8 pricing strategies for marketing your business This guide will share eight of the most popular pricing strategies, explain how they work, and help you choose the best one for your business. Written by Emily Clark Updated on 5 September 2025 Our experts We are a team of writers, experimenters and researchers providing you with the best advice with zero bias or partiality. Written and reviewed by: Emily Clark Writer Pricing is undoubtedly one of the most important aspects of any business.Your pricing strategy is a fundamental part of your business plan, and finding the right balance between profitability and customer value is especially important in today’s landscape, where things are much more unpredictable and competitive.With inflation and the cost of living pushing customers to cut back on spending, managing increasingly tight profit margins is becoming more challenging than ever.In this article, we’ll explore eight essential pricing strategies to consider and how to choose the right one for your business. 💡Key takeaways A pricing strategy is the method a company uses to determine the price of its products or services.Popular pricing strategies include economy, freemium, penetration, price skimming, premium, cost-plus, subscription, and dynamic.Your pricing must be compliant with the UK’s Digital Markets, Competition and Consumers Act 2024 and the Competition Act 1998.You should avoid drip pricing, price fixing, and predatory pricing, which are illegal in the UK.When deciding your pricing strategy, you should consider your business goals, costs, market, and competition. In this article, we’ll cover: What is a pricing strategy? 8 pricing strategies for your small business Illegal pricing strategies your business needs to know about How should your business choose the right pricing strategy? What is a pricing strategy?A pricing strategy is a structured approach that businesses use to set the prices for their products or services. You’ll need to use a pricing strategy to decide how you’ll charge, why you’ll charge that amount, and how that price positions you in the market.It’s important to have a solid pricing strategy, as it’ll give your business direction and consistency when setting prices. Without one, you risk overcharging, undercharging, or just confusing your customers.What makes a good pricing strategy?When deciding on your pricing strategy, you should consider the following:Costs: Ensure the price covers expenses and can generate profit.Customer value: How much people are willing to pay for what you offer.Competition: What are your competitors charging?Business goals: For example, maximising profit, increasing market share, or building brand awareness.Economic factors: These could include inflation, supply chain costs, and consumer spending trends. 8 pricing strategies for your small businessChoosing the right pricing strategy is one of the most important decisions you can make as a business. Your chosen strategy determines profitability and influences how customers see you, your competitiveness, and long-term growth.We’ve listed eight of the most common pricing strategies, including how they work, who they’re best suited for, and their benefits and drawbacks.1. Economy pricingEconomy pricing is a strategy where a business sets its products or services at the lowest possible price. The purpose of economy pricing is to attract cost-conscious customers and keep prices competitive, rather than spending a lot on traditional or digital marketing or fancy features.This strategy is best suited for businesses that want to target price-sensitive customers, sell high-volume and low-margin products, and compete in a market where price is a key factor in customer choice. Case study: Aldi Aside from the famous Colin vs Cuthbert dispute, Aldi is a well-known discount supermarket chain that competes with major companies (e.g. Tesco and Sainsbury’s), while keeping prices low for budget-conscious shoppers.Aldi’s strategy is based on Everyday Low Prices (EDLP) and cost leadership, which it achieves by offering store-brand products, limited product ranges, and a simple store layout to cut overhead costs.Despite the low prices, Aldi has remained profitable by selling high volumes of fast-moving products, in turn building a good reputation for affordability and reliability. Pros Attracts budget-conscious customers Potential for high sales volume Simple and easy to implement Competitive advantage in certain markets Cons Low profit margins per unit Perception of lower quality Limited flexibility for added value (e.g. premium features) Vulnerable to cost increases (e.g. production or operational costs) 2. Freemium pricingFreemium pricing is when a business offers a basic product or service for free, while charging a premium price for advanced upgrades or special features. The idea is to attract a large user base with the free offering, and then convert a portion of those users into paying customers.Freemium works best for businesses that offer digital products or services, such as software, apps, online tools, or platforms, where the cost of serving additional free users is relatively low. Case study: Spotify Spotify is one of the most well-known companies in the world that uses a