7 Popular Pricing Strategies for Retail and Ecommerce

Key takeaways

• Pricing strategies refer to how a business sets product prices to support goals like profitability, customer acquisition, or market positioning.
• 7 Popular pricing strategies include penetration pricing, market skimming, premium pricing, economy pricing, psychological pricing, cost-plus pricing, and loss leader pricing.
• Psychological pricing tactics, such as charm pricing and anchoring, aim to influence customer perception and behavior by making prices appear more attractive or creating a sense of value.
• Loss-focused strategies like penetration and loss leader pricing can build brand awareness or drive sales of higher-margin products.
• There’s no one-size-fits-all pricing strategy. It depends on multiple factors, including cost structure, customer behavior, competition, product type, and geography.
• Some pricing tactics (ex. destroyer pricing) are illegal in certain countries, so businesses must ensure compliance with local laws when choosing a pricing strategy.

The price shown on your products isn’t just the amount the business earns from each sale. Retail pricing strategies are tactics that can draw customers in, show your products’ worth, and change the way your business is viewed in the market. But to have the right effect, business owners need to make these decisions based on pricing strategies. 

So, just what are the types of pricing strategies and how might you use them?

What is a pricing strategy for retail and ecommerce?

A business needs to stay as profitable as possible, but immediate profit isn’t always the driver behind the prices we see in shops. 

A pricing strategy is the way you price products for the benefit of the business, whether that’s attracting customers, beating the competition, or more.

7 retail and ecommerce pricing strategies compared 

There are many different pricing strategies that retail and ecommerce businesses alike can use. Today, we’re focusing on seven popular ones.

1. Penetration pricing: launch at a low price to build market share

Penetration pricing is about offering a new product at a particularly low price, often at a loss, with the aim of attracting a large volume of customers. This can establish your brand and boost loyalty.

This pricing strategy is often used for new products, but not usually as a long-term strategy. This is because, while it can be an effective marketing tool, offering products at a loss can only be sustainable for so long.

2. Price skimming: start high, then lower the price over time

When comparing penetration pricing vs price skimming, price skimming (also called market skimming) starts high and decreases over time, while penetration pricing starts low to build market share. This pricing strategy is common in tech industries, for example headphones, where new products are highly sought after because users want the best quality or newest experiences.

For price skimming to work effectively, the new product needs to be desirable, usually something that can’t be directly emulated by a competitor. 

3. Premium pricing: use higher prices to support premium positioning

Premium pricing involves just that, a premium price. High prices can limit your customer base, but they often bring larger profit margins. Even so, high prices aren’t just about bringing in profit from individual sales

Premium prices are often associated with premium brands. They can create the idea of value, which makes products more desirable and reflects on the brand, too.

As with market skimming, high pricing is easier to justify when competitors can’t offer the same product for a lower price. This might be because of brand prestige, product uniqueness, or more. 

4. Economy pricing: compete with low prices and thin margins

In a sense, economy pricing is the opposite of premium pricing. Prices are low, margins are thin, and products may well be in direct competition with those of other retailers.

Economy pricing works best when a business has low overheads and low production costs. Otherwise, using economy pricing will make it difficult to stay profitable.

5. Psychological pricing: use anchoring and charm pricing to shape perception

Chances are you’ll have noticed at least a few psychological pricing strategies, even if you didn’t realize it at the time. Psychological pricing usually aims to make a price seem more attractive, or lower, for the customer.

Take anchoring, for example. This is when a higher price point becomes an ‘anchor’ for the customer, who is offered a lower price next to it. The customer can visually see the discount. 

Another common strategy is charm pricing. The idea is that the customer focuses most on the left-hand digit. Taking just a couple of cents off a price can roll the left-hand number down; a $20 t-shirt becomes $19.99. 

Psychological pricing doesn’t just affect the item the price is on, either. Studies show that certain pricing strategies can influence customers to go for higher or lower prices alternatives. So, it’s important to research psychological pricing strategies before implementing them.

6. Cost-plus pricing: calculate price by adding markup to cost

A few years ago, the Harvard Business Review called cost-plus pricing “the most widespread pricing method”. The cost-plus pricing formula is straightforward: calculate total costs, add a markup, and use the result as the selling price. The formula might look like this:

Cost x (1 + markup percentage) = price

Cost pricing can help you work out a price that feels fair, but there are drawbacks to the method. For example, costs are often dependent on suppliers and can fluctuate, meaning profits will change unless prices are adjusted. This type of pricing strategy also doesn’t take into account competitors or the wider market.

