What is a Pricing Strategy?
A pricing strategy is a plan that helps you determine the cost of your products or services. It’s not just about guessing a price or following what other businesses are doing; it’s about setting a price that helps your business grow over time, reach healthy profit margins, and attract the right customers.
For example, if you’re using a value-based pricing strategy, you’re charging based on the value your product or service gives your customers, not just how much it costs you to produce it. This kind of pricing works well for service providers like event planners, hairdressers, or freelancers who spend a lot of time and effort to deliver quality.
Good pricing doesn’t happen by luck. You have to think about things like your cost price, how much your customers are willing to pay, what your competitors are charging, and how your price supports your long-term business goals.
When your pricing is right, it helps you cover your expenses, make enough profit, reinvest in your business, and show people that your product or service is worth the price. But when you get it wrong, maybe by guessing, copying others blindly, or forgetting to add all your costs, you can lose money, and your business may struggle to grow.
Types of Pricing Strategy
There are different ways to set your prices, but here are some of the most common ones:
Cost-Plus Pricing
This method, also called markup pricing, is one of the easiest ways to set your price. You start by calculating how much it costs you to produce your product or offer your service, then add a percentage on top as your profit (markup). For example, if it costs you ₦5,000 to produce a bottle of liquid soap, and you add a 20% markup, your selling price becomes ₦6,000.
You don’t need to study the market or check what others are charging. As long as you know your total cost, you can use this method to set a price that covers your expenses and gives you profit.
However, it’s important to make sure you include all your costs, not just direct costs like materials, but also hidden or indirect costs like rent, electricity, and salaries. If you don’t calculate these properly, you might end up underpricing without knowing it.
Another downside is that this method doesn’t consider what your customers are willing to pay or what your competitors are charging, which means you might end up pricing too high or too low for the market.
Value-Based Pricing
This strategy is about setting your price based on how much customers believe your product is worth, not just how much it costs you to make it. Things like quality, packaging, your brand name, and good customer service can affect how people perceive the value of your product or service. For example, if your handmade bag looks high-quality and trendy, customers may be willing to pay more, even if it didn’t cost much to produce.
To use this pricing method well, you need to really understand what your customers value, and that means doing regular market research and asking for customer feedback. People’s idea of value can change over time, so you may also need to adjust your prices as trends and customer preferences shift.
This strategy can help you earn more profit if customers see your product as valuable. But it may be harder to use if you’re not sure what your customers truly care about or if you don’t update your pricing based on changing expectations.
Penetration Pricing
This means starting with a low price to attract more customers and enter the market fast. The idea is to gain attention, build trust, and grow your customer base. It’s a good way to compete with existing brands, especially when you’re just starting out or entering a new market.
This strategy helps you get customers quickly and makes it easier for people to try your product. Over time, as more people know and trust your brand, you can slowly increase your prices. But keep in mind that starting with low prices can reduce your profit at the beginning. And later, when you try to raise your prices, some customers may resist or leave, especially if they’ve gotten used to your lower prices.
Competitive Pricing
This strategy means checking what your competitors are charging and setting your price based on that. You can decide to match their price, go slightly lower to attract more customers, or charge a bit higher if your product or service offers something better.
It’s a useful approach when you’re in a market with lots of similar products, as it helps you stay relevant and makes it easier for customers to compare what you offer. However, focusing too much on what others are charging can make you lose sight of the unique value your product brings. Also, if you’re not careful, you may end up underpricing yourself just to stay competitive.
10 Pricing Mistakes and How to Fix Them
Pricing mistakes can cause big problems for your business. If your price is too low, some customers may rethink the quality of your product or services. On the other hand, if it’s too high, customers may consider your prices exorbitant, especially with the economic situation where rising prices are a concern to people.
Eventually, your pricing decisions affect your sales, profit, and even how people perceive your brand. That’s why you need a pricing strategy that is based on real numbers, not just guesswork or how you feel. You need to understand your costs, your market, and your customers before you decide how much to charge.
Below are 10 common pricing mistakes small business owners often make, and how to fix them.