freemium revenue model. It offers a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee.Users on the free version can listen to music at no cost, but they will periodically hear an ad or two in between songs. With the premium service, there are no ads or interruptions, and users can also stream music offline. Pros Attracts a large user base quickly Builds brand awareness Encourages upgrades to premium Scalable in digital businesses Cons Risk of low conversion rates High ongoing costs for supporting free users Some users may undervalue a product if it's offered for free A complex balance is needed (offering enough in the free version, but reserving enough features to incentivise upgrades) 3. Penetration pricingPenetration pricing is a strategy of setting a low initial price for a new product or service to attract customers quickly and gain market share. The goal is to “penetrate” the market fast, build a customer base, and then gradually increase prices once the product is established.Businesses that are launching a new product or entering a new market can benefit the most from penetration pricing, as the low price can help attract early customers and build and market a presence. These could include streaming services, tech startups, or hospitality firms. Case study: Netflix While now a market leader, Netflix is a prime example of a business that successfully used penetration pricing to its advantage when it first launched back in 1997.Starting as an online ecommerce business for movie rentals, Netflix initially used low price points to attract customers away from Blockbuster, which was its largest competitor at the time.Its original package offered tiered price points and allowed customers to rent three DVDs at the same time for $14.99, equating to just over $1 per DVD, per month. Along with its streaming service introduced in 2007, this strategy helped Netflix pull in subscribers and gain a competitive advantage. Pros Quickly attracts customers Encourages repeat purchases Builds brand awareness Discourages competitors Cons Businesses may make little to no profit at the start Risk of price sensitivity (customers may expect low prices permanently) A very low price could risk a perception of low quality The business must have enough cash or resources to survive the low-profit period 4. Price skimmingPrice skimming is a strategy where businesses set high prices for their product or services during the introductory phase, then gradually lower the price over time. The goal is to maximise revenue from early adopters who are willing to pay a premium, before attracting more price-sensitive customers later.Price skimming is best suited for businesses looking to launch innovative or unique products that have little or no competition. It also works well for businesses that already have a strong brand reputation, as customers are more willing to pay a premium price for quality or exclusivity. Case study: Apple One industry that’s synonymous with price skimming is the smartphone market, and Apple is the industry leader.When Apple launched its first iPhone to the market in June 2007, it had a high price of $499 for the 4GB model and $599 for the 8GB model, despite being an entirely new product at the time.Apple has since evolved its approach to price skimming, and gradually reduces the price or offers older models at lower prices. On the other hand, it maintains its profitability by increasing the value of its future iterations. In the Apple shop, the iPhone 16 is priced at £799, while the iPhone 16 Pro costs £999*.*Prices correct as of September 2025 Pros Maximises early revenue Ideal for products with high research, design, or launch costs Positions the product as premium Allows gradual market expansion (prices can be lowered over time to attract budget-conscious consumers) Cons May limit initial sales volume (high prices can deter some customers) High margins can tempt competitors to enter the market quickly The business must already have a strong brand reputation Risk of backlash (early buyers may feel frustrated when prices drop shortly after launch) 5. Premium pricingPremium pricing is when a business intentionally sets its prices higher than competitors, primarily to promote superior quality, exclusivity, or luxury. Instead of competing on price, the goal is to appeal to customers who are willing to pay more for better value.This strategy is best for businesses that offer high-quality/luxury products or services, have strong brand recognition, and a target market of affluent or status-conscious customers. It also works well for businesses that want to offer products that stand out from competitors (and therefore, require higher prices), or services that focus on exceptional customer experience or added value. Case study: Rolex Luxury watchmaker Rolex uses premium pricing to position its watches as symbols of status, craftsmanship, and exclusivity. The high price is set to reflect the best-quality materials, meticulous engineering, and a prestigious brand reputation.While other watch brands offer similar functionalities at lower prices, Rolex maintains a strong demand because customers associate the brand with prestige and long-term value. This allows the company to maximise