Understanding Pricing Models: Choose the Best Strategy for Your Business (Part 2)

What is a Pricing Model?

Pricing models are structured approaches businesses use to determine the optimal price for their products or services. These models consider factors such as costs, competition, customer demand, and perceived value to maximize profitability, market share, or other strategic goals.

In the previous post, we went through the first five basic pricing models. Let’s hop into the other five in this post!

1. Penetration Pricing

Penetration Pricing is a marketing strategy where a company introduces a new product or service to the market at a significantly low initial price. The primary goal is not immediate profit but to rapidly attract a large number of customers, gain market share, and establish a foothold in a competitive landscape. Once a strong customer base is secured and market presence is established, the company then raises prices to a more sustainable and profitable level.

Example:  RELIANCE JIO

Jio executed a classic penetration pricing strategy by launching in 2016 with an unprecedented offer: free voice, SMS, and 4G data for six months. This aimed not for profit, but to rapidly acquire millions of users and disrupt India’s telecom market dominated by Airtel and Vodafone. After establishing market dominance, Jio gradually raised prices to sustainable levels. The initial losses were an investment to capture long-term revenue, transforming India’s digital landscape and making Jio the industry leader.

2. Price Skimming

Psychological pricing is a strategy that sets prices in a way that influences customer perception and makes a product appear more attractive or cheaper than it actually is. It doesn’t change the product’s value but instead uses pricing cues to tap into emotional rather than rational responses, encouraging purchases.

Example: SONY PLAYSTATION

When a new gaming console like the PlayStation 5 is launched, it is priced at a premium (e.g., $499). This initial price targets dedicated gamers willing to pay top dollar for the latest technology and exclusive titles. After the initial demand from this core audience is met, Sony gradually reduces the price through bundles and discounts to attract more price-conscious casual gamers, thereby maximizing revenue across different market segments.

3. Psychological Pricing

Psychological pricing is a strategy that sets prices in a way that influences customer perception and makes a product appear more attractive or cheaper than it actually is. It doesn’t change the product’s value but instead uses pricing cues to tap into emotional rather than rational responses, encouraging purchases

Example: ZARA

Zara expertly employs psychological pricing in India to reinforce its premium brand image. Unlike brands that use charm pricing (like ₹1,999), Zara uses rounded figures (e.g., ₹3,590 instead of ₹3,599) to create a perception of sophistication and quality, avoiding the “discount” vibe. This strategy appeals to aspirational shoppers who associate clean, whole numbers with luxury and intentionality. 

4. Bundle Pricing

Bundle pricing is a marketing strategy where multiple products or services are grouped together and sold for a single, combined price that is lower than the sum of their individual prices. The primary goal is to increase the perceived value of the offer, encourage customers to purchase more items than they initially intended, and drive higher overall sales volume. This strategy is effective because consumers feel they are getting a better deal, which enhances satisfaction and can help clear slow-moving inventory. 

Example: SWIGGY

A prime Indian example is Swiggy. The platform offers restaurant “Combos”—like a burger, fries, and a drink for ₹299, saving customers money compared to individual prices. Swiggy also bundles delivery benefits into its Swiggy One membership, encouraging loyalty and larger orders. This approach boosts average order value and simplifies choices for users.

5. Geographic Pricing

Geographic pricing is a strategy where a company adjusts the selling price of its products or services based on the customer’s geographical location. This is done to account for variations in costs, competition, purchasing power, and demand specific to different regions. The price differences are not arbitrary; they are calculated to reflect the economic reality of each market.

Example: AMAZON

Amazon India varies prices for items by pin code. Shipping to remote towns costs more than metros, and state-specific GST rates apply. Prices may also be lower in competitive cities like Bangalore to match rivals like Flipkart. This helps Amazon optimize profits across diverse Indian markets.

Conclusion:

Price skimming maximizes early profits from innovators, while penetration pricing sacrifices initial margin to secure mass adoption. Bundle pricing enhances perceived value and increases average order size, and geographic pricing tailors costs to local markets and logistics. Each model serves a distinct purpose—whether launching, expanding, or optimizing—and the wisest strategies often blend them. Align your choice with product lifecycle, competitive landscape, and core business objectives to balance profitability with sustainable growth.