Three approaches to pricing

Edited excerpt from There Are Only 3 Pricing Strategies For Your Startup by Tomasz Tunguz:

Maximization (Revenue Growth) – maximize revenue growth in the short term. Startups should pursue maximization when there are no clear differences in customer segments’ willingness to pay, and when the optimal short term and long term prices are equal.

Penetration (Market Share) – price the product at a low price to win dominant market share. Then move up-market after developing broad adoption.

Skimming (Profit Maximization) – start with a high price and systematically broaden the product offering to address more of the customer base at lower prices. Skimming is widespread in consumer hardware. Apple sells the latest iPhones at the highest prices, and repackages older models at lower prices to address different customer segments.

(1) Tomasz adds: “Startup should be explicit. Decide which strategy to pursue, and align sales, marketing, product and engineering efforts along those lines.”
(2) Cf. How to price your product based on quality versus the competition and How to set the price for your product.

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