Setting Prices Too Low to Beat Competitors
When starting out new business, it’s common to think that charging very low prices is the fastest way to attract customers. The idea is to beat the competition and bring in more buyers quickly. But this can quickly spiral out of control.
If your price is too low, customers may not see the real value of what you’re offering. They may believe it’s “cheap” in a bad way. On top of that, if you’re not making enough profit from each sale, it becomes hard to restock, promote your business, or even pay yourself well.
Some business owners plan to increase their prices later, but that "later" may never come if the business is already losing money from the start.
How to Fix It:
Set your prices wisely from day one. You can charge a bit lower than your competitors, but don’t go too low. Instead of trying to win with price alone, focus on showing the value of what you're selling, the quality, the results, or the extra care you offer. Let your customers see why your product or service is worth the price. That way, you’ll attract serious buyers and still make a profit that helps you grow.
Not Segmenting Your Customers
A common mistake many small business owners make is treating all customers the same. But the truth is, not everyone has the same needs, budget, or buying style. If you're selling different types of products or services, you're likely selling to different kinds of people.
Using the same pricing for everyone doesn’t always work. You may end up losing sales or making less profit because your prices don’t match what each customer really wants or can afford.
How to Fix It:
Try to understand the different types of customers that buy from you. Group them based on things like how often they buy, how much they usually spend, or what matters most to them (price, quality, or convenience). For example, you can create student-friendly prices, bulk deals for shop owners, or premium offers for customers who want something extra.It might take a bit more work, but when you offer the right price to the right people, you’ll make more sales, keep your customers happy, and grow your profit too.
Inconsistent Pricing
Sometimes, in the name of boosting sales, business owners create too many price changes or run discounts all the time, even when there’s no real reason for that. For example, you might change your prices too often, or keep adding small extra charges. Some people even use complicated bundles or loyalty offers that confuse customers.
These practices can cause customers to stop trusting your prices. Some may wait for your next promo before they buy anything, while others may feel cheated if you reduce prices after they have already paid. It can also make it hard for you to manage your money or keep proper records.
How to Fix It:
Keep your pricing simple and clear. Avoid confusing discounts or “one-day sales” that you keep extending. If you want to run promos, do it for a real reason, like clearing old stock or during special seasons. Let your customers know exactly what the deal is, when it starts, and when it ends.Also, make sure your prices are the same across all channels, whether you’re selling in a physical store, on WhatsApp, or online. Clear and honest pricing builds trust, keeps your business organized, and helps customers feel good about buying from you.
Not Setting Price Based on Product's Value
Many small business owners set their prices by just looking at how much it costs them to produce or buy a product. They just add a little profit on top and think that’s enough. But that’s not always the best way to price your product.
The real question is: “How much is this product really worth to my customer?”
Sometimes, a product is more valuable than its cost because of the results it gives or how it makes people feel. If you only think about your own cost and not how useful your product is to your customer, you might be charging too little. On the other hand, if you charge too high without showing why it’s worth it, customers may not buy at all.
How to Fix It:
Set your price based on the value your product gives. This means you set your price based on how useful, helpful, or desirable your product is, not just what it costs you. You can start by asking your customers what they like about your product, checking what similar businesses are charging and how they explain their prices, and thinking about the results your product gives. Does it save time? Solve a problem? Make life easier?For example, if you sell soap that is gentle on the skin and lasts longer, you can charge a bit more than regular soap, because customers see that extra benefit.
Also, use your marketing to clearly show what makes your product special. When customers understand why your product is worth the price, they’ll be more willing to pay, and your business will earn more.
Updating Prices Without Considering Competitor Reaction
You're not the only one selling what you sell, other businesses are also trying to win over the same customers. So, when you decide to change your prices, whether to increase or reduce them, you need to think about how your competitors might react to it.
For instance, if you raise your price, another seller might drop theirs to attract your customers. If you lower your price too much, others may follow, and a price war could begin, which affects everyone’s profits.
How to Fix It:
Before changing your prices, study what others in your niche are doing. What are they charging? How are they packaging or promoting their products? You don’t have to copy them, but use their approach as a guide.Also, think about what’s happening in the market. If demand is high, like during festive periods or when your product is trending, you might be able to raise your price a little. But when sales are slow, small discounts or bundled deals might help you stay competitive.
