How to pick a pricing strategy that works for your business

I decided I wanted to put my research focus on pricing psychology in December 2016.

I already knew quite a bit about the topic at the time. Sure, I paid attention in my macro-econ course in college. And I’d learned hands-on fundamentals of menu pricing during my restaurant management days. I’d drilled into active yield management as part of my work setting room rates for our resort during eight years as Lodging Director. Then, I’d tied it all together selling directly to hundreds of couples and booking millions of dollars in catering.

But my pricing strategy education accelerated when I started learning through field experiments and case studies in behavioral economics. Over the past 15 years, I’ve read dozens of papers, articles, and books on pricing. I’m currently enrolled in a behavioral economics program at Texas A&M, which has included a course specifically on the psychology of pricing. 

I’ve spoken at dozens of workshops and conferences on pricing. It’s a frequent topic asked of me for podcast episodes. I’m currently in the editing stage of publishing a full-length, 250-page book specifically on pricing for wedding professionals.

All this to say, I know you get a lot of advice about pricing – and I hope you can trust me on it. 

The most important piece of advice I can offer is to remember you can charge for your services any number of ways. 

Pricing strategies for wedding pros:

Here are 12 pricing strategies anyone can consider:

1. Premium

2. Value-based

3. Freemium

4. Hourly

5. Partition

6. Penetration

7. Competitive

8. Bundle

9. Dynamic

10. Cost-plus

11. Flat rate

12. Percentage-based

Keep this in mind, though:

No single strategy is the right one for everyone.

I’ve recommended all of these pricing approaches to different clients at one time or another. In fact, I’ve recommended different strategies for the same client but at different times based on where they were at with their business and how their buyers were responding. 

What you charge is different than how you charge:

Today I want to share three general pricing strategies you can choose from to sell your services. 

1. Penetration

2. Competitive

3. Premium

I picked these three because they’re overarching approaches. They’re the “what” you are going to charge your clients compared to others in the marketplace: 

1. Lower than average

2. Middle of the pack

3. Higher than average

Other tactics that I mentioned above, like flat rate or percentage, or value or cost-plus or hourly, are “how” you charge for your services.

For instance, as a wedding planner you could charge premium prices and do so with either a) a flat rate or b) a percentage. Either method gets you to a similarly higher-than-average price compared to the rest of the market.

3 general pricing strategies for 3 different goals:

Here’s a quick summary of the three approaches…

Penetration pricing intentionally lowers prices below market value in order to gain traction with an audience. It’s a good strategy to make an immediate and fast impact, but it’s not sustainable for the long run. 

Competitive pricing focuses on what others are charging as the primary criteria for your own prices. You can come in lower, the same, or higher than comparable providers, but you’re looking around to use those as benchmarks for your own prices. 

Premium pricing strategies intentionally charge high prices in order to convey high quality. The strategy plays on the powerful “price-quality effect.” Humans are prone to see higher priced items as higher quality, and also lower priced items as lower quality. 

Picking your pricing strategy:

So which approach is right for you? It depends on where you’re at with your business and what goals you have in the coming months. 

If you’re just getting started, offering a new service, or trying to break into a new geographical market, penetration pricing might be a good option to begin with. You don’t have to undercut or do it for long, but you can certainly use it as a short-term, tactical approach.

If you’re interested in exploring the luxury market, premium pricing is a strategy to consider. If you keep your current prices and come in significantly less expensive than other vendors, then couples will wonder, “Why are you so cheap? What’s wrong with you?” Increasing your rates will prevent this from happening. For those already in the luxury space and looking to level up into the ultra-luxe market, this is especially important to consider when setting your prices.

If you’re neither starting out nor looking to level up into luxury prices, you’ll likely do best with a competitive pricing approach. Learn who your perfect buyers are also considering, and decide if you want to come in just under, the same or a little above what they’re charging. It’s almost like using a miniature version of a penetration or premium pricing strategy, but relative to the immediate comp set.

Listen to those who matter most:

Remember, the best people to tell you what works for your pricing strategy are your buyers. They vote with their wallets, and that’s what counts. But use the quick summary above to make a more informed decision on what structure to present with the highest likelihood to achieve your goals.