Key Pricing Strategies

Pricing is not just a number you slap on your product. It is the story you tell the market about the value you deliver and the position you occupy. The price you set influences who buys your product, how they perceive it, and ultimately whether your business survives.

The trap is to think pricing is just cost plus a margin — that’s the easiest mistake product managers make. You will lose money or leave money on the table if you do that. Pricing must reflect the perceived value to your customers and align with your overall product strategy.

This page teaches you the five most common pricing strategies you will encounter in your career, how to think about value-based pricing in particular, and how to connect pricing to your product’s success in the Indian market.

Pricing is the value customers are willing to pay

Remember this: price = user’s perceived value — not just cost + margin.

Users pay for solutions to their problems. The more critical the problem, the higher the price they tolerate. For example, a simple note-taking app will be priced very differently from a sophisticated project management tool, even if their development costs are similar.

Your pricing strategy must support your product strategy. Are you building a premium product or a budget-friendly solution? Are you targeting enterprises or individual consumers? Your price must tell that story clearly.

The five common pricing strategies you will use

You will encounter these five strategies repeatedly. Each fits different products, markets, and business goals.

Cost-plus Pricing: The simplest but limited tool

Cost-plus pricing starts with calculating your total cost per unit — development, hosting, support, marketing — then adds a markup percentage for profit.

This is straightforward but ignores customer willingness to pay. The trap is pricing too low and leaving money on the table, or pricing too high and scaring customers away.

Example: If your product costs ₹1,000 to build and you add 20% markup, you price at ₹1,200. But if the customer perceives value worth ₹5,000, you lose profit potential.

Cost-plus is common in manufacturing and physical products but less effective for SaaS or differentiated products.

Competitive Pricing: Match or beat the market

Competitive pricing sets your price in relation to rivals. You might price slightly below to win customers or above to signal premium quality.

This strategy works when products are similar and customers compare prices directly. The risk is price wars and ignoring your unique value.

Example: If Swiggy charges ₹50 delivery fee, a new player might charge ₹40 to attract price-sensitive users.

Competitive pricing requires constant market monitoring and adjustment.

Value-based Pricing: Price for the value you create

Value-based pricing sets price based on how much your product is worth to customers, not your costs.

This requires deep understanding of customer ROI — time saved, revenue generated, risk reduced.

Example: Razorpay prices its payment gateway based on transaction volume and value delivered to merchants, not just infrastructure cost.

Value-based pricing captures maximum revenue and aligns price with customer benefit. It’s complex but critical for differentiated products.

Price Skimming: Start high, then lower

Price skimming launches your product at a high price to capture early adopters willing to pay a premium, then gradually reduces price to attract mass market.

This recovers R&D costs quickly but risks alienating price-sensitive customers if done poorly.

Example: Apple launched the iPhone 12 around ₹90,000 in India and reduced prices over time.

Skimming is suitable for innovative products with high initial demand.

Penetration Pricing: Start low to win market share

Penetration pricing offers a low initial price to attract customers quickly, then raises price once you have scale and loyalty.

This works in highly competitive, price-sensitive markets but requires capital to sustain early losses.

Example: Jio offered free calls and data at launch, then introduced paid plans after gaining a huge subscriber base.

Penetration demands strong execution on customer retention.

How to apply value-based pricing in practice

Value-based pricing is the most powerful but also the hardest. It requires you to:

1. Understand your customer’s problem deeply.
   What is the business or personal impact of your solution? How much time, money, or risk does it save?

2. Quantify the value delivered.
   Use data and customer interviews to estimate the dollar or rupee value of benefits.

3. Segment your customers.
   Different segments may perceive value differently and have different willingness to pay.

4. Price to capture a fair portion of value.
   You don’t want to charge the full value and scare customers, but enough to sustain and grow your business.

5. Communicate value clearly.
   Your pricing page, sales team, and marketing must explain why the price is justified.

Example: Netflix’s tiered pricing

Netflix learned pricing the hard way. When they split DVD and streaming services in 2011, customers faced a 60% price increase and backlash followed.

Netflix recovered by introducing tiered pricing based on features like simultaneous streams and video quality — Basic, Standard, Premium.

This allowed Netflix to capture different willingness-to-pay segments, increase average revenue per user, and grow globally.

Example: Grammarly’s feature and segment pricing

Grammarly uses a value-based approach with plans for individuals and businesses, charging more for advanced features and larger teams.

They align price with the value of better writing, team collaboration, and enterprise controls — matching customer needs and budgets.

Pricing is competitive positioning

Your price sends a signal to the market:

• A low price signals affordability or entry-level.
• A high price signals premium quality or exclusivity.
• Matching competitors can indicate parity or commoditization.
• Undercutting competitors can spark price wars but gain share.

Pricing is part of your product’s story. It shapes who buys, how they perceive your product, and how you compete.

Pricing in the Indian market context

India’s market has unique challenges and opportunities for pricing:

• Cost sensitivity is real. Customers expect value for money and often compare alternatives closely. Penetration pricing and tiered pricing work well here.

• Diverse customer segments. Urban metro users differ from tier-2/3 city customers. Pricing and packaging must reflect this diversity.

• Rapidly evolving markets. New entrants can disrupt pricing norms quickly (e.g., Jio’s telecom pricing).

• Digital payments and subscriptions are growing. Indian SaaS companies like Razorpay and Postman succeed by aligning pricing with Indian business realities.

Pricing is a core PM responsibility

Pricing is not just finance or sales. As a product manager, you must:

• Define pricing strategy aligned with product value and business goals.
• Work with finance and sales to set final prices and discounting policies.
• Monitor pricing performance and iterate based on market feedback.
• Understand the impact of pricing on adoption, retention, and revenue.

Pricing directly influences your product’s success and your company’s viability.

Pricing decisions play out in real conversations

Test yourself: Pricing strategy choice

Field Exercise: Analyze your product’s pricing tier

From the field: Pricing lessons from Indian SaaS

Where to go next

• If you want to master product strategy fundamentals: Product Thinking
• If you want to understand how to measure value: Metrics and KPIs
• If you want to learn pricing negotiation tactics: Stakeholder Management
• If you want to explore SaaS-specific pricing: SaaS Product Management

PL alumni now work at Razorpay, Postman, Swiggy, Flipkart, PhonePe, and 50+ other companies.