# What is Pricing Strategy?

What is Pricing Strategy? The strategy for setting a product's price.

## How it works in practice

Price isn't just a number — it's a positioning statement. Low price: 'we're the best value.' High price: 'we're premium.' Mid-price with no differentiation: 'we're just like everyone else.' The question isn't 'what's the cheapest we can sell for?' but 'what price expresses our value?'

## Related metrics

- Gross Margin — Pricing determines Margin
- Contribution Margin — Pricing must cover Contribution
- Competitive Analysis — Pricing benchmarked against the market
- COGS — Pricing must cover at least COGS × 2

## Common misconception

'Lowering price = more sales.' Not always. A price that's too low breeds suspicion (what's wrong with it?). Studies show: a 1% price increase = an 11% increase in average profit — because volume is hurt less than managers assume. Price sensitivity is usually smaller than executives believe.

## How to fix it

Price isn't working? (1) Run an A/B test on price — two audiences, different prices, measure CR and revenue, (2) Van Westendorp Price Sensitivity survey — ask customers 4 pricing questions, (3) Check competitor pricing — are you an outlier? (4) Add a decoy price — a mid-tier product that makes the 'premium' option look reasonable.

## Real-world example

Coffee shop: capsules priced at $0.50/unit. Competitor: $0.58. Considered dropping to $0.44. A/B test: $0.50 vs $0.55. Result: $0.55 — CR dropped 3%, revenue rose 8.5%. Profit grew. They didn't lower the price.

## Where to start

Run a quarterly price review. Minimum calculation: COGS × 3 = a reasonable market price (rule of thumb). Beyond that: value-based analysis. The easiest tool: a Van Westendorp survey to 100 customers — 30 minutes with clear findings.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/pricing-strategy