Pricing is strategy, not just arithmetic

Most businesses set prices based on costs plus a markup, or by copying competitors. Strategic pricing goes further: it uses price as a deliberate tool to achieve specific business objectives, whether that is winning market share, maximising revenue, or positioning against competitors.

Penetration pricing

Setting prices below the market rate to win customers quickly. This works when you need to build scale, when the market is price sensitive, or when you have a significant cost advantage that competitors cannot match.

The risk is that low prices attract customers who will leave when you raise them. Mitigate this by combining low prices with excellent service that creates switching costs.

When it works

New market entry where you need to build a customer base quickly. Markets where scale creates cost advantages (more customers mean lower per unit costs). Situations where the lifetime value of a customer justifies the initial discount.

When it does not work

Markets where quality perception is tied to price. Businesses with thin margins that cannot absorb the short term cost. Situations where competitors can match your price reduction.

Value based pricing

Setting prices based on the value your product delivers to the customer rather than your cost to produce it. If your product saves a customer $50,000 per year, pricing it at $10,000 captures value while delivering a clear ROI.

This strategy maximises revenue per customer and works best when you can quantify the value your product delivers.

Freemium

Offering a free version that delivers genuine value while charging for premium features or higher usage tiers. This works well for digital products and platforms where the marginal cost of additional users is near zero.

The free tier builds market share and awareness. A percentage of free users convert to paid plans, and the conversion rate determines whether the model is viable.

Bundle pricing

Combining multiple products or services at a price lower than purchasing them individually. Bundling increases the total sale value while giving customers a perception of value.

This is particularly effective when you have multiple products that serve the same customer. A customer might not buy each product individually but finds the bundle compelling.

Competitive pricing responses

When competitors cut prices, you have three options: match, differentiate, or concede.

Match. If you can afford to match and the customer base is worth fighting for, match the price and compete on other dimensions.

Differentiate. If you cannot or should not match, emphasise the differences that justify your higher price. Better quality, better service, lower total cost of ownership.

Concede. If the segment being targeted is not profitable for you at the competitor's price, let them have it and focus on segments where you can compete effectively.

Pricing and agents

Your pricing strategy directly affects agent attractiveness. Products priced too high relative to alternatives give agents a harder selling job. Products priced too low may not support attractive commissions.

Find the pricing sweet spot that balances customer value, competitive positioning, and agent commission attractiveness. When these three align, your product becomes one that agents actively want to sell.

Through Zepys, you can test different pricing strategies in different markets and measure the impact on agent recruitment, deal closure rates, and overall revenue.

Testing and iteration

Pricing is never finished. Test different price points, packaging options, and promotional strategies. Measure the impact on volume, revenue, and profitability. Small pricing adjustments can have significant effects on market share.

The businesses that win market share through pricing are those that treat it as an ongoing strategic discipline rather than a one time decision.