Your price is the story you tell the market about who your product is for, what value you deliver, and how you compare to alternatives.
Pricing is not just a number on your product page or pricing sheet. It is a strategic decision that communicates your product’s value, targets specific customer segments, and drives business viability. Many PMs confuse pricing with cost-plus calculations or competitor matching. The trap is that pricing must be anchored in the user’s perceived value, not just your internal costs or what competitors charge.
The stakes are high. Price too low, and you leave money on the table, struggle to sustain your business, or undermine your brand. Price too high, and you lose customers to alternatives. Your actual job as a PM is to find the price point that maximizes value capture for your company while remaining attractive and fair to your customers.
Pricing is about value, not cost
The fundamental equation to remember is:
Price = user’s perceived value
Cost matters — you cannot sell below cost forever — but it is not the primary driver. Users pay for solutions to their problems. The more critical the problem you solve, the more they are willing to pay.
For example, a simple note-taking app and a sophisticated project management tool might cost similar amounts to build. Yet, the project management tool commands a higher price because it saves teams significant time and revenue. Your pricing strategy must reflect that difference.
This is why pricing strategy must align with your product strategy. If your product is premium, your price should signal that. If it’s budget-friendly, price accordingly.
Product strategy review meeting at a SaaS startup in Mumbai
CEO: “Our product is the best in the market. Let’s price it at ₹25,000 per user per year.”
You (PM): “That price only works if customers perceive the value to be that high. Have we validated that with our target segment?”
Sales Head: “Our competitors are pricing at ₹15,000. If we go higher, we risk losing deals.”
You (PM): “Let’s combine value research with competitive analysis before finalizing price. We don’t want to leave money on the table or price ourselves out.”
Balancing perceived value, competitor pricing, and business goals
Common pricing strategies and when to use them
1. Freemium Pricing
Offer a basic version free of charge, while charging for premium features. This strategy works well when you want to attract a large user base quickly and upsell a subset who need advanced functionality.
Example: A project management tool with a free tier for small teams and paid tiers with advanced collaboration features.
2. Subscription Pricing
Charge recurring fees—monthly or yearly. This is common for SaaS products and services where continuous value is delivered.
Example: Streaming services or software platforms charging ₹500 per month.
3. Tiered Pricing
Provide different plans with varying features and prices to target diverse customer segments.
Example: ‘Basic’, ‘Pro’, and ‘Enterprise’ plans, each with increasing features and support.
4. Value-Based Pricing
Price based on the value your product delivers to the customer, not just your costs.
Example: A CRM that saves a sales team 10 hours per week may be priced according to the monetary value of that time saved.
5. Competitive Pricing
Set prices relative to competitors—matching, beating, or exceeding them based on positioning.
Example: Pricing a new project management tool slightly below market leaders to gain market share.
6. Penetration and Skimming Pricing
Penetration pricing means setting low initial prices to gain market share quickly. Skimming means setting high prices initially to capture early adopters willing to pay a premium.
Example: A new tech gadget launched at a high price, then lowered over time.
The role of market structure in pricing
Pricing does not happen in a vacuum. The market structure—monopoly, oligopoly, or highly competitive—affects your pricing power and strategy.
- In a monopoly, you can set higher prices due to lack of alternatives.
- In an oligopoly (few competitors), pricing must be strategic, anticipating competitors’ moves.
- In a highly competitive market, pricing tends to be closer to cost, with differentiation based on features or brand.
For instance, India’s telecom sector is an oligopoly. Pricing often involves strategic discounts or bundled offers rather than pure cost-plus calculations.
Pricing elasticity: the demand-price relationship
Pricing elasticity measures how sensitive demand is to changes in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. It is always a negative number because price and demand move inversely.
- If elasticity is less than -1 (e.g., -1.5), demand is elastic: a small price decrease causes a larger increase in demand.
- If elasticity is between 0 and -1 (e.g., -0.5), demand is inelastic: price changes have less effect on demand.
Understanding elasticity helps you anticipate how revenue will change with price adjustments.
