The Four Pricing Strategies

Quick Insight

The four strategies and the name for each are:
  1. Premium pricing: High price now, high price in the future
  2. Penetration pricing: Low price now, high price in the future
  3. Pricing skimming: High price now, low price in the future
  4. Loss leader: Low price now, low price in the future
Read further to learn how to use each.

You can set your price high or low either now or in the future. This creates a matrix of four options. Below are the four strategies and the name for each:

  1. Premium pricing: High price now, high price in the future
  2. Penetration pricing: Low price now, high price in the future
  3. Pricing skimming: High price now, low price in the future
  4. Loss leader: Low price now, low price in the future

Here’s a little more about each strategy:

Premium pricing: You’ve built a loyal fan base. Your competence, confidence, and credibility command a high price from the beginning. Continued support from new and old fans means you never need to drop your price. You usually need to have other products that built trust with your customers to get premium pricing.

Penetration pricing: The low price allows many customers to have a good experience with your product. The trust you build allows you to charge a higher price in the future. If you are in the market early, your low initial price slows competitors from entering the market. You can also use penetration pricing to gain market share when you are new to an existing market.

Price skimming: Competitors see the high profits of your early product pricing and develop similar products. They will likely enter the market at a lower price than you to get market share. Lower your price as competition increases to reduce your loss of market share to these new entrants.

Loss leader: They’re called “loss leaders” because the price may be below your costs for the product. You use this strategy to build trust with new customers. You don’t have their trust in the beginning, so they buy your product based on its low price. However, delighting them builds trust. They will look more at your value than your price once they trust you. And they will buy your other products for that value.

I wish you the wisdom to know how your products fit together into these four strategies. I wish you well.


- Rob Stephens

Further Insight

CFO Perspective Resources

  • Video: Pricing Strategies for More Profit and Customer Engagement - You’re fulfilling your customers’ dreams. Your customers are delighted with their experience with you. Now, as a business, can you charge for this? Customers are willing to give you their valuable dollars when you give them value. How do your customers know whether your prices are a good deal for the value they are receiving?
  • Course: Marginal Profitability Analysis - Marginal Profitability Analysis provides relevant decision information for setting prices, product design and product profitability. The course provides practical examples of making decisions with marginal profitability analysis.

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