1. Cost-Based Pricing: The Most Traditional Approach How it works: You calculate all costs involved in producing or delivering your product/service and add a profit margin. Practical example: Total product cost: $50.00 Desired profit margin: 50% Selling price: $50.00 + (50% of $50.00) = $75.00 Pros: Simple to calculate, ensures costs are covered Cons: Ignores customer perception and competition Best for: Basic products, commodities, or new businesses 2. Value-Based Pricing: The Customer-Centric Approach How it works: The price is set based on the value perceived by the customer, not production costs. Practical example: A specialized consultancy charges $5,000 for a project that can generate $100,000 in savings for the client The price is justified by the value delivered, not time spent Pros: Allows higher margins, loyalizes customers who perceive value Cons: Requires deep customer and market knowledge Best for: Specialized services, premium products, unique solutions 3. Competition-Based Pricing: The Market Mirror How it works: You analyze competitors' prices and position your price relative to them. Common strategies: Penetration pricing: Lower price to enter the market Price skimming: Higher price to "skim" the market Parity pricing: Price similar to competitors Pros: Keeps you competitive in the market Cons: Can lead to unhealthy price wars Best for: Mature and competitive markets 4. Psychological Pricing: The Magic of Numbers How it works: Using techniques that influence customer perception of price. Practical examples: $99.99 instead of $100.00 Showing "before" and "after" prices in promotions Offering three options (small, medium, large) to guide choice Pros: Increases conversions with small adjustments Cons: May be less effective in B2B or technical markets Best for: Retail, e-commerce, consumer services 5. Hybrid Models: The Smart Combination In practice, successful companies usually mix these approaches: Example of a software subscription: Value-based: Price reflects customer's time savings Psychological: Prices ending in 9 ($99.90) Competition: Positioning among main competitors Costs: Ensuring operations are sustainable How to Choose Your Strategy: A Practical Checklist Know your costs (you can't avoid this) Understand your customer (how much do they value your solution?) Study the competition (where do you want to position yourself?) Define your objective (gain market share? maximize profit?) Test and adjust (pricing is an ongoing process) Common Mistakes You Should Avoid Pricing based only on costs: Your customers don't care about your costs, but about the value they receive Copying competition without analysis: Your business has a different reality than competitors Forgetting to review prices: The market changes, and your prices need to change too Being afraid to charge premium: If you deliver premium value, charge as premium Conclusion: Pricing is a Learning Process There is no single magic formula for pricing. The secret is understanding that different situations require different approaches, and that ideal pricing balances your financial needs with customer value perception and market reality. Next steps: Start by mapping your total costs, then research how your customers perceive the value of what you offer, and finally analyze how the competition is positioned. With these three pieces of information, you'll have a solid basis for making strategic pricing decisions. Pricing is not an exact science - it's a strategic art that improves with practice and knowledge of your market.