Consider these examples:
| Product | Price Day 1 | Price Day 30 | Quantity Day 1 | Quantity Day 30 | Elasticity | Revenue Change |
|---|---|---|---|---|---|---|
| A | ₹10,000 | ₹8,000 | 1,000 | 1,200 | -1.0 | Revenue down ₹400,000 |
| B | ₹10,000 | ₹15,000 | 2,000 | 1,500 | -0.5 | Revenue up ₹2,500,000 |
Product A’s demand is elastic; lowering the price increased quantity but decreased total revenue. Product B’s demand is inelastic; raising the price reduced quantity but increased revenue.
Advanced pricing strategies in practice
Advanced Cost-Plus Pricing
Cost-plus pricing involves adding a markup to the total cost to ensure profitability. However, advanced cost-plus pricing goes beyond a fixed percentage markup. It incorporates:
- Detailed cost structure analysis (development, licensing, support, overheads).
- Market research on customer value perception.
- Strategic markup factor based on value and competition.
For example, an AI-driven CRM system with a total cost of ₹10,000 per unit might be priced at ₹15,000 after factoring in perceived value and strategic margin.
Advanced Value-Based Pricing
Value-based pricing requires deep understanding of your customers’ needs and willingness to pay. It’s data-driven and customer-centric.
Consider Netflix’s tiered subscription:
- Standard plan priced at ₹650.
- Exclusive content plan adds ₹500 premium based on customer valuation.
The formula is:
Price = Standard Price + Added Value Premium
Competitive Pricing in Market Structures
Pricing in monopoly or oligopoly markets requires strategic positioning.
- In monopolies, companies can charge premium prices due to lack of substitutes.
- In oligopolies, pricing is influenced by competitors’ actions. For example, Indian telecom players often price slightly below competitors to attract price-sensitive customers.
Pricing can be modeled as:
Price = Competitive Base Price ± Strategic Adjustment Factor
Where the adjustment depends on goals like market share or profitability.
Pricing signals your product story
Your price tells customers who your product is for and what value it delivers. It must be honest, strategic, and easy to understand.
If your pricing page confuses customers or the value is unclear, they will hesitate to buy.
Field Exercise: Analyze your product’s pricing tier
Time: 30 minutes
Pick one pricing tier of your product or a key competitor’s. Answer:
- Who is this tier really for? (Customer segment)
- What is the single most valuable feature included?
- Is the price justified by that value, relative to the next tier down or up?
- How clearly is the value proposition communicated on the pricing page?
- Identify one improvement to better align price and value or clarify the offer.
Write down your findings and discuss with your team or mentor.
Test yourself: Pricing elasticity and competitive positioning
You are the PM at a SaaS startup in Bangalore offering a project management tool with three pricing tiers: Basic (₹500/month), Pro (₹1,200/month), and Enterprise (custom pricing). Competitor X recently dropped their Pro tier price from ₹1,200 to ₹1,000, and your sales have dropped by 10% in that segment. Your internal analysis estimates the price elasticity for the Pro tier at -1.2.
The call: How should you respond to the competitor’s price drop? What pricing and positioning actions do you recommend?
Your reasoning:
You are the PM at a SaaS startup in Bangalore offering a project management tool with three pricing tiers: Basic (₹500/month), Pro (₹1,200/month), and Enterprise (custom pricing). Competitor X recently dropped their Pro tier price from ₹1,200 to ₹1,000, and your sales have dropped by 10% in that segment. Your internal analysis estimates the price elasticity for the Pro tier at -1.2.
Your task: How should you respond to the competitor’s price drop? What pricing and positioning actions do you recommend?
your reasoning:
Pricing in the Indian context
India’s market dynamics add complexity:
- Price sensitivity is high. Customers often shop by price, so small changes can cause large shifts in demand.
- Diverse customer segments. From startups to large enterprises, pricing must accommodate different budgets and value perceptions.
- Competitive intensity. Many sectors have aggressive pricing wars (e.g., telecom, fintech).
- Cost structures vary. Infrastructure and support costs differ by region and scale.
Understanding these factors is essential to set prices that customers accept while sustaining your business.
Where to go next
- Explore how to build a product vision that supports pricing: Product Vision and Strategy
- Learn techniques for user research to validate value perception: User Research Methods
- Understand unit economics and financial modeling: Financial Modeling for PMs
- Develop skills in competitive analysis: Competitive Intelligence
PL alumni now work at Razorpay, Swiggy, Meesho, PhonePe, Flipkart, and other leading Indian tech companies.