profit margins while maintaining its image as a leader in luxury watches. Pros Higher profit margins Stronger brand perception Attracts status-conscious customers (who are more willing to pay) Less direct competition on price Cons Limits market size (can exclude price-sensitive customers) Requires constant delivery of value Risk of being undercut (competitors offering similar products at lower prices could attract buyers) Any perceived drop in quality or service can damage brand reputation 6. Cost-plus pricingCost-plus pricing is when a business determines the price of a product or service by calculating the total cost of production (e.g. materials, labour, overhead) and then adding a predetermined profit margin (or “markup”) on the final selling price. This method ensures all costs are covered, and it doesn’t rely on market demand or competitor pricing.This strategy fits best with businesses that have a predictable production cost, sell standard or custom products/services, and operate in less price-sensitive markets. It’s also the best choice for those who want simplicity in their pricing and want to make sure costs are covered properly. Case study: Boeing Aerospace company Boeing often uses cost-plus pricing for government contracts, particularly military aircraft. In these contracts, Boeing calculates the total cost of production, including materials, labour, overhead, and R&D, and then adds an agreed-upon profit margin.This strategy ensures that the company can cover all costs for highly complex and custom products, while making a predictable profit. It also gives the government transparency, as they know exactly how much is spent on production, plus the markup. Pros Simple to calculate Ensures costs are covered Predictable profit margins Transparent and fair (especially for contracts or B2B situations) Cons Ignores market demand (prices may be too high or low compared to what customers are willing to pay) Doesn't consider competition (competitors might undercut prices) Can lead to inefficiency (less incentive to control costs, since a markup guarantees profit) Not ideal for products with fluctuating costs or markets with varying price sensitivity 7. Subscription pricingThe subscription business model is where customers pay a recurring cost at regular intervals (e.g. monthly or annually) for continuous access to a product or service. This approach best suits businesses that offer ongoing value or services, where customers need continuous access, such as software, media or membership-based offerings.That being said, the UK government announced plans last year to crack down on businesses misleading or pressuring customers to sign up for recurring payments, known as “subscription traps”. This new proposal includes making the refund and cancellation process simpler, with companies being required to be more transparent about their subscription service, protecting consumer rights while avoiding unnecessary burdens on businesses. Case study: Gousto Founded in 2012, Gousto’s meal kit delivery service offers pre-measured ingredients and easy-to-follow recipes, helping busy customers save time while still enjoying fresh, home-cooked meals.Gousto’s approach and ability to tap into the demand for meal kit delivery services saw the company earn unicorn status in 2021. It also attracted a new customer base by offering vegan and gluten-free options.The business also offers flexibility in its subscription model. Instead of charging a fixed price at a set interval, customers can choose whether they want their boxes delivered weekly, fortnightly, or monthly. The price also depends on the number of recipes and portion sizes chosen. Pros Predictable revenue Subscribers are more likely to return regularly Lower acquisition costs over time Easy to add tiers, upgrades, or exclusive perks Cons Risk of customer churn (they may cancel if they don't see ongoing value) The risk of subscription fatigue (customers can get frustrated with managing multiple recurring payments) Operational pressure (need to consistently deliver high value and reliability) Many sectors are saturated with subscription options 8. Dynamic pricingDynamic pricing is a flexible pricing strategy in which the price of a product or service changes in real time (or close to real time), based on factors such as demand, supply, competitor pricing, seasonality, or consumer behaviour. This approach works well for multiple sectors, including travel and transport, hospitality and retail, and ecommerce.In June 2025, the UK’s Competition and Markets Authority (CMA) released new guidance for businesses using the dynamic pricing strategy. These guidelines were introduced to prevent practices that could harm or mislead consumers, such as price discrimination without transparency (e.g. charging different prices based on personal data without making it clear), unfair surge pricing, and hidden fees. Case study: British Airways Airline companies have long been pioneers of dynamic pricing, and carriers like British Airways (BA) use sophisticated algorithms to adjust fares in real-time.Ticket prices change based on booking time, seasonality, and even competitor activity. For example, fares tend to increase when the departure date comes