing profits. Before executing this strategy, complete a pricing analysis that includes your closest competitors to make sure this strategy will help you meet your goals.

3. Dynamic Pricing Strategy

Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand.

Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase.

Dynamic Pricing Strategy in Marketing

Dynamic pricing can help keep your marketing plans on track. Your team can plan for promotions in advance and configure the pricing algorithm you use to launch the promotion price at the perfect time. You can even A/B test dynamic pricing in real-time to maximize your profits.

4. High-Low Pricing Strategy

A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy.

High-low pricing is commonly used by retail firms that sell seasonal items or products that change often, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular.

High-Low Pricing Strategy in Marketing

If you want to keep the foot traffic steady in your stores year-round, a high-low pricing strategy can help. By evaluating the popularity of your products during particular periods throughout the year, you can leverage low pricing to increase sales during traditionally slow months.

5. Penetration Pricing Strategy

Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time.

This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices.

(Another tangential strategy is loss leader pricing , where retailers attract customers with intentionally low-priced items in hopes that they’ll buy other, higher-priced products, too. This is precisely how stores like Target get you — and me.)

Penetration Pricing Strategy in Marketing

Penetration pricing has similar implications as freemium pricing — the money won’t come in overnight. But with enough value and a great product or service, you could continue to make money and scale your business as you increase prices. One tip for this pricing strategy is to market the value of the products you sell and let price be a secondary point.

6. Skimming Pricing Strategy

A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different from high-low pricing in that prices are lowered gradually over time.

Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered.

Skimming Pricing Strategy in Marketing

Skimming pricing strategy can work well if you sell products that have products with varying life cycle lengths. One product may come in and out of popularity quickly so you have a short time to skim your profits in the beginning stages of the life cycle. On the flip side, a product that has a longer life cycle can stay at a higher price for more time. You’ll be able to maintain your marketing efforts for each product more effectively without constantly adjusting your pricing across every product you sell.

7. Value-Based Pricing Strategy

A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if it can charge more for a product, the company decides to set its prices based on customer interest and data.

If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service.

On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices based on those differences.

Value-Based Pricing Strategy in Marketing

Marketing to your customers should always lead with value, so having a value-based pricing model should help strengthen the demand for your products and services. Just be sure that your audiences are distinct enough in what they’re willing to pay for — you don’t want to run into trouble by charging more or less based on off-limits criteria .

8. Psychological Pricing Strategy

Psychological pricing is what it sounds like — it targets human psychology to boost your sales.

For example, according to the " 9-digit effect ", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price.

Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling . Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on.

And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales.

Psychological Pricing Strategy in Marketing

Psychological pricing strategy requires an intimate understanding of your target market to yield the best results. If your customers are inclined to discounts and coupons, appealing to this desire through your marketing can help this product meet their psychological need to save money. If paying for quality is important to your audience, having the lowest price on the shelf might not help you reach your sales goals. Regardless of the motivations your customers have for paying a certain price for a product, your pricing and marketing should appeal to those motivations.

9. Geographic Pricing Strategy

Geographic pricing is when products or services are priced differently depending on geographical location or market.

This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to).

Geographic Pricing Strategy in Marketing

Marketing a geographically priced product or service is easy thanks to paid social media advertising. Segmenting by zip code, city, or even region can be accomplished at a low cost with accurate results. Even as specific customers travel or permanently move, your pricing model will remain the same which helps you maintain your marketing costs.

Download our free guide to creating buyer personas to easily organize your audience segments and make your marketing stronger.

Like we said above, these strategies aren’t necessarily meant to stand alone. We encourage you to mix and match these methods as needed.

Below, we cover more specific pricing models for individual products.

Pricing Models

While your pricing strategy may determine how your company sets fees for its offerings overall , the below pricing models can help you set prices for specific product lines. Let's take a look.

1. Freemium

A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features.

Unlike cost-plus, freemium is a pricing model commonly used by SaaS and other software companies. They choose this model because free trials and limited memberships offer a peek into a software’s full functionality — and also build trust with a potential customer before purchase.

With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits.

Freemium Pricing in Marketing

Freemium pricing may not make your business a lot of money on the initial acquisition of a customer, but it gives you access to the customer which is just as valuable. With access to their email inboxes, phone number, and any other contact information you gather in exchange for the free product, you can nurture the customer into a brand loyal advocate with a worthwhile LTV .

2. Premium Pricing

Also known as prestige pricing and luxury pricing, a premium pricing model is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.

Prestige pricing is a direct function of brand awareness and brand perception. Brands that apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this model because they can be marketed as luxurious, exclusive, and rare.

Premium Pricing in Marketing

Premium pricing is quite dependent upon the perception of your product within the market. There are a few ways to market your product in order to influence a premium perception of it including using influencers, controlling supply, and driving up demand.

3. Hourly Pricing

Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency.

Hourly Pricing in Marketing

If your business thrives on quick, high-volume projects, hourly pricing can be just the incentive for customers to work with you. By breaking down your prices into hourly chunks, customers can make the decision to work with you based on a low price point rather than finding room in their budget for an expensive project-based commitment.

4. Bundle Pricing

Bundle pricing is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products.

This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster.

Bundle Pricing in Marketing

Marketing bundle deals can help you sell more products than you would otherwise sell individually. It’s a smart way to upsell and cross-sell your offerings in a way that is beneficial for the customer and your revenue goals.

5. Project-Based Pricing

Project-based pricing is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services.

Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing model may also create a flat fee from the estimated time of the project.

Project-Based Pricing in Marketing

Leading with the benefits a customer will derive from working with your business on a project can make project-based pricing more appealing. Although the cost of the project may be steep, the one-time investment can be worth it. Your clients will know that they’ll be able to work with you until the project is completed rather than until their allotted hours are depleted.

6. Subscription Pricing

Subscription pricing is a common pricing model at SaaS companies, online retailers, and even agencies who offer subscription packages for their services.

Whether you offer flat rate subscriptions or tiered subscriptions, the benefits of this model are endless. For one, you have all but guaranteed monthly recurring revenue (MRR) and yearly recurring revenue. That makes it simpler to calculate your profits on a monthly basis. It also often leads to higher customer lifetime values .

The one thing to be wary of when it comes to subscription pricing is the high potential for customer churn . People cancel subscriptions all the time, so it's essential to have a customer retention strategy in place to ensure clients keep their subscriptions active.

Subscription Pricing in Marketing

When marketing your subscription products, it's essential to create buyer personas for each tier. That way, you know which features to include and what will appeal to each buyer. A general subscription that appeals to everyone won't pull in anyone.

Even Amazon, which offers flat-rate pricing for its Prime subscription, includes a membership for students. That allows them to market the original Prime more effectively by creating a sense of differentiation.

Now, let’s discuss how to build a pricing strategy of your own liking.

1. Evaluate pricing potential.

You want to make a strategy that is optimal for your unique business. To begin, you need to evaluate your pricing potential. This is the approximate product or service pricing your business can potentially achieve in regard to cost, demand, and more.

Some factors that can affect your pricing potential include:

• Geographical market specifics
• Operating costs
• Inventories
• Demand fluctuations
• Competitive advantages and concerns
• Demographic data

We’ll dive deeper into demographic data in the next step.

2. Determine your buyer personas.

You have to price your product on the type of buyer persona that’s looking for it. When you look at your ideal customer, you’ll have to look at their:

• Customer Lifetime Value
• Willingness to Pay
• Customer Pain Points

To aid in this process, interview customers and prospects to see what they do and like, and ask for your sales team’s feedback on the best leads and their characteristics.

3. Analyze historical data.

Take a look at your previous pricing strategies. You can calculate the difference in closed deals, churn data , or sold product on different pricing strategies that your business has worked with before and look at which were the most successful.

4. Strike a balance between value and business goals.

When developing your pricing strategy, you want to make sure the price is good to your bottom line and your buyer personas. This compromise will better help your business and customer pool, with the intentions of:

• Increasing profitability
• Improving cash flow
• Market penetration
• Expanding market share

5. Look at competitor pricing.

You can’t make a pricing strategy without conducting research on your competitors’ offerings. You’ll have to decide between two main choices when you see the price difference for your same product or service:

• Beat your competitors’ price - If a competitor is charging more for the same offering as your brand, then make the price more affordable.
• Beat your competitors’ value - Also known as value-based pricing , you can potentially price your offering higher than your competitors if the value provided to the customer is greater.

To see the competition’s full product or service offering, conduct a full competitive analysis so you can see their strengths and weaknesses, and make your pricing strategy accordingly.

So we’ve gone over how to create a pricing strategy, now let’s discuss how to apply these steps to different businesses and industries.

Not every pricing strategy is applicable to every business. Some strategies are better suited for physical products whereas others work best for SaaS companies. Here are examples of some common pricing models based on industry and business.

Product Pricing Model

Unlike digital products or services, physical products incur hard costs (like shipping, production, and storage) that can influence pricing. A product pricing strategy should consider these costs and set a price that maximizes profit, supports research and development, and stands up against competitors.

👉🏼 We recommend these pricing strategies when pricing physical products : cost-plus pricing, competitive pricing, prestige pricing, and value-based pricing.

Digital Product Pricing Model

Digital products, like software, online courses, and digital books, require a different approach to pricing because there’s no tangible offering or unit economics (production cost) involved. Instead, prices should reflect your brand, industry, and overall value of your product.

👉🏼 We recommend using these pricing strategies when pricing digital products: competition-based pricing, freemium pricing, and value-based pricing.

Restaurant Pricing Model

Restaurant pricing is unique in that physical costs, overhead costs, and service costs are all involved. You must also consider your customer base, overall market trends for your location and cuisine, and the cost of food — as all of these can fluctuate.

👉🏼 We recommend using these pricing strategies when pricing at restaurants: cost-plus pricing, premium pricing, and value-based pricing.

Event Pricing Model

Events can’t be accurately measured by production cost (not unlike the digital products we discussed above). Instead, event value is determined by the cost of marketing and organizing the event as well as the speakers, entertainers, networking, and the overall experience — and the ticket prices should reflect these factors.

👉🏼 We recommend using these pricing strategies when pricing live events: competition-based pricing, dynamic pricing, and value-based pricing.

