Why Pricing Is More Than a Number

And How It Defines Your Business Strategy

Setting the right price can sometimes feel like an art. There are many questions to consider:

• What does it cost to produce my product?

• What do people typically pay for similar products?

• And how valuable do customers perceive my product to be?

Cost-Plus Pricing: Simple, Transparent, and Common

When asked how companies set their prices, many people assume they just add a margin on top of their production costs. This approach is called cost-plus pricing.
Think of a small construction project, like renovating your house. This method is common in such cases. The builder might calculate material costs ($6k), labor costs ($3k), and overhead ($1k), then add a 20% markup ($2k), resulting in a total price of $12k.

The advantage of cost-plus pricing is its transparency—especially useful in custom jobs where the scope may evolve, and exact costs are hard to predict upfront.

Competitive Pricing: Winning with Lower Prices

But the resulting price might not always be competitive. That’s why it’s important to check what others are charging. In some cases, it pays to beat the market.
Consider Ryanair, the Irish budget airline. They attract price-sensitive travelers with lower prices than competitors, using ultra-low base fares and charging optional fees for extras like baggage or seat selection.

Ryanair’s competitive pricing made air travel accessible to people who previously couldn’t afford it, forcing traditional airlines to adapt.
As you can see, competitive pricing doesn’t just match the market — it can reshape it.

However, this strategy comes with trade-offs. In downturns, companies like Ryanair must cut prices even further to stay attractive. Raising prices risks hurting their brand image as a low-cost option.

Value-Based Pricing: Charge What It’s Worth

But not all companies compete on price. Some focus on the value they provide. If customers perceive a product as highly desirable, they may pay a premium—even if cheaper alternatives exist.

The iPhone is a classic example of value-based pricing. Apple prices its products far above cost, but customers value the iPhone for its design, performance, and user experience. While Apple doesn’t publish margins per product, it’s widely assumed the iPhone enjoys a gross margin of over 50%.

Customers aren’t just buying a phone — they’re buying an ecosystem and a lifestyle. That’s value-based pricing in action.

In difficult times, companies like Apple typically avoid discounting. Lowering prices could temporarily boost sales, but it may erode the premium brand image they’ve worked so hard to build.

Your Price Tells a Story

Your price isn’t just a number. — it’s a strategic signal. It reflects your:

• Costs (cost-plus pricing),

• Competition (competitive pricing),

• Customer perception and brand (value-based pricing),

• And your overall company strategy.

Choose it carefully. It’s one of the most powerful tools you have.

Image by Amore Seymour from Pixabay