Need help with margins vs markups? Take a look at our quick guide.

7. Loss leader pricing: accept a loss on one item to increase total basket profit

With a loss leader pricing strategy, businesses sell one product at a loss in the hope that customers will also buy higher-margin items. You might spot loss leader discounts at supermarkets. After all, who hasn’t come away with more items than they went in for?

Another notable loss leader pricing strategy example is the Sony PS5. Sony reportedly sells the console at a loss, while amassing a US $10 billion profit. That’s because Sony’s consoles allow its customers to buy and play games that generate a profit, amongst other downloadable content.

When can below-cost pricing work, and when can it become risky?

Five of the pricing strategies we mentioned above focus on generating an immediate profit, but there are reasons businesses might sell at a loss instead.

Businesses who are thinking about the bigger picture may choose to utilize either the penetration or loss lender strategies. When used correctly these pricing strategies could in fact improve overall company profits.

Remember, certain countries do not allow some pricing strategies, such as destroyer pricing. This pricing strategy is about undercutting your competition with such low prices that you create a monopoly and may cause competitors to go bust. Some countries like Ireland even banned selling products below cost price.

It’s always important to research your pricing strategies carefully, respect local laws, and consider your options.

Risks of penetration and loss leader pricing

Working with low pricing strategies, whether still generating a profit or not, can be a tactic to attract new customers, push other products, or undercut the competition. 

However, it’s important to analyze whether the risks will pay off. For example, some customers may only buy that particular product for that low price. This means that they will have a low lifetime value (how much they spend with you in the long term) and not generate much profit for the business.

How do you choose the right pricing strategy?

There is no single best way to price products. Knowing how to choose a pricing strategy starts with evaluating your products, target customers, business goals, market conditions, and required profit margins. It’s important to find what works for your business and keep a close eye on when and how strategies need to be adjusted over time. 

For example, the markets and costs for a local, high-end clothes retailer and a countrywide baker are very different. Even if both businesses expect a new product to sell like hotcakes (…pun intended), they will each need a pricing strategy that works just for them. 

The high-end clothes retailer might opt for premium pricing, creating a luxury feel to their products. Meanwhile, the baker might prefer economy pricing so it can compete with other items that are stocked alongside its baked goods on supermarket shelves.

If you’d like to know more about pricing your products, take a look at our recent blog article on how to use the selling price formula.

How do the 7 pricing strategies compare?

By now, you’ve probably noticed that no single pricing strategy is a clear-cut “winner” and the pricing strategy comparison below shows why. That’s because each one is solving a different problem. Some are built to protect your margins, others are built to protect your market share, and a few are just there to nudge customers’ brains in the right direction.

Here’s how the seven stack up against each other at a glance:

A few things jump out when you line them up like this. Notice how penetration pricing and loss leader pricing both intentionally sacrifice short-term profit, but for different reasons: one is chasing market share, the other is chasing basket size. Meanwhile, premium and market skimming both rely on customers being willing to pay more, just at different points in a product’s life cycle.

Something important to mention is that you’re rarely locked into just one strategy. In fact, most successful businesses blend a couple. A furniture retailer might use cost-plus pricing as their baseline, then layer in psychological pricing (think $499 instead of $500) to make those baseline prices feel more attractive at checkout.

The right combination comes down to your product type, your customers, and how much risk you’re willing to take on in exchange for growth.

How do you measure whether a pricing strategy is working?

So, you’ve picked a pricing strategy (or two) and rolled it out. Now what? This is where a lot of businesses drop the ball. They set a price and just… leave it there, only checking back in when profits start slipping.

The good news is that measuring pricing success isn’t complicated. It just requires you to track the right numbers, consistently, over time.

Watch your profit margins

This one’s the obvious starting point. If your gross profit margin is trending in the wrong direction after a pricing change, that’s your first red flag. But don’t panic at the first dip; some strategies (like penetration or loss leader pricing) are designed to squeeze margins temporarily. The question is whether that dip is doing its job elsewhere in the business.

Track conversion rate and average order value (AOV)

A price change should move the needle on how many people are buying and how much they’re spending per order. If your conversion rate climbs but your average order value tanks, you may be attracting price-sensitive shoppers who aren’t sticking around for your higher-margin products. If both move up together, you’re probably onto something good.

Keep an eye on sales velocity and inventory turnover

Pricing and inventory are more connected than most people realize. A strategy that’s working should show up in how quickly products move off your shelves. If you’re using inventory management software like inFlow, you can pull inventory turnover and sales reports to see whether a pricing change actually sped up (or slowed down) how fast your stock is selling.