Services Pricing Model

Business services can be hard to price due to their intangibility and lack of direct production cost. Much of the service value comes from the service provider’s ability to deliver and the assumed caliber of their work. Freelancers and contractors , in particular, must adhere to a services pricing strategy.

👉🏼 We recommend using these pricing strategies when pricing services: hourly pricing, project-based pricing, and value-based pricing.

Nonprofit Pricing Model

Nonprofits need pricing strategies, too — a pricing strategy can help nonprofits optimize all processes so they’re successful over an extended period of time.

A nonprofit pricing strategy should consider current spending and expenses, the breakeven number for their operation, ideal profit margin, and how the strategy will be communicated to volunteers, licensees, and anyone else who needs to be informed. A nonprofit pricing strategy is unique because it often calls for a combination of elements that come from a few pricing strategies.

👉🏼 We recommend using these pricing strategies when pricing nonprofits: competitive pricing, cost-plus pricing, demand pricing, and hourly pricing.

Education Pricing Model

Education encompasses a wide range of costs that are important to consider depending on the level of education, private or public education, and education program/ discipline.

Specific costs to consider in an education pricing strategy are tuition, scholarships, additional fees (labs, books, housing, meals, etc.). Other important factors to note are competition among similar schools, demand (number of student applications), number and costs of professors/ teachers, and attendance rates.

👉🏼 We recommend using these pricing strategies when pricing education: competitive pricing, cost-based pricing, and premium pricing.

Real Estate Pricing Model

Real estate encompasses home value estimates, market competition, housing demand, and cost of living. There are other factors that play a role in real estate pricing models including potential bidding wars, housing estimates and benchmarks (which are available through real estate agents but also through free online resources like Zillow ), and seasonal shifts in the real estate market.

👉🏼 We recommend using these pricing strategies when pricing real estate: competitive pricing, dynamic pricing, premium pricing, and value-based pricing.

Agency Pricing Model

Agency pricing models impact your profitability, retention rates, customer happiness, and how you market and sell your agency. When developing and evolving your agency’s pricing model, it’s important to take into consideration different ways to optimize it so you can determine the best way to boost the business's profits.

👉🏼 We recommend using these pricing strategies when pricing agencies: hourly pricing, project-based pricing, and value-based pricing.

Manufacturing Pricing Model

The manufacturing industry is complex — there are a number of moving parts and your manufacturing pricing model is no different. Consider product evolution, demand, production cost, sale price, unit sales volume, and any other costs related to your process and product. Another key part to a manufacturing pricing strategy is understanding the maximum amount the market will pay for your specific product to allow for the greatest profit.

👉🏼 We recommend using these pricing strategies when pricing manufacturing: competitive pricing, cost-plus pricing, and value-based pricing.

Ecommerce Pricing Model

Ecommerce pricing models are how you determine the price at which you’ll sell your online products and what it'll cost you to do so. Meaning, you must think about what your customers are willing to pay for your online products and what those products cost you to purchase and/or create. You might also factor in your online campaigns to promote these products as well as how easy it is for your customers to find similar products to yours on the ecommerce sites of your competitors.

👉🏼 We recommend using these pricing strategies when pricing ecommerce: competitive pricing, cost-based pricing, dynamic pricing, freemium pricing, penetration pricing, and value-based pricing.

Pricing Analysis

Pricing analysis is a process of evaluating your current pricing strategy against market demand. Generally, pricing analysis examines price independently of cost. The goal of a pricing analysis is to identify opportunities for pricing changes and improvements.

You typically conduct a pricing analysis when considering new product ideas, developing your positioning strategy, or running marketing tests. It's also wise to run a price analysis once every year or two to evaluate your pricing against competitors and consumer expectations — doing so preemptively avoids having to wait for poor product performance.

How to Conduct a Pricing Analysis

1. determine the true cost of your product or service..

To calculate the true cost of a product or service that you sell, you’ll want to recognize all of your expenses including both fixed and variable costs. Once you’ve determined these costs, subtract them from the price you’ve already set or plan to set for your product or service.

2. Understand how your target market and customer base respond to the pricing structure.

Surveys, focus groups, or questionnaires can be helpful in determining how the market responds to your pricing model. You’ll get a glimpse into what your target customers value and how much they’re willing to pay for the value your product or service provides.

3. Analyze the prices set by your competitors.

There are two types of competitors to consider when conducting a pricing analysis: direct and indirect.

Direct competitors are those who sell the exact same product that you sell. These types of competitors are likely to compete on price so they should be a priority to review in your pricing analysis.

Indirect competitors are those who sell alternative products that are comparable to what you sell. If a customer is looking for your product, but it’s out of stock or it’s out of their price range, they may go to an indirect competitor to get a similar product.

4. Review any legal or ethical constraints to cost and price.

There’s a fine line between competing on price and falling into legal and ethical trouble. You’ll want to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis in order to steer clear of these practices.

Analyzing your current pricing model is necessary to determine a new (and better!) pricing strategy. This applies whether you're developing a new product, upgrading your current one, or simply repositioning your marketing strategy.

Next, let’s look at some examples of pricing strategies that you can use for your own business.

Dynamic Pricing Strategy: Chicago Cubs Freemium Pricing Strategy: HubSpot Penetration Pricing Strategy: Netflix Premium Pricing: AWAY Competitive Pricing Strategy: Shopify Project-Based Pricing Strategy: Courtney Samuel Events Value-Based Pricing Strategy: INBOUND Bundle Pricing: State Farm Geographic Pricing: Gasoline

Pricing models can be hard to visualize. Below, we’ve pulled together a list of examples of pricing strategies as they’ve been applied to everyday situations or businesses.

1. Dynamic Pricing Strategy: Chicago Cubs

I live in Chicago five blocks away from Wrigley Field, and my friends and I love going to Cubs games. Finding tickets is always interesting, though, because every time we check prices, they’ve fluctuated a bit from the last time. Purchasing tickets six weeks in advance is always a different process than purchasing them six days prior — and even more sox pricing at the gate.

This is an example of dynamic pricing — pricing that varies based on market and customer demand. Prices for Cubs games are always more expensive on holidays, too, when more people are visiting the city and are likely to go to a game.

(Another prime example of dynamic pricing is INBOUND , for which tickets get more expensive as the event nears.)

2. Freemium Pricing Strategy: HubSpot

HubSpot is an example of freemium pricing at work. There's a free version of the CRM for scaling businesses as well as paid plans for the businesses using the CRM platform that need a wider range of features .

Moreover, within those marketing tools, HubSpot provides limited access to specific features. This type of pricing strategy allows customers to acquaint themselves with HubSpot and for HubSpot to establish trust with customers before asking them to pay for additional access.

3. Penetration Pricing Strategy: Netflix

Netflix is a classic example of penetration pricing : entering the market at a low price (does anyone remember when it was $7.99?) and increasing prices over time. Since I joined a couple of years ago, I’ve seen a few price increase notices come through my own inbox.

Despite their increases, Netflix continues to retain — and gain — customers. Sure, Netflix only increases their subscription fee by $1 or $2 each time, but they do so consistently. Who knows what the fees will be in five or ten years?

4. Premium Pricing: AWAY

There are lots of examples of premium pricing strategies … Rolex, Tesla, Nike — you name it. One that I thought of immediately was AWAY luggage .

Does luggage need to be almost $500? I’d say no, especially since I recently purchased a two-piece Samsonite set for one-third the cost. However, AWAY has still been very successful even though they charge a high price for their luggage. This is because when you purchase AWAY, you’re purchasing an experience. The unique branding and the image AWAY portrays for customers make the value of the luggage match the purchase price.

5. Competitive Pricing Strategy: Shopify

Shopify is an ecommerce platform that helps businesses manage their stores and sell their products online. Shopify — which integrates with HubSpot — has a competitive pricing strategy.

There are a number of ecommerce software options on the market today — Shopify differentiates itself by the features they provide users and the price at which they offer them. They have three thoughtfully-priced versions of their product for customers to choose from with a number of customizable and flexible features.

With these extensive options tailored to any ecommerce business' needs, the cost of Shopify is highly competitive and is often the same as or lower than other ecommerce platforms on the market today.

6. Project-Based Pricing Strategy: Courtney Samuel Events

Anyone who's planned a wedding knows how costly they can be. I'm in the midst of planning my own, and I've found that the bundled, project-based fees are the easiest to manage. For example, my wedding coordinator Courtney charges one flat fee for her services. This pricing approach focuses on the value of the outcome (e.g., an organized and stressless wedding day) instead of the value of the time spent on calls, projects, or meetings.

Because vendors like Courtney typically deliver a variety of services — wedding planning, day-of coordination, physical meetings, etc. — in addition to spending time answering questions and providing thoughtful suggestions, a project-based fee better captures the value of her work. Project-based pricing is also helpful for clients and companies who'd rather pay a flat fee or monthly retainer than deal with tracked hours or weekly invoices.

7. Value-Based Pricing Strategy: INBOUND

While INBOUND doesn't leave the ultimate ticket price up to its attendees, it does provide a range of tickets from which customers can choose. By offering multiple ticket "levels," customers can choose what experience they want to have based on how they value the event.

INBOUND tickets change with time, however, meaning this pricing strategy could also be considered dynamic (like the Cubs example above). As the INBOUND event gets closer, tickets tend to rise in price.

8. Bundle Pricing: State Farm

State Farm is known for its tongue-in-cheek advertisements and its bundle deals for home and auto insurance. You can receive a quote on one or the other, but getting a quote on both can save you money on your premiums.

State Farm benefits from bundle pricing by selling more policies, and consumers benefit by paying less than they normally would if they used two different insurance providers for home and auto coverage.

9. Geographic Pricing: Gasoline

Gasoline is notorious for having a wide range of prices around the world, but even within the United States, prices can vary by several dollars depending on the state you live in. In California for example, gas prices have consistently hovered around $3 in the summer months for the past 10 years. On the other hand, gas prices in Indiana have been in the $2 range during the same time period. Laws, environmental factors, and production cost all influence the price of gasoline in California which causes the geographic disparity in the cost of the fuel.

Get Your Pricing Strategy Right

Thinking about everything that goes into pricing can make your head spin: competitors, production costs, customer demand, industry needs, profit margins … the list is endless. Thankfully, you don’t have to master all of these factors at once.

