“Set your product prices strategically—not just by adding profit to the cost. This article explores five pricing methods—cost-plus, competitor-based, value-based, psychological, and dynamic pricing—that you can apply immediately to maximize margins, attract the right customers, and adapt to market conditions.”
If you’ve read the previous article, I trust you’ve already mastered the art of calculating COGS (Cost of Goods Sold). By now, you should have a clear grasp of the actual cost behind every product you sell.
But here’s the next question:
Is pricing as simple as this formula — COGS + Profit = Selling Price? Done?
The answer is: not quite. That’s merely the starting point. Pricing is a strategy, not just a mathematical operation. It’s the delicate art of balancing internal costs with customer perception and market dynamics.
Relying on a single method is like a mechanic owning only one wrench — not every bolt will fit. In this article, we’ll expand your “toolbox.” We’ll dissect five practical pricing strategies — or “tactical maneuvers” — that you can adopt and tailor for your business.
Of course, every maneuver requires a solid foundation. Make sure you’ve mastered the basics, namely, the practical way to calculate COGS for beginners.
Because without accurate COGS, even the most brilliant strategy will collapse. This foundational step is also covered in our complete guide to calculating selling prices.
Let’s begin the deep dive, one strategy at a time.
1. Cost-Plus Pricing (The Most Basic and Safe Strategy)
This is the most commonly used pricing method — and likely one you’re already applying. Simply put, it’s the “Cost Plus Margin” method.
- How It Works: You calculate the total COGS per product, then add a markup percentage.
- Formula: Selling Price = COGS + (COGS × % Markup)
- Example: A t-shirt costs you Rp 51,000. With a 100% markup, your selling price becomes Rp 51,000 + Rp 51,000 = Rp 102,000.
- Advantages:
- Simplicity: Easy to understand and apply.
- Profit Assurance: As long as your COGS is accurate, you won’t sell at a loss.
- Transparency: Simple to explain to stakeholders and investors.
- Disadvantages:
- Inward Focused: It ignores two crucial external factors — customers and competitors.
- Rigid: You might lose potential profits if customers are willing to pay more, or become uncompetitive if your COGS is high.
- Best Used When: You’re a beginner, involved in mass production, or quoting project bids based on costs.
2. Competitor-Based Pricing (The “Look Around” Approach)
This strategy mimics selling in a crowded marketplace — naturally, you’ll glance at your neighbor’s prices first.
- How It Works: You research your competitors’ prices for similar products, then position your price accordingly. There are three common options:
- Lower Than Competitors: To attract price-sensitive buyers.
- Equal to Competitors: To compete on other values, like service or speed.
- Higher Than Competitors: To convey higher quality or exclusivity.
- Advantages:
- Practical: Requires less calculation, just research.
- Risk-Reducing: Market-tested prices are more likely to be accepted.
- Disadvantages:
- Follower Mindset: You allow competitors to dictate the price narrative. If they make poor pricing decisions, you follow suit.
- Ignores Your Own COGS: Dangerous if you sell below cost without realizing it.
- Best Used When: You’re entering a saturated market (e.g., mobile top-ups, bottled water), or launching a non-differentiated product and want quick traction.
3. Value-Based Pricing (Sell the Value, Not the Item)
This is an advanced — and highly profitable — strategy. It requires a complete mindset shift. Price is no longer driven by your costs, but by the value perceived by your customers.
- How It Works: You focus on questions like: “What problem does my product/service solve?” and “How valuable is that solution to the customer?”
- Classic Example: A Starbucks coffee costs Rp 50,000. Is the COGS that high? Absolutely not. Customers are paying for the ambiance, brand experience, taste consistency, and social identity.
- Another Example: A professional logo designer isn’t selling an image — they’re offering brand identity, which may generate trust and significant revenue. That’s why it commands a premium.
- Advantages:
- High Profit Potential: Margins can be significantly higher.
- Brand Building: You move away from price wars and toward solution-driven branding.
- Customer Loyalty: When customers feel the value, they tend to return.
- Disadvantages:
- Hard to Quantify: “Value” is abstract and requires deep customer insight.
- Requires Strong Branding: You must communicate the value exceptionally well through marketing.
- Best Used When: You offer unique products, luxury items, art, or professional services. Especially relevant for the creative industries and freelancers.
4. Psychological Pricing (Play with the Mind)
Humans are often irrational buyers. This strategy leverages psychological triggers to make pricing more appealing.
- How It Works: Uses numbers and visual cues to create specific price perceptions.
- Popular Techniques:
- Charm Pricing: Rp 99,900 feels like “under a hundred” rather than “over a hundred.” It’s the oldest trick in retail.
- Anchor Pricing: Show a higher, crossed-out price beside your current offer. e.g.,
Rp 250,000Rp 175,000. The first price acts as a psychological anchor.
* **Bundling**: Combine multiple products into a single package deal. e.g., Rice + Chicken + Iced Tea for Rp 25,000.
- Advantages:
- Easy to implement and can immediately boost sales.
- Disadvantages:
- Overuse may make your brand appear cheap or gimmicky. This is a top-layer tactic, not the foundation.
- Best Used When: You’re in B2C retail, F\&B, or e-commerce.
5. Dynamic Pricing (The Chameleon Strategy)
Ever booked a ride during heavy rain and seen the fare surge? Or noticed flight prices spike near departure dates? That’s dynamic pricing.
- How It Works: Prices adjust automatically based on factors like demand, timing, weather, or customer profile.
- Advantages:
- Optimizes revenue under varying conditions.
- Disadvantages:
- Tech-Dependent: Requires sophisticated systems or algorithms — nearly impossible to manage manually.
- Customer Backlash: If not communicated well, customers may feel manipulated.
- Best Used When: In travel, large-scale e-commerce, transport services, or event ticketing.
Conclusion: Which Strategy Is Best?
There is no “best” strategy. A smart entrepreneur blends them.
Begin with Cost-Plus Pricing as your safety net. Then, use Competitor-Based Pricing to gauge market fairness.
Next, layer in Value-Based Pricing by highlighting what makes your product stand out. Finally, add a polished touch with Psychological Pricing.
Managing all these — especially with a wide product range, active promos, and bundling — can become overwhelming if done manually. Tracking strike-through prices, adjusting offers, and ensuring COGS accuracy is no trivial task.
This is where a robust system becomes indispensable. If your business is ready to move beyond spreadsheets, PT. Sistem Anugrah Prima can help.
With their Enterprise Resource Planning (ERP) system, you can centrally manage complex pricing schemes, monitor the profitability of each promotion, and, most importantly, base your strategic decisions on accurate data — not just gut feeling.
Frequently Asked Questions (FAQ)
1. What is Cost-Plus Pricing?
It’s a pricing strategy that adds a markup percentage to the product’s COGS. It’s simple and safe, ideal for beginners, but overlooks customer and competitor considerations.
2. What is Competitor-Based Pricing?
This strategy sets prices based on competitor benchmarks — either below, equal to, or above them. It’s practical but risky if your costs are higher than the competition.
3. What is Value-Based Pricing?
It prices based on the value perceived by the customer, not on production costs. It offers the highest profit potential and suits unique products or strong brands.
4. What is Psychological Pricing?
It uses psychological tactics like charm pricing, strike-through discounts, and bundling to make prices more attractive. It’s effective for immediate sales boosts in retail and F&B.
5. When Should You Combine Strategies?
Almost every business should combine pricing strategies. Use Cost-Plus for baseline safety, Competitor-Based for market alignment, Value-Based for differentiation, and Psychological for persuasive impact.