closer, especially on busy routes or during holiday periods (e.g. summer or Christmas). This strategy allows BA to fill more seats early with lower fares, while charging higher prices to last-minute travellers. Pros Maximise revenue (you can charge higher prices when demand is high) Allows businesses to respond quickly to competitor pricing Adjust to seasonality, events, and changing market conditions in real time Better capacity utilisation (e.g. helping airlines, hotels, and venues avoid empty seats or rooms) Cons Rapid price changes can feel unfair or confusing to customers Regulatory scrutiny, particularly from the UK's CMA Requires strong data systems, algorithms, and monitoring Algorithms may accidentally disadvantage certain groups Illegal pricing strategies your business needs to know aboutAdopting the right pricing strategy can help boost growth and profitability, but using an illegal approach can land your business in serious hot water, legally and financially. Below are illegal pricing strategies that your business should avoid at all costs.Drip pricingDrip pricing is a deceptive sales tactic that was banned in the UK in April 2025 under the Digital Markets, Competition and Consumers Act 2024. Before, a business could advertise a product or service at a low price, but then add mandatory, unavoidable charges later in the transaction process, such as booking or admin fees. Under the UK’s new law, businesses must now disclose all costs to prevent consumers from being misled.Price fixingPrice fixing is an illegal practice where businesses agree (formally or informally) to set prices at a certain level, rather than letting supply and demand determine this. This can involve agreeing to charge the same price for a product/service, setting minimum or maximum prices in collaboration with competitors, or offering discounts at the same time. Price fixing is illegal in the UK under the Competition Act 1998 and is considered a cartel offence, which can result in severe penalties, such as 10% of global turnover.Predatory pricingA fitting name, as it involves a dominant company abusing its market power. Predatory pricing involves a company with significant market power setting prices extremely low, often below its own costs, and selling at a loss to eliminate competitors. Prices are then raised again once the competition is gone. Much like price fixing, predatory pricing is also illegal under the Competition Act 1998. How should your business choose the right pricing strategy?There are three main factors you should consider when deciding on your pricing strategy: your business goals, costs, and your market and competition. Here’s a quick rundown of what you should do to determine your pricing approach.Define your business goalsDetermine what you want to achieve with your pricing. For example, this could be maximising your profit margins on sales or gaining market share through competitive pricing. Other examples include attracting new customers and expanding your customer base, or positioning your brand in a certain way (e.g. high quality or affordable) with your pricing.Understand your costsYou should also understand both your fixed and variable costs so that your pricing can cover essential costs, such as production, overheads, and profit margins. You should look into the typical price range for similar products/services, and the most common kind of pricing strategies that are used in your industry.Analyse the market and competitionResearch your industry, target audience, and competitor pricing. Look into competitors’ pricing strategies to find opportunities to differentiate your offerings. From there, you should decide whether you want to match, undercut, or differentiate your prices based on market demand and customer expectations.ConclusionDeciding on your pricing strategy is a significant part of starting a business, and it’s not something you should decide on a whim. Instead, you should consider your goals, costs, and what your competitors are doing, so that you can set prices that make sense for your customers and keep your business profitable.The key thing to remember is to find the balance between offering value to your customers and gaining profit. When done right, your pricing can quickly become one of your strongest tools for growth and success.Turn your ideas into action. Check out our free business plan template and step-by-step guide to help get your business on track. Share this post facebook twitter linkedin Written by: Emily Clark Writer Having worked in a startup environment first-hand as a Content Manager, Emily specialises in content around organisational culture - helping SMEs build strong, people-first workplaces that stay true to their core values. She also holds an MSc in Digital Marketing and Analytics, giving her the knowledge and skills to create a diverse range of creative and technical content. Aside from her expertise in company culture, her news articles breaks down the big issues in the small business world, making sure our SME audience stays informed and ready for whatever’s next. With a genuine passion for helping small businesses grow, Emily is all about making complex topics accessible and creating content that can help make a difference.