Simply sit down, calculate some numbers (like your COGS and profit goals), and figure out what’s most important for your business. Start with what you need, and this will help you pinpoint the right kind of pricing strategy to use.

More than anything, though, remember pricing is an iterative process. It’s highly unlikely that you’ll set the right prices right away — it might take a couple of tries (and lots of research), and that’s OK.

Editor's note: This post was originally published in March 2019 and has been updated for comprehensiveness.

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15 pricing strategies and how to set yours

Hopefully, you enjoy what you do, and that's why you do it. But unfortunately, business isn't just about doing what you love—it's also about making money. And of course, making money means pricing your products or services correctly.

For your business to be sustainable, you'll need a pricing strategy that generates adequate income while also being attractive to customers.

Here's a guide to creating a pricing strategy that will keep your profits moving up and to the right.

What is a pricing strategy?

A pricing strategy is a plan for setting the best price for your products or services. The goal is to set a price that will entice customers to buy, but that isn't so low that you're not making a profit. 

Sure, you could just trial-and-error a bunch of prices until you find the price that maximizes profit without deterring potential customers—and there will probably still be some of that even after you choose a pricing strategy for your business. But you'll spend a lot less time and money starting with a pricing analysis than you will taking a complete shot in the dark.

15 common pricing methods and examples

Your core pricing strategy has to do with what you're selling: a luxury, a bargain, or just a good product for a good price. Once you have that figured out, you'll move on to choosing a pricing method, which is the how of your pricing strategy.

Pricing methods are sort of like plays in a playbook. Your product probably isn't going to switch from being a luxury to a bargain and back again, but you can (and, in some cases, should) switch up the pricing method you're using to better meet your market demands.

Here, we'll look at 15 of the most common pricing methods, plus how and when to use them.

1. Value-based pricing

The first pricing method is probably the one you're most familiar with: value-based pricing. You might think of it as the "default" pricing method since it consists of finding what the customer is willing to pay (the WTP price), making sure it's higher than the cost of production, and setting your price somewhere in between.

If you need to make a price adjustment, you can do so as long as the new price falls within the WTP range. If the new price surpasses this range, you'll need to explore avenues to expand the WTP range. You can do this by incorporating additional value into your product or service to increase the customer's willingness to pay the new price.

Takeaway: Charge what you can without turning off the customer to your product. 

2. Cost-plus pricing

A very similar method to value-based pricing is cost-plus pricing. Instead of basing prices on what the customer is willing to pay, businesses set prices by determining the cost of production and their ideal profit margin. For example, if a product costs $100 to make and a company's target margin is 15%, then the product will sell for $115. 

Cost-plus prices still need to fall within the WTP range, but they're not chosen based specifically on what the customer is willing to pay. If the cost-plus price falls outside the WTP range, the company either needs to adjust its target margin or find a way to lower production costs.

Takeaway: Ensure all costs are covered and don't keep you from reaching your desired profit margin.

3. Competitive pricing

When Norm McLaughlin formulated the pricing model for his business, Norm's Computer Services , he decided that he wanted to be considered competitive but not cheap. That meant his pricing was on par with his peers, but he avoided the use of any terminology like "budget," "cheap," or "cheapest" in his small business's marketing .

One of the things he tried early on was offering the first 15 minutes of work free of charge—if he solved the issue within that first quarter of an hour, the job would be completely free. It worked. Clients told him they wanted to pay even if he solved the issue in under 15 minutes because they didn't feel good about paying nothing for a service that involved someone coming to their home. It was an attractive offer that increased his competitive edge without negatively impacting his bottom line.

Takeaway: Maintain or gain market share from your competitors.  

4. Economy pricing

Similar to competitive pricing, economy pricing involves setting the lowest prices among your competitors to attract bargain buyers. But unlike competitive pricing, economy pricing specifically targets people who will consciously sacrifice quality in exchange for a cheaper price. Knowing this, you can source cheaper supplies, eliminate extra features, and make other changes to lower your production costs so that you can offer extremely low prices while continuing to make a profit. 

The fast fashion industry is infamous for its reliance on economy pricing. Clothes are created quickly using cheap (and often ethically questionable) labor, and they wear out quickly. This allows stores to sell highly trend-conscious clothing, since customers need to replace their clothes more frequently. Unfortunately, it also causes major environmental damage —and usually doesn't even save customers money compared to buying more expensive but longer-lasting clothing.

Takeaway: Attract price-sensitive customers while achieving high sales volume and cost efficiencies.

5. Penetration pricing

As a new business , you may find that you need to set your prices toward the lower end of the spectrum. Penetration pricing is when a business sets the price of a product or service low at the beginning, then raises the price once the company is more established.

Businesses that provide a service can draw customers in with low pricing, then win their loyalty with great service. Introductory offers can be a great way to entice new clients or customers. For example, you could offer a fixed price or percentage off the first job, or a portion of free labor. At least one of Norm's competitors offered a 10% reduction on labor for returning customers. In Norm's view, a better approach to customer retention was to offer them that 10% off the first job—and then do such good work that they wouldn't mind paying the full price for subsequent jobs.

Takeaway: Gain market share and attract customers quickly with low initial prices, then raise prices once you've established a strong customer base. 

6. Dynamic pricing

Have you ever pulled out your phone intending to grab a rideshare on a busy weekend night or (I wince just thinking about it) a holiday? Those jaw-dropping price surges are the result of what's called dynamic pricing, or pricing that changes fluidly according to availability and demand.

Truly dynamic pricing requires an algorithm that can automatically adjust prices according to purchasing activity. Uber's CEO isn't sitting behind a Wizard of Oz curtain declaring price surges; the app automatically increases prices when demand is higher than the number of drivers on the road. A less immediate version of dynamic pricing can be seen at the gas pump, where prices change frequently in response to demand but aren't automatic (in some states, like New Jersey, they can't change more than once per day). 

For small businesses, dynamic pricing works best with services or custom products that require a price quote, since customers expect prices to be different depending on the project and circumstances. If your prices are listed on your site and you change them constantly, you'll drive away potential customers who perceive you as unpredictable or unreliable.

Takeaway: Maximize revenue while adjusting for real-time factors like demand, competition, and market conditions. 

7. Price skimming

Price skimming is the opposite of penetration pricing, where you start by setting the maximum price and gradually lower it over time. This strategy works best with products that have major releases, like laptops or cars. By price skimming, you'll be able to capture early buyers willing to pay top dollar for the latest and greatest; then, as you gradually lower the price, you'll be able to sell the maximum number of products at each price before dropping it again. 

One of the most well-known price skimmers is Apple, which has made its product launches into full events with tickets and fans to build as much hype as humanly possible. Mega-fans buy the newly unveiled products the moment they're available, even waiting in lines overnight outside Apple Stores to do so. As each new product is released, the older models get shunted down the pricing ladder to capture buyers with lower WTP points. 

Takeaway: Capture early adopters and maximize revenue with high initial prices before gradually reducing prices to attract more price-sensitive customers.

8. Hourly pricing

Often used in service-based industries, hourly pricing establishes prices based on the time spent on a particular task or service. This aligns the price directly with the effort or resources dedicated to the project. It's a straightforward method for you and the client to understand and agree upon the service's value.

Having said that, if your projects' complexity or required resources vary quite a bit, a flat hourly rate may not be best for your business.

Takeaway:   Ensure customers are billed fairly based on the actual hours worked.

9. Project-based pricing

Project-based pricing is also common in service-based industries. This method determines prices based on the scope, complexity, and resources required for each project. Rather than charging a fixed or hourly rate, companies assess the unique needs of each project and provide a tailored quote. That way, businesses are accounting for factors like resources, expertise, and time commitment required to complete the project successfully.

This pricing model is common for architects. When a client approaches an architecture firm with a request to design and construct a building, the firm will assess the project's scale, complexity, materials, and other specific requirements to provide a project-based quote. Obviously, the process and requirements for designing a public bathroom vs. a skyscraper will be very different, beyond just time discrepancies. 

Takeaway: Make sure profitability and effort are accounted for in your pricing structure.  

10. High-low pricing

I've taught all my loved ones that we don't walk into Michael's without a coupon or buy anything at JOANN that hasn't been marked down to at least 40% off.

These stores use high-low pricing, where they offer products or services at a higher price initially and periodically discount them. This approach attracts price-sensitive customers who are motivated by discounts (me) while also maximizing revenue from customers willing to pay higher prices to get their hands on the product before it starts flying off the shelves once it's been discounted.

Companies can maintain a balance between profitability and reaching a larger range of customers by driving traffic to their stores or websites during promotional periods.

Takeaway: Create a perception of value to encourage customer purchases. 

11. Bundle pricing

You've probably seen the Progressive commercials practically begging you to bundle your car and home insurance for a better deal. Or maybe you bundled your cable and phone services back in the day. 

Bundle pricing is when a company combines multiple products or services and offers them at a lower overall price than what each item would individually cost. This creates a perception of added value, convenience, and savings for customers. If you sell a lot of small items or are trying to spread the love to an overlooked service, this pricing strategy may help you increase your sales.

Takeaway: Sell items together in a package deal that's slightly cheaper than if you were to sell the items individually to increase sales and customer satisfaction.

12. Geographic pricing

I follow a candy shop on TikTok with the most delicious-looking candy I've ever seen. They're located in the U.K. and I'm in the U.S., which means I'd have to pay outrageous prices to account for the shipping costs.

Geographic pricing involves setting prices based on different geographic regions or markets, considering factors like local market conditions, competitive landscape, and transportation costs like shipping. While this strategy makes it harder for a candy lover like me to get their hands on some delectable sweets, if you want to expand outside of your own geographic region, this strategy may be inevitable to keep your profits stable.

Takeaway: Maintain profitability across all your geographic markets by adjusting for variable factors.

13. Psychological pricing

A book priced at $20? I'll pass. A book for $19.99? I'll take 10. This common phenomenon that we all fall for time and time again is called psychological pricing. Also known as charm pricing, this strategy leverages consumers' perceptions and emotions to make them think they're getting a better deal than they actually are. 

Making the price seem more appealing or affordable to customers effectively influences customer behavior and increases sales, even if the price difference is negligible (and even if the customer knows in their heart of hearts that it's negligible). You can combine this strategy with another method since it's a common standard in many industries.