A good pricing strategy should balance your cost, the value your product offers, and what others are charging. This way, your price feels fair to customers and still helps your business make a good profit..
Setting Price Based on Assumption
Some small business owners fix their prices based on guesswork or what feels right in their minds. They might say things like, “I think ₦5,000 sounds okay,” or “My friend said she would pay this amount.” But your friend or family member is not actually your target customer, and their opinion might not reflect what your real customers are willing to pay.
When you guess your price without checking what real customers think or what the market says, you can easily overprice or underprice your product. This can lead to fewer sales or lower profit than you should be making.
How to Fix It:
Don’t just assume, get real information. Use a simple accounting tool like Esemie to track your cost price, expenses, and how much profit you make per product. This helps you understand if your price covers your costs and leaves enough for profit.Then, talk to your customers directly. You can ask them simple questions like: “How much would you be willing to pay for this?” or “What do you like about this product that makes it worth the price?”
You can do this through short WhatsApp messages, small surveys, or by chatting with them after they buy. To encourage more responses, you can even offer a little discount or gift. a fair and smart price that works for both you and your buyers.
When you combine customer feedback with real cost and profit data, it becomes easier to set a fair and smart price that works for both you and your buyers.
Fail to Review and Update Prices
You’ve been using the same price for years, even though your cost of materials has gone up, customers now see no more value in your product, or competitors have started offering similar items at different prices.
If you keep using old prices without checking if they still work, you might end up losing money or chasing away customers. A price that worked well last year may no longer make sense today.
How to Fix It:
You don’t have to change your prices all the time, but reviewing them regularly, maybe every few months, can help you stay on top. One simple way to do this is by using accounting software with inventory management. It helps you take stock, track how much it costs to restock items, and notify you when the cost of goods has changed. This makes it easier to know when a price update is needed.If you need to increase your price, do it with a clear reason, and let your customers know in advance. Be honest and explain why the change is needed, especially if your product is now better or more expensive to produce.
This way, your business stays profitable, and your customers keep trusting you.
Setting Prices That Don’t Align With Your Business Goals
In a rush to make quick sales or follow new trends, some business owners set prices that don’t match what they truly want for their brand. For example, you may want your business to be seen as a high-quality and premium brand, but then you start selling too cheap, just to get more customers. This can only attract people who care only about low prices, not about value or quality.
Over time, it can reduce your profit, make it hard to increase your price later, and even affect how people see your brand.
How to Fix It:
Before setting or changing your price, ask yourself: “Does this price support where I want my business to go?” If your goal is to be known for quality, then your pricing should reflect that. If you’re targeting people looking for budget-friendly options, that’s fine too, just make sure your price matches that goal.It’s okay to offer small discounts once in a while, but don’t let short-term decisions destroy your long-term plans. Your price should always support your business goals, whether it’s making a good profit, building a strong brand, or entering a new market.
Pricing All Your Products the Same Way
Some business owners use the same profit margin for every product. For example, if it costs ₦2,000 to produce something, they just add ₦1,000 on top and sell it for ₦3,000. Then they use the same formula for every product, without considering the type, demand, or value.
But some products may offer more value and could be sold at a higher price. Others may not be that valuable, and a high price might scare customers away. When you price everything the same way, you could be losing money on some items or struggling to sell others.
How to Fix It:
Don’t just use one rule for all your products. Instead, look at each product separately. Ask yourself how useful the product is to your customers, whether people are willing to pay more for it, and if it is unique or better than what others are selling. Use this to guide your pricing. For example, if you sell liquid soap and also sell air fresheners, they don’t have to have the same markup. If the soap solves more problems or is in higher demand, you might charge a bit more.The goal is to set prices based on how valuable each product is to your customers, not just on how much it costs you to produce them.
Ignoring the Use of Technology and Automation
Sometimes they think tech tools are too expensive or difficult to use. But these days, using the right technology isn’t just for big businesses, it’s a smart and affordable way to grow. There are now simple and affordable tools that can help you check your costs, understand customer behaviour, and even suggest the best price to charge.
