Pricing Strategies for New Entrepreneurs

Why Everything Costs What It Does

The other day, I was standing in the pasta sauce aisle at Wegmans trying to decide which jar to buy. Do I grab the Wegmans store brand or go with a name brand? And if I choose the store brand, which tier do I even want—Normal? Amore? Classico?

Every jar looked slightly different. One promised “authentic Italian flavor,” another emphasized organic ingredients, and another was simply… cheaper. Wherever you go, there are endless choices, each trying to distinguish itself from competitors in subtle ways. But if they’re all selling pasta sauce, why do the prices vary so much? Who decides what each product is worth, and why are customers willing to pay it?

The answer lies in pricing strategies.

Pricing Is More Than Just a Number

Pricing isn’t random. It’s a strategic decision shaped by costs, competitors, customer expectations, and brand positioning. While the market ultimately decides what a product is worth, businesses influence that decision through how they price and present their offerings.

If you’re building anything—a side hustle, an app, a physical product—you’re going to face this exact decision. Price too high and no one buys. Price too low and you can’t sustain the business. The difference between those outcomes? Understanding pricing strategy. Companies weigh costs, competition, customer perception, and brand goals to land on those shelf prices. And while the number you see is simple, the thinking behind it usually falls into five main pricing strategies you should know.

1) Cost-plus pricing: take the cost of producing and selling a product and add a fixed markup to guarantee profit. This strategy works especially well in stable industries with predictable costs or companies managing large product portfolios. However, it ignores customer perception. If a similar product is cheaper elsewhere, customers may not see a reason to choose the higher-priced option, especially in saturated markets.

Real World Example: Costco’s Kirkland Signature brand. Costco is transparent about keeping markups low, often around 10–15%. Instead of trying to squeeze maximum profit out of each item, Costco focuses on efficiency, volume, and customer trust. By offering high-quality products at predictable, fair prices, Kirkland reinforces the idea that shoppers are getting strong value without needing to hunt for deals. The result is customer loyalty and repeat purchases, which allow Costco to thrive on volume rather than margins. 2) Competitive pricing: relies heavily on what others in the market are charging. In markets where products are nearly identical and customers are highly price-sensitive, matching competitors helps maintain market share. The downside is that this strategy can trigger price wars, slowly eroding profit margins as companies race to stay competitive.

Real World Example: Gas stations. BP, Exxon, and 7-11 stations down the street from each other often charge nearly identical prices, sometimes adjusting multiple times in a single day. Because gasoline is essentially a commodity, most customers perceive little difference between brands, so even a few cents’ difference can determine where someone pulls in. Stations constantly monitor nearby prices and respond almost immediately to avoid losing volume. Next time you're on Barracks Road, keep your eye out for the gas prices to see this pricing strategy in action.

3) Price skimming: involves launching a product at a high price and gradually lowering it over time to capture more price-sensitive customers. This strategy works best in innovative, tech-driven industries where demand is strong and competition is initially limited. The risks, though, are mistiming price reductions or failing to deliver on the product’s promised value.

Real World Example: Apple. When a new iPhone, iPad, or MacBook launches, early adopters are willing to pay a premium to be among the first to own the latest model. These customers value innovation, status, and cutting-edge features enough to accept a higher price upfront. Months later, prices begin to soften; promotions appear through carriers, trade-in incentives become more generous, and slightly older models are sold at lower price points (this is when I tend to upgrade). By gradually lowering prices, Apple expands its reach to more price-sensitive consumers without diluting the brand’s premium image.

4) Penetration pricing: entering the market with a low price to attract customers quickly, even if margins are thin or negative at first. This strategy is effective for new entrants in price-sensitive markets, but it’s risky. Customers may come to expect low prices, and competitors may respond aggressively, leading to pricing wars that hurt everyone involved.

Real World Example: Netflix. In its early years, Netflix offered subscriptions far cheaper than traditional cable. By lowering the barrier to entry, Netflix attracted millions of users, encouraged them to abandon cable, and embedded itself into everyday entertainment habits. The initial goal was growth, not immediate profit. As the customer base grew, Netflix benefited from economies of scale, and once the platform became a household staple, it gradually began raising prices (and yes… people definitely noticed).

5) Value-based pricing: driven by how much customers believe a product is worth, not by how much it costs to make. This approach works especially well in premium or niche markets where products are clearly differentiated. However, it requires a deep understanding of customer perception. If a brand overestimates how much value customers assign to a product, higher prices can quickly lead to lost sales.

Real World Example: Lululemon. Its leggings, athletic wear, and accessories are priced significantly higher than many competitors, even though similar products exist at lower price points. Customers aren’t just paying for fabric; they’re paying for perceived value rooted in Lululemon’s reputation for quality, performance, and the lifestyle the brand represents. The risk? If trust in the brand weakens, customers quickly start questioning whether that premium price is still worth it.

Why Pricing Strategy Matters

Choosing the right pricing strategy does more than hit revenue goals. It shapes how people see your brand. Price sends signals about value, quality, and convenience, and those signals influence whether customers stick around, upgrade to something better, or start shopping elsewhere. Everything ultimately comes back to the price threshold or ceiling, also known as the highest price customers are willing to pay while still staying loyal. Higher prices do not always mean lower demand, just like lower prices do not automatically lead to higher profits.

So the next time you’re standing in a grocery store aisle debating between store-brand pasta sauce and a premium jar with Italian lettering, remember that those prices are not accidental. They are the result of deliberate strategies designed to appeal to different customers, priorities, and perceptions. Pricing is rarely quick or simple, but when it is done well, it balances profitability with customer loyalty.

And when you’re the one setting the price tag? Start by asking yourself a few simple questions: What’s my goal, fast growth or premium positioning? Who am I competing with? What does my customer actually value? The best pricing strategy isn’t the one that sounds smartest, but instead, the one that aligns with your business goals and your customer’s reality.

Works Cited:

Bell, Taylor. “Inside Costco: The Shocking Strategy That Built The Most Loyal Customers.” YouTube, YouTube, 15 Aug. 2025, www.youtube.com/watch?v=H6qenMW8GuI&t=76s.

Business Monitor. “The Greatest Lululemon Rip-Off.” YouTube, YouTube, 16 Aug. 2025, www.youtube.com/watch?v=JPpJE0H7Yvo.

Deland, Ashley. “Council Post: Understanding Pricing Strategies, Price Points and Maximizing Revenue.” Forbes, Forbes Media, 22 Aug. 2022, www.forbes.com/councils/forbesbusinesscouncil/2022/08/22/understanding-pricing-strategies-price-points-and-maximizing-revenue/.

Marquardt, Janeen. “Complete Guide to Pricing Strategies: Types, Benefits, and Examples.” Salesforce, 14 Oct. 2025, www.salesforce.com/blog/pricing-strategy-examples/.

Munkachy, Alex. “The Complete History of Netflix Price Hikes - From 2007 to Now.” Flixed, 15 Dec. 2023, flixed.io/netflix-price-hikes.

Njeri, Simon. “Apple’s Pricing Strategy and Revenue Maximization.” Custom University Papers, 17 Aug. 2025, customuniversitypapers.com/apples-pricing-strategy-revenue-maximization.

Wagner, Hans. “What Determines Gas Prices?” Edited by Chip Stapleton and Hans Daniel Jasperson, Investopedia, Investopedia, 2 Feb. 2025, www.investopedia.com/articles/economics/08/gas-prices.asp.