Takeaway: Create the illusion of a lower price so customers perceive your price as fairer.  

14. Freemium pricing

If you're like me, you started out with the free version of Spotify until the ads were so grating on your soul that you gave in and shelled out the cash for the paid ad-free version. This method of offering a basic version of a product or service for free and charging for additional premium features or advanced functionality is called freemium pricing. 

By offering a free version, companies can give customers a taste of the value their product or service offers, build brand awareness, and create a larger user base. They then monetize their user base with an enhanced experience for a subscription fee or one-time purchase. If you're new to the market, this is a great way to get buy-in from people who would otherwise be unwilling to convert.

Takeaway: Attract a large user base and convert some into paying customers. 

15. Premium pricing

Some people enjoy the prestigious vibe and social appearance of luxury brands. For example, luxury car companies, like BMW or Mercedes-Benz, position their vehicles as high-end, offering advanced technology, luxurious interiors, and superior performance. (Although I'd love to see what they have that my Honda CR-V doesn't.) 

With those high-end features comes a high-end price tag, otherwise known as premium pricing. This strategy positions the company as exclusive and superior in value in comparison to lower-priced competitors. It appeals to a target market willing to pay a premium for the perceived benefits. If that's your target market, then this is your ticket.

Takeaway: Target affluent customers and generate higher profit margins. 

Factors to consider when pricing a product

You likely know off the bat that you'll need to consider your own business costs and competitor prices so that you can find a price that earns a profit but isn't so high that it drives potential customers to other businesses with better deals. But unfortunately, it's not that simple: there are a lot of factors you'll need to consider in order to determine the best pricing strategy for you.

I know I just said cost wasn't the only factor to consider, but it is the most important one to start with. If your prices aren't higher than your costs, you'll be out of business before you even get your company off the ground.

When calculating costs, make sure you include:

Product materials

Employee wages (that includes what you pay yourself!)

Overhead costs (rent, insurance, utilities, taxes, etc.)

Software and services for things like accounting, marketing, and legal

Shipping and transportation

Economic factors

When costs change, your prices will have to change in order to stay competitive and keep making a profit. Businesses that rely directly on commodities as supplies—so things like lumber, oil, and metals—will be most vulnerable to economic fluctuations , but all industries are affected in some way or another by global, political, and social changes. 

Conduct thorough research to identify what economic conditions your business thrives in, and recession-proof your business . Be proactive about anticipating events that could affect your supply and demand . You especially need to incorporate a safety net into your profit margins to ensure you have enough funds to stay in business during slow periods if you're in a more temperamental industry.

Competitor pricing

Your prices don't always need to be lower than your competitors', but if they're higher, you need to be able to justify it with added quality. Your products don't always need to be quality, but if they're low-quality, you'll need to be able to justify it with lower prices. Where you fall on either side of this trade-off determines your value position , which we'll discuss in a bit. But no matter how you decide to position your product, you'll need to stay up-to-date on what your competitors charge, pricing trends in your industry, and what pricing models work best for your market.

It's usually not difficult to find out what your competitors charge—either by visiting their websites or by calling them to ask. As you gather information for your competitor analysis , keep a spreadsheet where you can record prices and note things like introductory offers, loyalty programs, and discounts.

Positioning

It's a common misconception that businesses have to sell good-quality products to be successful. There are buyers at every price and quality level; what matters is how your product quality and price are positioned with respect to each other.

One of the easiest industries for demonstrating this concept is the airline industry, because there's no way to mistake the difference between a high- and low-quality purchase when there's a literal curtain dividing them. Normally, price and quality will align with one another. First-class tickets offer high quality at a high price, economy tickets offer low quality at a low price, and everyone else gets piled into coach. 

Value prices occur when quality is higher than price—when you fly during off-peak times or get upgraded to first class for free. When demand is high and seats are limited, the airlines can afford to charge higher prices for lower-quality seats, counting on the fact that you'll pay full price for a terrible seat if it's your only option.

When you apply this to your own pricing, ask yourself what kind of value your product or service offers. Are you solving an urgent problem , or is your product more for comfort and enjoyment? If you sell a first-class product, you'll lose money by selling it at economy prices. If you sell an economy product, you'll need to sell it for a bargain price.

As you start off in business, it's important to remember that you can change your pricing strategy as you go along. This is a marathon, not a sprint, so it's more about building a client base of satisfied customers who will come back to you again and again than it is to make as much money as possible as quickly as possible. 

And the good news is that you don't have to get everything right from the very beginning. You can try different approaches and make adjustments as you go until you're achieving the outcomes you want. To continue optimizing for success, learn how you can automate your small business .

Related reading:

The best eCommerce website building platforms for online stores

Optimizing your small business product mix

The best CRMs for small businesses

The best project management software for small businesses

This article was originally published in December 2020 by Norm Mclaughlin. It was most recently updated in July 2023.

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Cecilia Gillen

Cecilia is a content marketer with a degree in Media and Journalism from the University of South Dakota. After graduating, Cecilia moved to Omaha, Nebraska where she enjoys reading (almost as much as book buying), decor hunting at garage sales, and spending time with her two cats.

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Pricing Strategy: Tom’s Shoes, Essay Example

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There are a variety of factors used to determine how a particular product is priced before going to market.  Most businesses use some form of cost-plus system.  The retail price of an item must account for the all the input costs along with fixed and variable operational costs, plus profit.  Input costs include the price of raw materials, manufacturing expenses, labor, transportation, environmental costs and other value-add expenses associated with producing a product.

Operational costs include those fixed and variable expenses associated with storing, transporting, marketing, and selling the finished produce.  These expenses include warehouse costs, advertising, sales labor costs, accounting costs and other such expenses.

All of these expenses are combined and divided by the number of units produced.  Profit is added to each unit and the final price is determined.  There are other considerations that can influence final pricing as well.  A business might consider the demand curve for the product, the relative quality of the product compared to competitive products, the uniqueness of the product, and the value of brand equity.  Competitive pricing would suggest that the product be sold for about the same amount as competitive products of similar quality.

The pricing strategy for Tom’s shoes is a little different due to the philanthropic activities of the company.  The selling price for each pair of shoes needs to include the cost of manufacturing, transporting and delivering a second pair of shoes to a needy child.  Given this additional cost, pricing parody based on relative quality is ignored.  Comparable canvas shoes typically sell for about $20.  Tom’s shoes sell for up to $85.  These shoes are not exactly Veblen goods, since increasing the price would not necessarily precipitate more sales.  They are however similar to Veblen goods in that consumers willingly pay more than the product is worth in order to “make a statement.”  In this case, the statement is more about supporting a worthy cause than demonstrating social status.

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Dynamic pricing is on the rise

Article by Andrew Sharp Photo by Shutterstock April 18, 2024

Lerner professor explains why Wendy’s got pushback for plans to test new pricing strategy

Those who try to mess with fast food should be prepared to face Americans’ wrath. 

Wendy’s faced an outcry earlier this year after CEO Kirk Tanner told investors that the chain would start testing out dynamic pricing, or charges that vary for different customers depending on the situation. That can include surge pricing, when costs go up during peak times, as famously happens with ride-sharing services like Uber. (Those hikes have also caused consternation among customers in the past.) 

Wendy’s clarified its intentions under pressure, claiming this wasn’t about surge pricing at all, The Washington Post reported , but “discounts and value offers.” 

As national media outlets covered Frostygate, they frequently turned to the University of Delaware’s Timothy Webb , an assistant professor of hospitality business management at the Alfred Lerner College of Business and Economics . Webb has experience with dynamic pricing in the corporate world, helping implement strategies at iconic hospitality locations such as New York’s Rockefeller Center and major league sports stadiums. He has brought his experience to the Lerner College and has been researching it in academia . 

UDaily spoke to Webb about dynamic pricing and what people should know about it. 

How common is dynamic pricing right now?

Webb: Well, from the hospitality perspective, it's been operating like this probably the last 20 to 40 years, starting with airlines and hotels and moving to rental car companies and so forth. The conditions traditionally are that the product is perishable. For instance, if you have a hotel room you don't sell tonight, you can't store that inventory. So to maximize what you could get out of the asset at that moment, you can leverage pricing strategies. 

Technology is the key here and being able to communicate the price changes. So as we get more technology, it's easier for companies to do some of these things. If you have a restaurant-affiliated app on your phone, prices may be consistent; however, the offers you receive may be different. Therefore we’re paying different prices even if we simply think we’re being incentivized with a deal. 

So, is there an advantage for consumers? Or is this all about a benefit for business?

Webb: The results can be mixed. It’s going to impact different people differently. 

For airlines to survive, they might need to get, say, $300 for a seat. But not everyone can pay that. And so what the airlines historically knew was that when business travelers book two weeks prior to their flight to close a deal, and their companies are paying for their flights — it's not discretionary income. Airlines know these customers have a higher willingness to pay, so they can increase prices and capture more revenue. 

If those customers are paying $500 or $600 for that spot, then you can reduce the rest of the plane. In that case, you know, one customer is paying more and another one is paying less.

In the restaurant setting, you're not getting these (large) surge price swings. (With Wendy’s), people were like, “Oh, I’m going to have to pay an extra $5 or $10 like you do for your Uber ride.” And you're not going to, because in this hyper-competitive industry, you can walk down the street from Wendy’s and go to Burger King or another competitor and purchase at a more reasonable price. 

So these incremental adjustments are likely very small. For Wendy's, if they can make an extra quarter or 10 cents across all the sites in a one hour window, that's huge. It adds millions of dollars.  

What's the logic behind dynamic pricing?

Webb: The thought historically is you have this perishable item, such as a hotel room. And the demand varies — there's different demands in the summer versus the winter. 

I think it's even comical to think now that if you want to go stay at one of the Delaware beaches on the Fourth of July, that it'd be the same price as in the middle of winter. At some point it just makes sense; in many cases it's not hard to justify with the consumer. 

[With restaurants] I think part of the thought is, if you have price-sensitive customers that are willing to move their order or come a little earlier to save a buck or two, you've taken a car (in line) at 6 o'clock, moved it to 4 o’clock when you have no line and the ability to serve that customer. So you could serve more people, generate higher revenue and give everyone a better customer experience. Your employees are also in a better mood because they’re not as stressed at peak time. 

