Pricing Strategist

---
name: Pricing Strategist
slug: pricing-strategist
description: Develop pricing strategies, analyze pricing models, optimize revenue, and test pricing changes
category: business
complexity: complex
version: "1.0.0"
author: "ID8Labs"
triggers:
  - "pricing strategy"
  - "pricing model"
  - "price optimization"
  - "pricing analysis"
  - "revenue optimization"
  - "willingness to pay"
tags:
  - pricing
  - revenue
  - strategy
  - monetization
  - business-operations
---

# Pricing Strategist

Expert pricing strategy and optimization system that helps you develop pricing models, analyze willingness to pay, optimize revenue, and test pricing changes. This skill provides structured frameworks for pricing decisions based on economic principles, behavioral psychology, and revenue optimization best practices.

Pricing is one of the most powerful levers for business growth. This skill helps you move beyond cost-plus pricing to value-based strategies, design pricing tiers that maximize revenue, and test changes scientifically. Whether you're launching a new product or optimizing existing pricing, this provides the analytical rigor and strategic thinking required.

Built on pricing psychology, behavioral economics, and SaaS pricing best practices, this skill combines willingness-to-pay research, competitive analysis, and experimentation frameworks to optimize your most important revenue lever.

## Core Workflows

### Workflow 1: Pricing Model Selection
**Choose the right pricing structure for your business**

1. **Common Pricing Models**

   **Cost-Plus Pricing**
   - Formula: Cost + Markup % = Price
   - Pros: Simple, ensures margin
   - Cons: Ignores customer value, leaves money on table
   - Best for: Commodities, manufacturing, retail

   **Competitive Pricing**
   - Formula: Match or undercut competitor prices
   - Pros: Fast to market, safe
   - Cons: Race to bottom, ignores your unique value
   - Best for: Undifferentiated markets, price-sensitive customers

   **Value-Based Pricing**
   - Formula: Price based on value delivered to customer
   - Pros: Maximizes revenue, aligns with customer outcomes
   - Cons: Requires deep customer understanding
   - Best for: Differentiated products, B2B SaaS, consulting

   **Freemium**
   - Formula: Free tier + paid premium tiers
   - Pros: Low barrier, viral growth, try before buy
   - Cons: Conversion rate typically 2-5%, support costs
   - Best for: PLG (product-led growth), network effects

   **Usage-Based Pricing**
   - Formula: Pay per unit consumed (API calls, seats, GB, transactions)
   - Pros: Aligns cost with value, grows with customer
   - Cons: Unpredictable revenue, complex billing
   - Best for: Infrastructure, APIs, marketplaces

   **Tiered Pricing**
   - Formula: Good/Better/Best packages at different price points
   - Pros: Customer segmentation, upsell path, price discrimination
   - Cons: Complexity, analysis paralysis
   - Best for: SaaS, subscriptions, services

   **Performance-Based Pricing**
   - Formula: Fee tied to results delivered (% of savings, revenue share)
   - Pros: Aligns incentives, de-risks for customer
   - Cons: Hard to measure, revenue uncertainty
   - Best for: Consulting, AdTech, FinTech

2. **Model Selection Criteria**
   - Customer preference (how do they want to buy?)
   - Competitive norms (what's standard in industry?)
   - Value delivery (when does customer realize value?)
   - Revenue predictability (do you need stable MRR?)
   - Sales motion (self-serve vs. enterprise sales?)

### Workflow 2: Willingness to Pay Research
**Understand what customers will actually pay**

1. **Research Methods**

   **Van Westendorp Price Sensitivity Meter**
   Ask 4 questions:
   - At what price is this too expensive (wouldn't consider)?
   - At what price is this expensive (but would consider)?
   - At what price is this a bargain?
   - At what price is this too cheap (would question quality)?

   Plot responses to find:
   - **Optimal Price Point**: Intersection of "expensive" and "bargain"
   - **Acceptable Price Range**: Between "too expensive" and "too cheap"

   **Conjoint Analysis**
   - Present customers with product bundles with varying features and prices
   - Ask to choose preferred bundle
   - Statistically derive feature value and price sensitivity
   - Reveals trade-offs customers make

   **Competitor Analysis**
   - Research competitor pricing (public pricing pages, sales calls)
   - Identify pricing tiers and feature differentiation
   - Map value proposition vs. price
   - Find gaps and opportunities

   **Customer Interviews**
   - Ask about current spend on alternatives
   - Budget authority (how much can they approve without escalation?)
   - ROI expectations (what value justifies investment?)
   - Pricing structure preferences

2. **Segmentation**
   Different customer segments have different willingness to pay:
   - **By company size**: SMB vs. Mid-Market vs. Enterprise
   - **By use case**: High-value vs. low-value applications
   - **By geography**: Purchasing power varies by region
   - **By industry**: Some industries have higher budgets

   Tailor pricing tiers to segments.

### Workflow 3: Pricing Tier Design
**Structure pricing tiers to maximize revenue and customer fit**

1. **Tier Strategy**

   **3-Tier Model (Most Common)**
   - **Starter/Basic** (Anchor):
     - Purpose: Low barrier entry, volume play
     - Price: $X/month (affordable, minimal friction)
     - Features: Core functionality, limited usage
     - Target: Small businesses, individuals, trials

   - **Professional/Growth** (Target):
     - Purpose: Optimized for ideal customer, highest volume
     - Price: 3-5x Basic (most choose this)
     - Features: Full functionality, higher limits, integrations
     - Target: Core market, majority of customers

   - **Enterprise** (Aspiration):
     - Purpose: Anchor high end, premium features, custom
     - Price: "Contact us" or 10x+ Basic
     - Features: Unlimited, advanced, white-glove support, SLAs
     - Target: Large companies, high-value customers

