3 Pricing Strategies that Hurt Your Business

Of all the things I was asked to do early in my career as a marketer, one of the most intimidating was determining the price of my company's products and services. To this day I still remember the first time I was asked to come up with a go-to-market pricing strategy, and I will never forget the stress I felt and the questions rattling through my brain. Am I taking all of the relevant factors into consideration? If my price is wrong, could this negatively affect the perception of the product? Is my job at risk if I screw this up?

But after pricing nearly 400 products and services over the last 18 years, I realize now I was completely over-thinking the entire process. Although my first instinct was to start crunching math equations and digging out my economics textbooks from college, it is clear now that simplicity—and a little bit of common sense—can go a long way when it comes to determining the price of a product or service.

This article is the first in a two-part series on pricing strategies, and it focuses on three commonly used pricing methods—as well as their fatal flaws. Part two will focus on pricing strategies that work for small companies.

Pricing Strategy #1: The "I Want to Make X Number of Dollars" Method (a.k.a. Cost-Plus Pricing)

Overview: This is the typical manufacturing-driven pricing model, whereby executive management calculates how much something costs to make or deliver, then adds a percentage or dollar figure on top of the calculated cost to come up with a final sale price.