Part of it is being able to segment the market and the customers, and it really comes down to that technology and communication component. These companies are getting really smart at communicating with you through their app. You could have the Starbucks app, I can have the Starbucks app. But we might have different offers marketing different prices, and it’s the same idea [as Wendy’s]. 

Starbucks knows [if] it has no customers at the store right now. They know what product you like and might send you an offer at half price. And essentially, they're going to make a smaller margin than they would have. But you [originally] had no plans to go. Now you’re turning around and going to Starbucks. 

So it's being able to communicate with individual people regularly. They can really start to hone in on what you’re looking for and customize your experience while simultaneously driving their own business. But the communication is all possible through the app. So whether they're just changing the drive-thru price while you’re in line, or you order on your phone and pick it up, I think everyone's doing this. [Wendy’s] just kind of put it out there and it got a very bad rap.

Why has there been backlash in the Wendy's case? 

Webb: I think there's always an initial backlash. But in some cases, it's the only way for innovation to occur.

Generally, people want fairness in the price. The idea is that nobody wants a loss. If they increase the price, and I could have gotten it cheaper, I’m going to be mad about it, but every time I'm getting a discount, I feel like a winner. It's a fundamental application of prospect theory. 

So maybe the strategy is for Wendy’s to just increase all the prices, set the new standard, and then just discount it to each customer based on what they know about you at the time. Everyone feels like they're either paying full price or they're getting a discount. 

I think what happened is with the communication. Now they're talking like they're only going to discount, which again, I think that is the way to do it. If there's going to be different prices, but you're going to be getting a discount, then people aren't upset about it, right? 

The CEOs want to sound positive, like we're doing these cool things, and it's advanced. We're trying to be cutting-edge and leading in this area. But what ended up happening (to Wendy’s) sort of spilled over from the earnings call, and it led to people rephrasing and paraphrasing. The New York Post just attached the [term] surge pricing, so it just kind of ran a little wild from there. Ultimately, the messaging unintentionally spiraled and led to some unintended negative press. 

I’ll leave you with this. If I asked you what you spent the last time you went to McDonald's, would you know what you paid for the individual products? Sure, you might recognize if the price changed $5 or $10. But 10 or 25 cents, not many can finger-point that. For this reason, and offers through mobile applications, I think dynamic pricing in the restaurant industry is only just beginning and is here to stay.

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A Guide to Pricing Strategies

Checked : Michael T. , Aakanksha M.

Latest Update 20 Jan, 2024

13 min read

Table of content

Pricing in Context

Pricing strategies, cost-based pricing, demand-based pricing, competition-based pricing, break-even analysis, other pricing techniques, premium pricing, value-based pricing, time-based/dynamic pricing, price skimming, target pricing, psychological pricing.

The term pricing is a common reference in the business realm. It refers to the sellers' approach to putting in place the right purchase price for goods and services. The seller must set the correct place because price determines how buyers react, not only to the product/service but to the brand. Pricing strategy is how the seller pursues sales and marketing objectives by setting prices. They use a pricing model to implements its pricing strategy. The model is a set of instructions or rules that guide the seller in pricing setting and creation of margins.

In a   business environment , sellers approach pricing as part of their marketing campaigns because pricing is, indeed, a marketing activity. In fact, textbooks defined marketing as a set of processes that communicate customer value in products to sell them; it is meant to serve the purpose of increasing customer demand. In this definition, they often include the 5 Ps of marketing, in which pricing is one, among Product, Placement, and Promotion.

Proper pricing must have financial objectives. It happens when the seller sets a price list (reference price, base price) for a selected product. The base price is what the customer usually pays to get the product or services. Hence, the financial objectives of pricing include:

• The maximization of unity sales and market share in terms of units sold. In this case, pricing is used for market capitalization, where the seller seeks to get the best out of their target market.
• Increase sales revenues and market share in terms of sales revenues. Every business seeks to make profits, from which they can pay their employees and do other activities. Everything is included every single product the seller puts out on the market. This comes in terms of the cost of production, supply, and intended profits.
• Maximize profits. It is not just enough to make profits. Businesses seek all avenues to get the best out of their products and services. This is why you will notice constant price changes for specific sellers. They are only seeking to maximize profits as per the current market situation.
• Leverage sales from related products or services. Most companies manufacturer more than one product. Hence, when they set prices, they also put in mind the possibility of benefiting from these other products.

In addition to this, sellers often implement pricing to purse position objectives. In other words, they seek to communicate and reinforce brand value. You may have noticed that there are similar products from different manufacturers on the market, where some are expensive, and others are cheaper, but buyers will go for the most expensive. It is may not because the other has less quality, but because of the brand value And this leads us to another positioning objective, which to create the perception of high quality, desirability, or value in products. A product, especially in the fashion industry, is often regarded as quality if it is very costly. This is a common perception in customers, and a seller must know how to price their products to meet these demands.

As much as pricing seems a common and easy term, it may not be very easy to explain, let alone understand. This is because pricing can be viewed as different from different contexts from marketing and economics perspectives. Hence, even pricing analysis can differ based on these two approaches. However, whatever approach you take, it will bring you down to five major themes of interest.

• Pricing defined as a marketing activity. In this case, pricing bases on how the seller sets the prices for their products in view of sales objectives.
• Pricing from the marketer's viewpoint. In this case, demand is seen as a function of price, where quantitative demand curves show the seller the prices that should optimize sales, revenues, units sold, and profits.
• Pricing for the economist's viewpoint, where the price is a function of demand. This is the reverse of the marketer's viewpoint.
• Marketers normally use any of the twelve pricing strategies or pricing models.
• The last theme of pricing is where the marketer tries to avoid popular pricing mistakes.

There are different pricing approaches that sellers use to set the right price for their products and services. In marketing, the strategy depends on different factors. A seller is free to use as many approaches as they wish to maximize the pricing objectives stated above. The section below is intended to equip business students and entrepreneurs with the knowledge to use different pricing approaches.

In this case, sellers calculate the cost of the product and then add a percentage of markup to determine the price. The learning objective of this section is to analyze the use of cost-plus pricing technique.

Import points to note:

• Cost-plus is the most straightforward way to calculate the price of a product. It is achieved in two ways: full cost and direct cost pricing, where full costs involved variables, fixed costs, and percentage markup. Direct-cost is the sum of variable costs and percentage markup.
• This method used by companies to tap into maximum profits. The firm can accomplish their profit-making objective by increasing its production to a point where marginal revenue is equal to the cost and then alter the price based on demand.
• Cost-based pricing is easy to use. And this is why many sellers use it, as it also requires very little information.

Important terms:

To understand cost-plus pricing, there are key terms, some mentioned above, that one has to be aware of. They include:

• Markups: This is the difference between the cost of a product and its selling price. This difference is added to the total cost incurred by the manufacturer or distributor to make a profit.
• Variable cost: This is the number of resources used that shifts with the change in a firm's activities.
• Rate of return: ROR or ROI is simply the rate of profit or loss. It is a ratio of money gained or lost on an investment in comparison to the amount of money invested.

Cost-plus pricing is the most basic method of calculating the price of a product. The firm simply works on the cost or manufacturing of the product and adds on a certain percentage as profit, so that the results give the selling price. We have already seen above that these calculations take two forms: the first one considering bother variable and fixed costs plus the percentage markup whereas the second is direct cost pricing; variable plus a percentage markup. Cost pricing is only used where competition is very high because it leads to a loss in the long run. This is a simple method, but it does not consider demand; hence there is no way of knowing whether the target customers will buy the product and the given price.

Companies use cost-plus pricing when seeking to get maximum profits. There are many ways to do this, but the most popular one is that the company calculates the cost of production and adds a calculated markup. Hence, this approach covers the cost of production while providing enough ROR for the company, enabling them to calculate how much profit they have made easily.

Calculating pricing with the cost-based approach is very basic, and does not require a lot of information. It is, therefore, very applicable where information on demand and cost is not easily accessible. Such additional information may be crucial in calculating an accurate estimate for marginal sales and revenues. But the process of getting more information can be quite costly and will demand the product be priced much higher. Hence, cost-plus is seen as the most convenient approach, both for the seller and the customer. This technique depends on arbitrary costs and arbitrary markups.

But this method has its disadvantages too. For instance, it does not consider the customer demand, current market prices, or competitor's price; hence it may or may not be competitive on the market. Also, the method does not communicate or build the brand value or product value from the customer's perspective.

This method can be looked at in terms of maximum unit sales involving setting the price point as close as possible to the peak of the demand curve. For many companies, this may mean either selling at a meager price or a loss. In other products and services, market-penetrating prices appear only shortly after product introduction. It is also called penetration pricing or loss-leader pricing, sometimes called predatory pricing, where it is intended to drive competitors out.

A 1900s salesman, King Gilette, may have lead to the popularization of this pricing strategy as loss-leader. This salesman built a profitable business to sell razor blades by offering away razor handles (with Gilette-Brand blades).

The reason one may opt to use this approach is that the seller may attempt to take the existing market share from the competition or secure the market before competitors enter. Or they may try to "lock-in" customers to a brand with expectations of profiting later. Also, this method can be used with the motive of achieving strong brand recognition through high unit sales and rapidly increasing market share.

This method is advantageous because it takes into account the prevailing market prices, competition, and availability of substitute products. Also, it offers faster means to increase market share and brand awareness for many kinds of products. And penetration pricing can allow the seller to reach cost-saving economies of scale much faster.

Disadvantages of this method may come when penetration pricing means low pricing. In this case, it can deliver low sales revenues than other strategies, and when the profits are too small, sellers fail to maintain this method for long. Also, penetration pricing can build brand recognition, but it will not enhance the brand image for super quality.

In   economics , competition is defined as rivalry among sellers trying to achieve similar goals, such as increasing profits, market capitalization, and sales volumes using different aspects of marketing mix like price, product, distribution, and promotion. According to the Merriam-Webster Dictionary, competition in business is "the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms."

Hence, competitor-based pricing or market-oriented pricing is pricing, where the price is set based on analysis and research compilation from the target market. In this case, a firm with a price their product based on what the other firm. Hence, the marketer will first research the market, then set the price based on the results they find in the field. For example, is a particular competitor has set the price of a product low, it is up to the firm to set there, either high or low.

