3 Key Pricing Strategies Used by Most Industries
Manufacturing-Specific Pricing Strategies to Maximize Profits
December 2024
White Paper Overview
The purpose of this white paper is to discuss the following:
Three most common pricing strategies
Benefits of each pricing strategy
Traditional industries that use each pricing strategy
Manufacturing-specific pricing strategies (and variations)
Inventory-based pricing (variation of cost/mark-up-based pricing) and how it can be used to help businesses manage stock with maximum efficiency, while reducing costs, maximizing profits, and minimizing waste.
Three Common Pricing Strategies
Before discussing inventory-based pricing strategies, here are the 3 key pricing strategies used by most companies, sometimes referred to as the 3 Cs of pricing:
Cost-based or “mark-up” pricing: Also referred to as Cost-Plus, this approach requires understanding all expenses that go into developing, obtaining, delivering, storing and selling the products and adding a % markup. Companies like Walmart used cost-based pricing.
Competitor-based pricing: For this approach, pricing is dictated by what your rivals are charging. This is often used in industries where products/services are similar, and price is a key factor. Companies like Uber and Lyft may use this approach.
Customer Value-based pricing: Value-based pricing is based on how much value your customer believes what you are selling is worth. This approach is often preferred for businesses that have flexibility due to higher profit margins. Companies like Tesla use this approach.
According to Adoption of Pricing Orientations by Stephan M. Liozu, Ph.D., the following are the most common pricing strategies by % (see chart above):
Cost-Based Pricing: 31%
Competitor-Based Pricing: 44%
Customer Value-Based Pricing: 25%
Note that these numbers vary depending on industry and over time.
This white paper identifies the 3 most common pricing strategies used by most industries, including manufacturing-specific strategies.