Test in controlled batches, not all at once

Don’t change every price in your catalog overnight and hope for the best. Instead, test your pricing strategy on a small, representative slice of your inventory. Give it a defined window (usually four to eight weeks, depending on your sales cycle) and compare it against a similar batch of products that didn’t get the price change. This is basically A/B testing, just applied to your price tag instead of your website copy.

Calculate customer lifetime value (CLV)

Some pricing strategies look great in the short term but quietly hurt you long-term. Loss leader pricing, for example, can bring in bargain hunters who never buy anything else from you. Tracking CLV alongside your pricing tests will tell you whether you’re building repeat customers or just running a revolving door of one-time deal-seekers.

At the end of the day, the “right” pricing strategy is the one that moves your key metrics in the direction your business actually needs, not just the one that feels the most clever on paper.

What pricing rules should retailers consider by country?

Pricing isn’t just a business decision, it’s also a legal one. Depending on where you sell, there are rules governing how you can display prices, advertise discounts, and even what counts as a “sale.” And in an era where more businesses sell across borders, this isn’t something you can afford to overlook.

Let’s break down what’s changing in a few major markets.

United States

Pricing transparency has become a big regulatory focus in the US. In 2024, the Federal Trade Commission finalized its rule on unfair or deceptive fees, cracking down on hidden “junk fees” and requiring businesses (initially focused on live event tickets and short-term lodging) to disclose the total price upfront rather than tacking on surprise charges at checkout.

States are also stepping in on their own. California’s SB 478, which took effect July 1, 2024, requires most advertised prices to include all mandatory fees, with exceptions for government taxes and reasonably incurred shipping costs. Other states have started introducing similar “drip pricing” laws, so if you sell across state lines, it’s worth checking whether your checkout flow is quietly breaking a rule you didn’t know existed.

European Union

If you sell into the EU, the Omnibus Directive is one you need on your radar, specifically the rules around advertising a “sale” or price reduction. Under Article 6a of the Price Indication Directive, any advertised price cut must reference the lowest price you charged in the 30 days before the reduction. In other words, you can’t artificially inflate a price for a day just to advertise a bigger-looking discount right after.

There are a few exceptions worth knowing:

• Perishable goods with a short shelf life
• Products that have been on the market for less than 30 days
• Progressive reductions within the same ongoing campaign

If your promotions calendar leans heavily on “was/now” pricing, this is a rule you’ll want to build into your workflow rather than bolt on after the fact.

United Kingdom

The UK has been tightening its pricing rules too. Updates to the Price Marking Order are strengthening requirements around unit pricing (think price-per-kilogram or price-per-litre) so shoppers can compare products more easily, with clearer, more standardized labeling which started in 2025 with additional provisions rolling out through 2026.

The UK has also cracked down on drip pricing more broadly under recent consumer protection reforms: mandatory fees and charges need to be included in the upfront price, not revealed step-by-step as a customer moves through checkout.

Australia

Under the Australian Consumer Law (ACL), drip pricing is explicitly prohibited. If a business can calculate a minimum total price, it generally must display that single total price prominently, factoring in all unavoidable charges like mandatory fees or pre-selected extras. Genuinely optional add-ons don’t need to be baked into that headline number, but anything a customer can’t opt out of does.

The takeaway

Notice a pattern here? Regulators around the world are converging on the same basic principle: show customers the real price, upfront, with no surprises. And as we mentioned earlier in this article, some pricing tactics (like destroyer pricing) are banned outright in certain countries regardless of how you disclose them.

Pricing laws also change more often than you’d expect, so treat this section as a starting point for your research, not a substitute for actual legal advice. If you’re selling internationally, it’s worth having a quick conversation with a professional familiar with pricing regulations in each market you operate in.

Final thoughts

Pricing will never be a “set it and forget it” part of your business. The strategies we’ve covered here, penetration, market skimming, premium, economy, psychological, cost-plus, and loss leader pricing, are tools, not rules. The trick is knowing which one (or which combination) fits your product, your customers, and the stage your business is in right now.

Once you’ve settled on a strategy, don’t just trust your gut on whether it’s working. Track your margins, watch your conversion and AOV, and keep tabs on how quickly your inventory is moving. And if you’re selling across borders, make sure your pricing displays keep pace with the rules in each market, because a great pricing strategy won’t do you much good if it also lands you in legal hot water.

Get the balance right, and pricing stops being just a number on a shelf tag. It becomes one of the most powerful levers you have for growing your business.