One advantage of this strategy is that it prevents competition from damaging the company. They will be selling at the same price; hence, it depends on the quality of products from each brand. There are disadvantages to these approaches too. For instance, since the price will not grab the customer's attention, the business must device different methods of attracting these buyers. Also, the price may not be enough to cover the production costs and produce the desired profits.

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Break-even point (BEP) is where expenses and revenue meet. They are equal; hence the seller cannot record net gain or loss, "break-even." This is one of the easiest yet least used analytical tools in management. It provides a wide view of the relationship between sales, costs, and profits. And break-even sales can be presented as a percentage of the actual sales. Manages can forecast when they might break even by linking the percentage of a point that the percent sales may be realized.

As stated above, there are many other pricing techniques, but the ones above are the most commonly used. Other include the following:

The seller set price high enough to get acceptable margins over their cost but include another price aspect to communicate product quality, brand value, prestige, exclusivity, and many others.

The price of a product reflects a customer's perception of its value.

This is pricing that taps into customers' willingness to spend a specific amount of money, which varies from time to time.

Seller uses this when introducing new products.

Sellers choose a price based on the target ROI.

Sellers price their products just under a round number, like $9.99 instead of $10.

All these pricing methods are important in achieving a company’s goals as well as economic needs of a nation.

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Tesla is headed for a new growth phase as Elon Musk is finally the 'adult in the room,' Wedbush says

• Tesla is back on track as Elon Musk is finally acting like the "adult in the room," Wedbush said. 
• Dan Ives pointed to Tesla's latest earnings call, in which the firm issued firm guidance on its strategy.
• Rolling out a low-cost EV next year will be key to Tesla's growth, he said.

Tesla stock could be headed for better days, thanks to Elon Musk finally stepping up as the "adult in the room" to calm investors as the company battles an array of headwinds, according to Wedbush Securities analyst Dan Ives.

Ives pointed to Tesla's first-quarter earnings call on Tuesday , during which Musk issued firm guidance on the electric vehicle maker's strategy going forward.

In particular, the company reiterated its guidance on the Model 2, a lower-cost electric vehicle that's set to roll out next year and has been eagerly awaited by Wall Street to help juice sales as demand wanes. The cheapr model will be key to Tesla's success, which will be centered on sales volume over the near term, Ives said.

"Last night in a much needed conference call Elon Musk finally stepped up as the adult in the room and laid the foundation for Tesla's growth strategy with most importantly a lower cost vehicle now slated for 2025 production and delivery," Ives said in a note on Wednesday. "We believe the next wave of the Tesla growth story and autonomous vision is now forming and that is what we are focused on for our bullish investment thesis looking ahead."

Those bullish catalysts come amid a "dark" time for Tesla, with the company battling what Ives described as a "Category 5 storm" as it faces weak demand and growing competition, especially in China. Tesla's first-quarter results were a "disaster," Ives added, though investors were expecting that after the company reported its lowest sales in two years . 

Despite near-term headwinds, Tesla is on a good track over the long run, Wedbush said. The company has a "golden vision" surrounding its full self-driving technology, which will be key to Tesla's strategy over the next decade, Ives added.

Wedbush maintained its outperform rating on the stock, but lowered the price target from $300 to $275 a share, implying a 90% upside from Tuesday's closing price.

Tesla stock surged in early trading on Wednesday, despite the company missing its revenue goal by nearly $1 billion over the last quarter. The stock was up 11% in early Wednesday trading. 

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U.S. Military Aid for Ukraine Could Soon Flow Again

What would $60 billion buy? Lots of air-defense missiles and artillery ammunition, according to the Pentagon.

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By John Ismay and Eric Schmitt

Reporting from Washington

Shipments of American weapons could begin flowing to Ukraine again soon after a long-stalled aid package becomes law, U.S. officials say, with goods from the Pentagon’s stockpiles in Germany to be shipped quickly by rail to the Ukrainian border.

The measure would provide the Ukraine war effort with about $60 billion. A sizable amount is set aside to replenish U.S. defense stockpiles, and billions more would be used to purchase U.S. defense systems, which Ukrainian officials say are badly needed.

In a statement on Saturday after the House approved the aid package, President Biden urged the Senate to swiftly take up the measure to help meet Ukrainian forces’ “urgent battlefield needs.” It was expected to do so as early as Tuesday.

For months, Ukrainian military officials have complained that political paralysis in the U.S. Congress had created critical munitions shortages in the war against Russia. Ukrainian troops on the front lines have had to ration shells, and morale has suffered.

U.S. officials have not explicitly said which weapons the United States will send to Kyiv as part of the package, but Maj. Gen. Patrick Ryder, the Pentagon press secretary, told reporters on Thursday that more air-defense and artillery ammunition would probably be included.

“We have a very robust logistics network that enables us to move matériel very quickly as we’ve done in the past,” General Ryder said.

“We can move within days,” he added.

Transfers from the United States by cargo aircraft and maritime vessels are typically arranged by the headquarters of U.S. Transportation Command , in rural Illinois, which maintains extensive databases of cargo ports, railways and roads that can be used by military and civilian transport craft around the world.

Weapons and ammunition sent to Ukraine are often drawn from Pentagon assets in Europe, with shipments coordinated by an organization created in late 2022 called the Security Assistance Group-Ukraine, which is based in Germany and operates within the Pentagon’s European Command . It has a staff of about 300 people.

Military leaders have sent Ukraine 55 aid packages of weapons called PDAs — for presidential drawdown authority — containing a mix of vehicles, ammunition, drones and other items worth at least $26.3 billion since August 2021.

The aid packages, which often came twice a month after Russia’s full-scale invasion of Ukraine in February 2022, slowed significantly last fall as some Republicans have become bitterly opposed to sending more aid to the country.

Defense Secretary Lloyd J. Austin III welcomed congressional movement on the aid package on Saturday.

“The world is still watching,” he warned in a statement. “Lives are still on the line. America’s long-term security is still at stake. We must never give our friends, our rivals, or our foes any reason to doubt America’s resolve.”

The last aid package, announced on March 12, included Stinger antiaircraft missiles , guided rockets for HIMARS launch vehicles , small anti-tank rockets and 155-millimeter artillery ammunition that included cluster munition rounds .

General Ryder was asked about a nonbinding measure in the House legislation to send Kyiv weapons called ATACMS , which have been the Pentagon’s longest-range ground-launched guided missiles since the late 1980s.

The Biden administration agreed to provide a small number of those missiles last year, and Ukrainian forces used them to strike two air bases in Russian-occupied territory in October . Ukraine’s special operations forces said the attack damaged runways and destroyed nine Russian helicopters among other targets.

“Of course as you know, we’ve always said nothing is off the table,” the general said of potential new provisions of ATACMS. “But I don’t have anything to announce today.”

The United States has a limited number of these weapons, and officials have said that the rest of their ATACMS arsenal is reserved for contingency plans should the United States fight a war with Russia, North Korea or China.

Officials have also signaled that additional ATACMS could be provided to Ukraine as soon as the weapons’ replacements, called Precision Strike Missiles, begin to enter the Pentagon’s inventory.

On Wednesday, a spokesman for Lockheed Martin, the manufacturer of both missiles, said the company delivered the first four operational Precision Strike Missiles to the U.S. Army last year. A $220 million contract signed in March will provide the U.S. Army with more, though it was not immediately apparent how many that would buy.

The exact number of weapons the Pentagon has sent to Kyiv from its stockpiles is also unclear.

The last time the Defense Department updated the number of 155-millimeter artillery shells it had provided to Ukraine was in May, when it said that more than 2 million such projectiles had been sent so far. Each of the 17 aid packages announced for Ukraine since then have included 155-millimeter ammunition.

But sending more weapons to Ukraine depends on more than political will. The United States also has had to accelerate the production of the munitions Ukraine most needs to meet its demand.

In the United States, making artillery ammunition takes several weeks , as heavy steel bars are forged into empty projectiles in Scranton, Pa., then shipped to rural Iowa, where they are filled with explosives and prepared for delivery.

General Dynamics, which operates the Pennsylvania factory, is opening a new factory to make metal shell bodies outside Dallas to help increase total numbers of completed shells. The Army says it makes about 30,000 of the high-explosive shells each month, up from about 14,000 per month before Russia’s full-scale invasion of Ukraine.

The Army’s goal is to produce 100,000 155-millimeter artillery projectiles per month by 2025.

The United States is not alone in providing military aid to Kyiv.

Since April 2022, the defense secretary has convened meetings of the Ukraine Defense Contact Group roughly every month. The participants have included NATO nations, several of the United States’ major non-NATO allies and at least two South American nations that previously purchased arms from the Soviet Union and Russia.

The group solicits requests directly from Ukrainian military and civilian leadership.

After a virtual meeting of NATO defense ministers on Friday , Jens Stoltenberg, the alliance’s secretary general, said Germany would deliver an additional Patriot air-defense missile system to Ukraine along with about $4.3 billion in military support from the Netherlands among other aid from NATO members.

“Ukraine is using the weapons we provide to destroy Russian combat capabilities,” Mr. Stoltenberg said in a statement. “This makes us all safer.”

“So support to Ukraine is not charity,” he added. “It is an investment in our security.”

Robert Jimison and Helene Cooper contributed reporting.

John Ismay is a reporter covering the Pentagon for The Times. He served as an explosive ordnance disposal officer in the U.S. Navy. More about John Ismay

Eric Schmitt is a national security correspondent for The Times, focusing on U.S. military affairs and counterterrorism issues overseas, topics he has reported on for more than three decades. More about Eric Schmitt

Our Coverage of the War in Ukraine

News and Analysis

The authorities in Poland and Germany have arrested at least five of their citizens  and accused them of spying for Russia or of offering to help Moscow commit violence on European soil, including a “possible attack” on the president of Ukraine, Volodymyr Zelensky.

The drone combat in Ukraine that is transforming modern warfare has begun taking a deadly toll on one of the most powerful symbols  of American military might — the tank — and threatening to rewrite how it will be used in future conflicts.

At least 17 people were killed and scores more injured when three Russian missiles struck a busy downtown district of Chernihiv , north of Kyiv, Ukrainian officials said.

