Key Pricing Strategies

Pricing is one of the most powerful levers you have as a product manager. Set it too low, and you leave money on the table. Set it too high, and you lose customers. This is not a guessing game. Pricing must be a deliberate, strategic decision grounded in your product’s value and your market context.

Your actual job is to develop a pricing strategy that reflects the value your product delivers, fits your business goals, and appeals to your target customers. Everything else — from marketing to sales to finance — flows from that.

Price is a signal, not just a number

Price tells your market a story: who your product is for, what problem it solves, and how it compares to alternatives. Customers don’t just pay for features or costs — they pay for solutions to their problems. The more critical and unique the solution, the higher the price they will accept.

Consider two Indian SaaS products: a basic note-taking app and a sophisticated project management tool. Even if the cost to build them is similar, their prices differ dramatically. Why? Because their users perceive very different value.

Common pricing strategies and when to use them

Pricing strategies are not one-size-fits-all. Different products, customer segments, and markets require different approaches.

1. Freemium Pricing

Offer a basic version free, with paid premium features. This is common for SaaS and consumer apps.

• Example: A project management tool that lets users create unlimited tasks for free but charges for advanced analytics or integrations.
• Pros: Low barrier to adoption, viral growth potential.
• Cons: Risk of free users never converting, cost of supporting free tier.

2. Subscription Pricing

Charge a recurring fee — monthly or yearly. This model fits products with ongoing value delivery.

• Example: An Indian fintech app charging ₹299/month for premium budgeting features.
• Pros: Predictable revenue, easier to forecast growth.
• Cons: Requires continuous value delivery to justify renewals.

3. Tiered Pricing

Offer multiple plans with increasing features and prices to capture different willingness-to-pay segments.

• Example: Swiggy Plus with basic free delivery, a mid-tier plan with priority support, and a premium plan with exclusive offers.
• Pros: Segments customers, maximizes revenue across segments.
• Cons: Complexity in managing plans, risk of cannibalization.

4. Value-Based Pricing

Price based on the value your product creates for the customer, not just cost.

• Example: A CRM that saves a sales team 10 hours a week might price its license based on the revenue generated by that saved time.
• Pros: Captures maximum potential revenue, aligns price with customer ROI.
• Cons: Requires deep customer insight, can be complex to calculate.

5. Competitive Pricing

Set prices relative to competitors: match, beat, or premium.

• Example: An Indian SaaS startup pricing just below a dominant competitor like Freshworks to gain market share.
• Pros: Easy to justify price, useful in commoditized markets.
• Cons: Can lead to price wars, ignores unique value.

6. Penetration and Skimming Pricing

Penetration: Start low to gain market share, then raise prices.

Skimming: Start high to capture early adopters, then lower prices.

• Example: A new Indian edtech platform offering low introductory prices to attract users.
• Pros: Supports growth or margin maximization.
• Cons: Risk of customers expecting low prices indefinitely.

The value equation: price = perceived value, not cost plus margin

Many PMs confuse pricing with cost-plus margin calculation. This is a trap.

The user pays for the solution to their problem and the value it creates — not for your development cost. Your cost is a floor, not a target.

Align pricing with product strategy

Your pricing strategy must reflect your product’s positioning and business goals.

• Is your product premium or budget?
• Are you targeting mass adoption or high-value enterprise clients?
• Is your goal market share or profitability?

For example, Razorpay’s pricing for payment gateway services balances transaction fees against volume discounts, reflecting their target of scaling adoption while maintaining unit economics.

Market dynamics affect pricing power

Pricing power depends on your market structure:

• Monopoly: You can set higher prices because of lack of alternatives.
• Oligopoly: Pricing is strategic; you must consider competitors’ moves.
• Highly competitive markets: Price sensitivity is high; differentiation matters.

For instance, in India’s telecom oligopoly, pricing plans are closely watched and adjusted to stay competitive.

Advanced pricing in practice: the Netflix lesson

Netflix nearly lost 800,000 subscribers and saw a 77% drop in stock price when it split DVD and streaming services, causing a sudden 60% price hike. The lesson: pricing communicates value and must be clearly explained and aligned with user expectations.

Netflix’s introduction of tiered pricing allowed them to capture different segments and increase ARPU gradually — a masterclass in pricing strategy.

The PM’s role in pricing

Pricing is not just finance’s job. As a PM:

• You understand the user problem and value.
• You influence how pricing shapes product usage and adoption.
• You balance customer willingness to pay and business sustainability.
• You collaborate with sales, marketing, and finance to communicate and iterate pricing.

Pricing trade-offs: examples from Indian product teams

Field exercise: Analyzing your product’s pricing strategy (15 min)

Pick one pricing tier of your current product or a competitor’s. Write down:

1. Who is this tier really for? (customer segment)
2. What is the single most valuable feature or benefit included?
3. How does the price reflect the value delivered to that segment?
4. Is the price justified relative to the next tier down or up?
5. How clearly is this value communicated on the pricing page?
6. Identify one improvement you could make to better align price and value.

Judgment exercise

Alumni callout

PL alumni now work at Flipkart, Google, Razorpay, PhonePe, Swiggy, Amazon, Microsoft, and 30+ other companies.

Where to go next

• If you want to master customer insights for value-based pricing: User Research Methods
• If you want to connect pricing to business metrics: Metrics and KPIs
• If you want to build a compelling product vision that informs pricing: Product Vision and Strategy
• If you want to explore financial trade-offs beyond pricing: Financial Modeling for PMs