Sometimes they think tech tools are too expensive or difficult to use. But these days, using the right technology isn’t just for big businesses, it’s a smart and affordable way to grow. There are now simple and affordable tools that can help you check your costs, understand customer behaviour, and even suggest the best price to charge.
How to Fix It:
Use simple accounting software like Esemie to track your sales and costs. Some tools can even adjust your prices automatically based on seasons or demand, this is called dynamic pricing. For example, you can increase prices a bit during festive periods when demand is high, and reduce them when sales are slow to encourage more buyers.Using the right tech will help you save time, avoid pricing mistakes, and make better decisions that support your business growth.
How Do You Know if Your Business is Making a Pricing Mistake
Sometimes, it’s not easy to know if your pricing is wrong, especially if you’re not using tools to track your sales, expenses, and customer behavior. Here are some signs you can watch out for.
Your sales are dropping
If you notice that your sales have reduced suddenly, it may be a sign that your price is no longer working for your customers. Maybe your product used to sell well, but now people are not buying as much. This could mean that customers no longer see the value in your product at the current price.
Sometimes, things change, like the economy, customer needs, or what competitors are offering, and your price may no longer match what people are willing to pay. It’s important to take a step back and review your price and even your brand. Ask yourself: “Is my product still worth this amount in today’s market?”
Don’t just assume people aren’t buying because they’re broke. It might be because your price doesn’t match the value they now expect. Take time to find out what changed, and adjust your pricing or offer accordingly.
Other businesses are selling more
If you notice that your competitors are getting more customers or making more sales, it could be a sign that your pricing is not working well. Maybe they are offering similar products at a better price, or they’ve added more value without raising their price too much. Some may even have found cheaper suppliers, which allows them to sell at a lower price and still make more profit.
It’s not always about being the cheapest, but customers will go where they feel they’re getting the best deal. If other businesses are growing fast while you’re struggling, take time to study what they’re doing differently. Check their pricing, offers, packaging, and how they talk to customers. Then ask yourself: “What can I improve in my own pricing or offer to stay competitive?”
Your profit is not adding up
You’re selling well and customers are buying, but at the end of the month, your profit is still small or even nothing at all. This can be a sign that your pricing is too low or that you didn’t calculate your costs properly when setting the price.
Many business owners forget to include things like transport, packaging, rent, or even airtime used for customer follow-up. These small costs add up and can eat into your profit if they’re not added to the price of your product.
Take time to review your expenses. Ask yourself: “Am I really making money after removing all my costs?” If not, you may need to adjust your pricing to cover everything and still leave a reasonable profit for your business to grow.
Customers are buying differently
If you notice that your customers are no longer buying the way they used to, it might be a sign that your pricing needs to be checked. Maybe people now wait for discounts before they buy, or your sales team keeps reducing prices just to convince people to buy. This shows that your regular price may no longer feel right to your customers.
People’s spending style changes due to the economy, new competitors, or even their personal needs. If they no longer buy quickly or as often, something about your price might be pushing them away.
Talk to your sales team or regular customers and find out what’s changed. Use their feedback to review your price and make sure it still fits your market.
Customers keep complaining about prices
If customers often say things like “Your product is too expensive” or “I can get it cheaper elsewhere,” don’t ignore it. That’s a clear sign that something may be wrong with your pricing.
Try to understand why they feel that way. Are they comparing your product to a cheaper one? Do they think your product is not worth the price you’re charging? Or has something changed in the market?
Ask them follow-up questions. Their answers can help you know whether to reduce your price, improve your product, or explain the value better. Listening to this kind of feedback can help you make smarter pricing decisions that keep your customers happy and your business growing.
Protect Your Profit Margin
Your pricing is not just about selling; it’s about making sure your business generates enough profit to survive and grow. But getting pricing right is not always easy. You have to consider your costs, what your customers can afford, what your competitors are charging, and how much value your product delivers to customers.
If your price is too low, you may sell more but make very little profit. If it’s too high, you may lose customers. That’s why it’s important to find a balance.
One way to protect your profit is by using tools that help you track your costs, understand customer behavior, and check what’s happening in the market. These tools can give you useful information to help you set better prices.