World Military Spending: The world spent more on military costs and weapons in 2023  than it had in 35 years, driven in part by the war in Ukraine and the threat of an expanded Russian invasion, according to an independent analysis.

New American Technology: Project Maven was meant to revolutionize modern warfare. But the conflict in Ukraine has underscored  how difficult it is to get 21st-century data into 19th-century trenches.

Resuming U.S. Military Aid: Much-needed munitions like artillery shells could start arriving relatively quickly , but experts say it could take weeks before U.S. assistance has a direct impact on the war . What would $60 billion buy ?

How We Verify Our Reporting

Our team of visual journalists analyzes satellite images, photographs , videos and radio transmissions  to independently confirm troop movements and other details.

We monitor and authenticate reports on social media, corroborating these with eyewitness accounts and interviews. Read more about our reporting efforts .

Pricing Strategy & Special Topics Essay

What are your thoughts on the success or failure of these two initiatives, creative pricing strategies, works cited.

Tata Corporation has recently announced that it will manufacture, and sell later this year a four passenger vehicle that will sell at around $2100. At that price it will be the cheapest car in the world. The Nano is a safe affordable, all weather vehicle aimed at hundred of thousands of families in India who would otherwise have bought motorcycles.

The Indian Ministry of Development on the other hand has announced that, it will develop and distribute an ultra-cheap tablet PC, the Sakshat which will retail at 35 US dollars equivalent to 27 Euros. The computer is aimed at students and low-income groups especially in the rural areas of India.

The two initiatives are likely to succeed because of several reasons. First, is because of the fact that these products are targeted towards a market segment with a huge untapped potential.

The millions of people in the low end of the market have been neglected in the past and no products have been developed for this market segment. These people have been ignored by manufacturers in the past because they were thought to have no buying power.

Secondly, the initiative is likely to succeed because the price cost of owning and using the products is affordable. The Nano costs about $2100 and its fuel consumption is very low at 50mpg.

Likewise the tablet PC costs $37, a price so low that IT experts doubt whether it would be attainable. The PC can be powered using solar power therefore those not connected to the power grid are not affected. These costs are within the reach of many ordinary people who compose the target market.

In addition these products despite their low prices do not compromise on quality. The Nano meets all the safety and environmental requirements which makes it’s as safe as any other vehicle to drive. The tablet PC on the other hand has advanced features which are found in modern tablet PC such as Android software for browsing the web, it is Wi-Fi enabled, has a seven inch screen, USB ports and 2 GB memory.

In conclusion the products are most likely to succeed as they target a huge unexploited market; the products are affordable and the government minister is determined that the project must succeed whatever it takes, on the other hand the Tata management has put in place mechanisms such as expansion of manufacturing plants in order to ensure that the project succeeds.

Ethical Issues

It is commendable that the two organizations seek to bring useful products to low-income groups and the underprivileged in the society. The Nano affords the poor, a safe, all weather, and comfortable car while the Sakshat computer enables millions to be integrated into the global IT revolution. The two products put aside the strong profit maximization motive and instead aim to help the underprivileged in the society.

Despite being cheap, they do not compromise on quality and standards and the burden of maintaining and operating the product is minimal (50mpg) or zero when solar powered.

The negative imperative is that the cost of producing the tablet PC may require government subsidies which IT experts feel is not what the people in the rural area need because it is designed for university student. This implies possible wastage of government funds.

In the case of the Nano, the car is stripped of certain features such as airbags; these means it is less safe than others. Regardless of the need to economize safety standards should be maintained at all cost even if it requires the price of the vehicle to be increased upward.

In this section we are going to briefly discuss the five major pricing strategies that are evident in our case scenario analysis, these are;

Discounts and rebates: Car dealers are offering discounts and rebates to entice customers to buy. For example a fully loaded Ford Fusion whose price tag is $25,000 goes for $20000 when “all is said and done” (Langfitt).

Substitute products: Car dealers propose to customers’, products that match the customer’s budget and desire. For example, a customer with budget constraints might opt to buy the lower priced S model of Ford Fusion rather than a more priced model.

Used cars: Car dealers also use the option of selling used cars to their customers to meet the needs of people who may want a car but may not be able to afford a showroom vehicle. Most dealers apparently make higher margins on used cars than new cars because unlike new cars whose prices and margins are fixed, used cars are not.

Trade-ins: This refers to when the value of a used car is used as payment for a new car which is deductable from the overall amount. The buyer would benefit because they don’t have to incur costs and time advertising their old car but get a rebate for the value equivalent to their old car.

Selling value products: Car dealers are stocking vehicles that correspond to the prevailing market conditions. When the price of fuel goes up for instance, fuel- efficient cars or cars using alternative fuels are sold at a premium price; one the other hand when the situation changes such cars are sold at a discounted price.

Types of Marketing

Marketing of products is different from marketing of services for various reasons; however the main reason is because products and services are essentially different in nature and form; whereas you can see touch smell and feel a product, services are intangible, invisible and transient (Lovelock and Wirtz).

Another difference is that products can be stored; services cannot be stored and have to be consumed in real time (Lovelock and Wirtz). Finally, products especially durable ones are produced long before they are to be consumed while services are produced when a customer orders for them and consumed immediately usually at the same place.

Some of these examples are when a car is manufactured long before it is delivered to a show room or a service like a visit to the dentist where the dentist treats a patient only when the patient enters into a dentist clinic.

Since services are invisible and intangible, it is difficult for prospective customers to know the quality of services they are buying. When buying a product e.g. furniture a customer can see, feel, smell, touch the product and decide what to buy.

Langfitt, F. “Cash or Credit, Car Deals Abound.” National Public Radio , 2009.

Lovelock,C. & Wirtz, J. Services Marketing: People, Technology, Strategy 6 th Ed. New Jersey: Prentice-Hall, 2007. Print.

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IvyPanda. (2023, December 22). Pricing Strategy & Special Topics. https://ivypanda.com/essays/pricing-strategy-special-topics-essay/

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Tesla profits drop 55%, company says EV sales ‘under pressure’ from hybrids

Tesla profits fell 55% to $1.13 billion in the first quarter from the same year-ago period as a protracted EV price-cutting strategy and “ several unforeseen challenges”  cut into the automaker’s bottom line.

Tesla reported revenue of $21.3 billion in the first quarter, a 9% drop from the first quarter of 2023. Analysts polled by Yahoo Finance expected earnings of $0.51 per share on $22.15 billion in revenue. Tesla reported operating income of $1.2 billion in the first quarter, a 54% decrease from the same year-ago period.

The company said in its Q1 earnings report that it experienced “numerous challenges” in the first quarter, including the Red Sea conflict and the arson attack at Gigafactory Berlin and the gradual ramp of the updated Model 3 at its factory in Fremont, California. Tesla also noted that global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs. On the upside, that hybrid approach has meant automakers continue to buy regulatory credits; Tesla earned $442 million in zero emissions tax credits in the first quarter.

“The EV adoption rate globally is under pressure and a lot of other auto manufacturers are pulling back on EVs and pursuing plug in hybrids instead,” Tesla CEO Elon Musk said in opening remarks on the earnings call. “We believe this is not the right strategy, and electric vehicles will ultimately dominate the market.”

Shares pop on future promises

The results, posted after markets closed Tuesday, sent shares up as much as 12% following the release as investors appeared to be more focused on Tesla’s forward-looking remarks about future products, including an upended product roadmap to bring multiple cheaper vehicles to market by 2025.

Despite the downward trend in profits, Tesla used the first-quarter report to focus on the future, namely about using AI to make advances in autonomy and the introduction of new products, including those built on a next-generation vehicle platform. The company spent $1.1 billion on research and development in the first quarter, a 49% increase from the same quarter in 2023.

Musk emphasized that despite the downward pressure, the company was focused on — and investing in — the future. Specifically, the company is accelerating work on a new vehicle lineup with production expected in early 2025, if not late this year, Musk said.

“These new vehicles, including more affordable models, will use aspects of the next-generation platform as well as aspects of our current platforms,” he said. “And we’ll be able to produce on the same manufacturing lines as our current vehicle lineup.”

The cost of price cuts

Tesla has seen EV sales grow over the past several years, topping out to a new record of 1.8 million vehicles in 2023. But the company’s profits have suffered thanks to repeated price cuts that started in late 2022.

While those price cuts did provide a temporary bump in sales, it hasn’t had a lasting effect. Tesla delivered 386,810 vehicles in the first quarter of 2024, down 20% from the 484,507 it delivered in the final quarter of 2023. This wasn’t just a quarter-over-quarter blip either; Tesla delivered 8.5% fewer cars than the first quarter of 2023. Automotive gross margins, excluding regulatory credits, shrank to 16.35% in the first quarter compared to 18.96% in the same year-ago period.

Tesla warned in January that growth of its vehicle sales “may be notably lower” in 2024, noting at that time it was between “two major growth waves” and prepping for the launch of a new vehicle platform to build a smaller EV that costs around $25,000. The company has also been prepping a “robotaxi” built on the same platform. In the meantime, Tesla’s only new model is the expensive (and fussy) Cybertruck ; the company has launched new variants on existing models, including the Tesla Model 3 Performance .

Musk said during the company’s earnings call in January the smaller and cheaper EV would go into production in late 2025 at the company’s factory in Texas and eventually expand to a yet-to-be-built factory in Mexico.

Three months later, Musk appears to have changed the company’s low-cost EV playbook. Musk reportedly replaced the plan for a low-cost EV purpose-built on the new platform. Instead, he now wants to plow headlong into the robotaxi, which will be revealed in some capacity in August, while also launching “new models” that somehow use what’s being developed for that new platform.

Less than two weeks after announcing the robotaxi launch date, Musk oversaw a 10% reduction in headcount and a restructuring that puts autonomy in sharp focus. Two high-profile executives — Drew Baglino, Tesla’s SVP of Powertrain and Energy, and Rohan Patel, VP of Public Policy and Business Development — also left the company. Tesla CFO Vaibhav Taneja said Tuesday during the earnings call that the savings generated from the workforce reduction is expected to be well in excess of $ 1 billion on an annual   basis.

Other revenue sources

While automotive revenues fell, there were gains in other parts of the business, notably energy storage.

