How to optimise your pricing strategy for growth

Businesses spend inordinate amounts of money on branding in the pursuit of capturing value. So why don’t they spend equal resources on a pricing strategy?

Why pricing matters more than you think

Pricing is one of the most powerful levers a business can pull to drive profitability, yet it’s often overlooked or misunderstood. Many small business owners spend significant time and resources on marketing and branding but fail to apply the same strategic thinking to pricing. According to Mark Peacock, Managing Director of PriceMaker Ltd, ‘Pricing is as bespoke to your business as your brand. It’s the mechanism you use to capture the value you create.’

Mark will be speaking at the Help to Grow: Management Alumni Network National Conference on Thursday 27th March. Find out more and register

A well-thought-out pricing strategy doesn’t just determine your revenue; it positions your business in the market, influences customer perception, and ultimately impacts your bottom line. Yet, too many businesses approach pricing in a way that leaves money on the table.

Where businesses go wrong with pricing

The most common mistake businesses make is basing prices solely on costs. ‘A typical approach is to take unit costs, add a margin, and set the price. While this might cover expenses, it doesn’t maximise value.’

Another common issue is industry-based pricing, where businesses look at competitors and price themselves accordingly. This can be a race to the bottom, rather than a strategy that reflects the true value of a product or service.

Many service-based businesses, particularly in professional services, default to time-based pricing, charging hourly or daily rates. However, this often underestimates the real value of their work and limits their ability to scale.

Understanding different pricing models

Peacock highlights several common pricing models, each suited to different types of businesses:

• cost-plus pricing: the traditional method where businesses calculate costs and add a margin. Simple but not always optimal.
• time and materials pricing: common in industries like consulting and construction, where businesses charge based on time spent and resources used.
• premium pricing: positioning products or services at a higher price point to reflect quality and exclusivity (e.g., Apple).
• penetration pricing: setting lower prices to gain market share, often used by discount retailers like Lidl and Aldi.
• de-bundling: a strategy seen in airlines where a basic price is advertised, but customers pay extra for additional features.
• value-based pricing: setting prices in line with the value delivered to the customer. For example, a consultant who saves a client £1 million in costs might charge 10% of those savings.

Each model has its place, but the key takeaway is that pricing should be intentional, not an afterthought.

Actionable insights to improve your pricing strategy

For business leaders looking to refine their pricing approach, Peacock offers the following practical steps:

1. Adopt a three-tiered pricing model

A simple yet effective way to improve pricing is to introduce tiered pricing—offering three options: basic, standard, and premium.

‘Buyers often don’t know how much they’re willing to pay,’ explains Peacock. ‘By presenting options, you give them a choice and increase the chances of them selecting a mid-tier or premium option.’

For example, a web design agency could offer:

• basic website: £5,000
• standard website: £9,500
• premium website with SEO and maintenance: £19,500

Most customers will choose the middle option, but the presence of a premium package helps frame the value.

2. Use price anchoring to influence perception

If customers consistently choose your mid-tier option, you may be undervaluing your service. Introducing a higher-priced fourth option can help reset perceptions.

‘If 70% of customers choose your highest option, you’ve probably set your prices too low. Adding a higher-priced “anchor” gives customers a benchmark to evaluate the other options against.’

3. Think of pricing as a creative discipline

Rather than relying on cost-plus or competitive pricing, think about how you can innovate.

• Could you switch from hourly rates to a fixed-price package?
• Could you create subscription-based pricing for recurring revenue?
• Could you charge based on results rather than effort?

Pricing isn’t just a number—it’s a strategic tool that can transform your business.

Pricing is often seen as a challenge, but it’s also an opportunity. By understanding different pricing models and applying strategic techniques, businesses can unlock higher revenue, improve customer perception, and drive growth.

As Peacock puts it: ‘Pricing isn’t just about covering costs; it’s about capturing value. The businesses that get it right are the ones that win.’

If you haven’t reviewed your pricing strategy in a while, now might be the time to do so. The right pricing approach could be the key to unlocking your next phase of growth.

Mark will be speaking at the Help to Grow: Management Alumni Network National Conference on Thursday 27th March. Find out more and register

Latest articles