The company reported that energy storage deployments increased to a record 4.1 GWh. That pushed revenue for energy generation (meaning solar) and storage to 1.6 billion in the first quarter, a 7% increase from the same quarter last year. Tesla noted that most of that growth came from increased Megapack deployments, which was partially offset by a decrease in solar installs.

The company also reported $2.28 billion in revenue from services, including capital generated from its Supercharger network. That revenue source should increase as more automakers, including Ford, GM, Rivian and VW adopt Tesla’s technology known as North American Charging Standard.

Tesla Semi delayed

While Tesla pushes forward on autonomy and a new product roadmap, other projects continue to be delayed. Mass production of the Tesla Semi, which was first revealed in November 2017 , is now being pushed out another year.

The Tesla Semi, which was originally planned to go into production in 2019, has been repeatedly delayed. The company did reveal a production-ready Semi in December 2022 and delivered a handful to Pepsi, its first customer, for a pilot. But it has yet to scale up volume production.

Last June, Musk said the company wouldn’t begin producing the Class 8 big rig until the end of 2024 . The first production Semi vehicles are now planned for late 2025 with external customers starting in 2026, according to Tesla.

Tesla is finalizing the engineering for the Semi to allow for “super cost effective high production,” according to information shared on the call.  The company shared in its first-quarter earnings report that it has started construction of a Tesla Semi factory near its so-called Gigafactory in Sparks, Nevada.

Tesla expected to post lower profit margin amid doubts on growth, product strategy

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Reporting by Hyunjoo Jin in San Francisco and Akash Sriram in Bengaluru; additional reporting by David Randall in New York; Editing by Brian Thevenot and Matthew Lewis

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Akash reports on technology companies in the United States, electric vehicle companies, and the space industry. His reporting usually appears in the Autos & Transportation and Technology sections. He has a postgraduate degree in Conflict, Development, and Security from the University of Leeds. Akash's interests include music, football (soccer), and Formula 1.

Business Chevron

TikTok CEO expects to defeat US restrictions: 'We aren't going anywhere'

TikTok's chief executive said on Wednesday that the company expects to win a legal challenge to block legislation signed into law by President Joe Biden that he said would ban the popular short video app used by 170 million Americans.

The New Rules of Political Journalism

In this election, the reporting strategies of the past will not be enough.

This is an edition of The Atlantic Daily, a newsletter that guides you through the biggest stories of the day, helps you discover new ideas, and recommends the best in culture. Sign up for it here.

In our digitally chaotic world, relying on the election-reporting strategies of the past is like bringing the rules of chess to the Thunderdome.

First, here are three new stories from The Atlantic :

• The October 7 rape denialists
• Finding justice in Palestine
• Biden’s safe, polite campaign stop in Scranton

This past weekend, I was on a panel at the annual conference of the International Symposium on Online Journalism, in beautiful downtown Austin. Several journalists discussed the question: Are we going to get it right this time? Have the media learned their lessons, and are journalists ready for the vertiginous slog of the 2024 campaign?

My answer: only if we realize how profoundly the rules of the game have changed.

Lest we need reminding, this year’s election features a candidate who incited an insurrection, called for terminating sections of the Constitution, was found liable for what a federal judge says was “rape” as it is commonly understood, faces 88 felony charges, and—I’m tempted to add “etcetera” here, but that’s the problem, isn’t it? The volume and enormity of it all is impossible to take in.

The man is neither a riddle nor an enigma. He lays it all out there: his fawning over the world’s authoritarians, his threats to abandon our allies, his contempt for the rule of law, his intention to use the federal government as an instrument of retribution . Journalists must be careful not to give in to what Brian Klaas has called the “ Banality of Crazy .” As I’ve written in the past, there have been so many outrages and so many assaults on decency that it’s easy to become numbed by the cascade of awfulness.

The former White House communications director Dan Pfeiffer points out a recent example in his newsletter: On a radio show earlier this month, Donald Trump bizarrely suggested that Joe Biden was high on cocaine when he delivered his energetic State of the Union address. It was a startling moment, yet several major national media outlets did not cover the story.

And when Trump called for the execution of General Mark Milley, it didn’t have nearly the explosive effect it should have. “I had expected every website and all the cable news shows to lead with a story about Trump demanding the execution of the highest military officer in the country,” this magazine’s editor in chief, Jeffrey Goldberg, told The Washington Post . “If Barack Obama or George W. Bush had done so, I’m sure [the news media] would have been all over it.” (Trump’s threats against Milley came after The Atlantic published a profile of Milley by Goldberg.)

In our digitally chaotic world, relying on the reporting strategies of the past is like bringing the rules of chess to the Thunderdome. There has, of course, been some progress. The major cable networks no longer carry Trump’s rallies live without context, but they still broadcast town-hall meetings and interviews with the former president, which boost ratings. NBC’s abortive decision to hire Ronna McDaniel, a former chair of the Republican National Committee, as a contributor, despite her role in spreading lies about the 2020 election, highlighted the disconnect between this moment and much of the national media.

And then there is the internet. It is certainly possible that richer, more insightful media will emerge from the digital revolution, but we’re obviously not there now. Back in 2016, we worried that social media had become a vector for disinformation and bigotry, but since then, we’ve seen Elon Musk’s extraordinary enshittification of X. In 2016, we worried (too late) about foreign interference and bots. In 2024, we are going to have to contend with deepfakes created by AI.

This year will see some of the best journalism of our lifetime. (You’ll find much of it here in The Atlantic .) But because both the media and their audiences are badly fractured, much of that reporting is siloed off from the voters who need it most. Because millions of Americans are locked in information bubbles, half of the country either won’t see important journalism about the dangers of a second Trump term or won’t believe it.

As Paul Farhi notes in The Atlantic , MAGA-friendly websites have experienced massive drops in traffic, but social media continues to thrive on negativity and providing dopamine hits of anger and fear. And of distraction—last week, the most-liked videos on TikTok about the presidential race included a video of a man singing to Biden and Trump’s visit to a Chick-fil-A .

To put it mildly, the arc of social media does not bend toward Edward R. Murrow–style journalism.

So what’s to be done? I don’t have any easy answers, because I don’t think they exist. Getting it right this time does not mean that journalists need to pull their punches in covering Biden or become slavish defenders of his administration’s policies. In fact, that would only make matters worse. But perhaps we could start with some modest proposals.

First, we should redefine newsworthy . Klaas argues that journalists need to emphasize the magnitude rather than simply the novelty of political events. Trump’s ongoing attacks on democracy may not be new, but they define the stakes of 2024. So although live coverage of Trump rallies without any accompanying analysis remains a spectacularly bad idea, it’s important to neither ignore nor mute the dark message that Trump delivers at every event. As a recent headline in The Guardian put it, “Trump’s Bizarre, Vindictive Incoherence Has to Be Heard in Full to Be Believed.”

Why not relentlessly emphasize the truth, and publish more fact-checked transcripts that highlight his wilder and more unhinged rants? (Emphasizing magnitude is, of course, a tremendous challenge for journalists when the amplification mechanisms of the modern web—that is, social-media algorithms—are set by companies that have proved to be hostile to the distribution of information from reputable news outlets.)

The media challenge will be to emphasize the abnormality of Donald Trump without succumbing to a reactionary ideological tribalism, which would simply drive audiences further into their silos. Put another way: Media outlets will need all the credibility they can muster when they try to sound the alarm that none of this is normal . And it is far more important to get it right than to get it fast, because every lapse will be weaponized.

The commitment to “fairness” should not, however, mean creating false equivalencies or fake balance. (An exaggerated report about Biden’s memory lapses , for example, should not be a bigger story than Trump’s invitation to Vladimir Putin to invade European countries .)

In the age of Trump, it is also important that members of the media not be distracted by theatrics generally. (This includes Trump’s trial drama, the party conventions, and even— as David Frum points out in The Atlantic —the debates.) Relatedly, the stakes are simply too high to wallow in vibes, memes, or an obsessive focus on within-the-margin-of-error polls. Democracy can indeed be crushed by authoritarianism. But it can also be suffocated by the sort of trivia that often dominates social media.

And, finally, the Prime Directive of 2024: Never, ever become numbed by the endless drumbeat of outrages.

• Political analysis needs more witchcraft.
• Right-wing media are in trouble.

Today’s News

• The Senate dismissed the articles of impeachment against Homeland Security Secretary Alejandro Mayorkas and ruled that they were unconstitutional, ending his trial before it got under way.
• House Speaker Mike Johnson will proceed with a plan, backed by President Joe Biden, to vote on separate bills to provide aid to Ukraine, Israel, and U.S. allies in the Indo-Pacific. The proposed move has raised criticism from some conservative representatives.
• Four Columbia University officials, including the president, Nemat Shafik, testified in a congressional committee hearing about student safety, free speech, and anti-Semitism on campus.
• The Trump Trials : The first days of the criminal case against Donald Trump have been mundane, even boring—and that’s remarkable, George T. Conway III writes.
• The Weekly Planet : The cocoa shortage could make chocolate more expensive forever, Yasmin Tayag writes.

Explore all of our newsletters here.

Evening Read

Something Weird Is Happening With Caesar Salads

By Ellen Cushing

On a November evening in Brooklyn, in 2023, I was in trouble (hungry). I ordered a kale Caesar at a place I like. Instead, I got: a tangle of kale, pickled red onion, and “sweet and spicy almonds,” dressed in a thinnish, vaguely savory liquid and topped with a glob of crème fraîche roughly the size and vibe of a golf ball. It was a pretty weird food. We are living through an age of unchecked Caesar-salad fraud. Putative Caesars are dressed with yogurt or miso or tequila or lemongrass; they are served with zucchini, orange zest, pig ear, kimchi, poached duck egg, roasted fennel, fried chickpeas, buffalo-cauliflower fritters, tōgarashi -dusted rice crackers. They are missing anchovies, or croutons, or even lettuce … Molly Baz is a chef, a cookbook author, and a bit of a Caesar obsessive—she owns a pair of sneakers with “CAE” on one tongue and “SAL” on the other—and she put it succinctly when she told me, “There’s been a lot of liberties taken, for better or for worse.”

Read the full article.

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Stephanie Bai contributed to this newsletter.

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