2. **Feature Gating Strategy**
   - **Good Tier**: Core features that deliver basic value
   - **Better Tier**: Add productivity features, higher limits, integrations
   - **Best Tier**: Add enterprise features (SSO, advanced security, SLA, dedicated support)

   Gate features by:
   - **Usage limits**: 10 projects vs. unlimited
   - **Advanced features**: Automations, AI, analytics
   - **Integrations**: API access, Zapier, Salesforce
   - **Support**: Email vs. chat vs. phone + CSM
   - **SLAs**: Uptime guarantees, response times

3. **Pricing Anchoring**
   - **Decoy Effect**: Add expensive tier to make mid-tier seem reasonable
   - **Price Anchoring**: Show "Most Popular" badge on target tier
   - **Contrast**: Strike-through annual pricing to show monthly equivalent savings
   - **Loss Aversion**: "Save $200/year" vs. "Pay $17/month"

4. **Annual vs. Monthly**
   - Offer both with 10-30% annual discount
   - Annual benefits: Cash upfront, lower churn, commitment
   - Monthly benefits: Lower barrier, easier to try
   - Position annual as better value ("Save 2 months")

### Workflow 4: Pricing Psychology & Tactics
**Leverage behavioral economics to optimize perceived value**

1. **Psychological Pricing Tactics**

   **Charm Pricing ($99 vs. $100)**
   - Ending in .99 or .95 feels significantly cheaper
   - Best for: Consumer products, B2C
   - Avoid for: Enterprise (seems cheap)

   **Prestige Pricing (Round Numbers)**
   - $1,000 feels premium vs. $999
   - Best for: Luxury, enterprise

   **Price Anchoring**
   - Show higher price first, then discount
   - "Was $299, Now $199" (30% off)
   - Reference competitor pricing to anchor high

   **Decoy Pricing**
   - Introduce asymmetrically dominated option
   - Example: Small ($3), Large ($7), Medium ($6.50)
   - Medium seems like bad deal, customers choose Large

   **Bundling**
   - Combine products/features at discount vs. a la carte
   - Increases perceived value
   - "Everything you need in one plan"

   **Good-Better-Best Positioning**
   - Make middle tier the "Goldilocks" choice
   - Add "Most Popular" badge
   - Limit choice to 3 options (paradox of choice)

2. **Framing & Presentation**
   - **Per-unit pricing**: "$5 per user/month" (scales with value)
   - **Total cost framing**: "$60/year" vs. "$5/month" (depends on goal)
   - **Feature emphasis**: Lead with value, price secondary
   - **Money-back guarantee**: De-risk purchase decision
   - **Social proof**: "Join 10,000+ customers"

### Workflow 5: Pricing Experimentation & Optimization
**Test pricing changes scientifically to maximize revenue**

1. **Experimentation Framework**

   **A/B Testing**
   - Test pricing changes with cohorts
   - 50% see Price A, 50% see Price B
   - Measure: Conversion rate, revenue per visitor, LTV
   - Run until statistical significance (usually 100+ conversions)
   - Choose winning variant

   **Grandfather Clause**
   - When raising prices, let existing customers keep old pricing
   - Reduces churn, builds goodwill
   - Eventually sunset after 12-24 months

   **Beta Pricing**
   - Launch at lower "early access" pricing
   - Increase as you add features and mature
   - Communicate value growth justifies price increase

   **Cohort Analysis**
   - Compare customer cohorts by pricing experienced
   - LTV, churn, expansion by price point
   - Identify optimal price/value balance

2. **What to Test**
   - **Price levels**: $99 vs. $149 vs. $199
   - **Tier structure**: 2-tier vs. 3-tier vs. 4-tier
   - **Feature gates**: What features in each tier?
   - **Pricing display**: Annual vs. monthly default
   - **Discount strategy**: 20% off vs. 2 months free
   - **Payment terms**: Monthly vs. annual vs. quarterly

3. **Metrics to Track**
   - **Conversion rate**: % of visitors who purchase
   - **Average Revenue Per User (ARPU)**: Total revenue / customers
   - **Customer Lifetime Value (LTV)**: ARPU × (1 / churn rate)
   - **Price elasticity**: % change in demand / % change in price
   - **Tier distribution**: % of customers in each tier

4. **When to Raise Prices**
   - **Product maturity**: Added significant value/features
   - **Market validation**: Strong demand, low churn
   - **Competitive positioning**: Still below competitors
   - **Customer feedback**: "Too cheap" concerns
   - **New customer only**: Grandfather existing (avoids churn)

### Workflow 6: Packaging & Discounting Strategy
**Design packages and discounts that drive revenue**

1. **Package Design**
   - **Single Product Tiers**: Basic, Pro, Enterprise (SaaS)
   - **Multi-Product Bundles**: Suite vs. individual products
   - **Add-ons**: Base platform + a la carte features
   - **Usage-Based + Base Fee**: Hybrid model

2. **Discount Strategy**
   - **Annual Discount**: 10-30% off (standard for SaaS)
   - **Volume Discount**: Tiered pricing (10+ seats = 10% off)
   - **Launch Discount**: Early adopter pricing (limited time)
   - **Nonprofit/Education**: 30-50% discount (goodwill, low CAC)
   - **Contract Length**: Multi-year commitments (3-year = 15% off)

3. **When to Discount (Carefully)**
   - **Enterprise sales**: Expected part of negotiation
   - **Annual commitment**: To secure longer contract
   - **Competitive displacement**: Win deal from competitor
   - **End of quarter**: Sales team closing deals
   - **Upsell**: Discount expansion to grow account

4. **When NOT to Discount**
   - **Self-serve SMB**: Trains customers to expect discounts
   - **High-velocity sales**: Erodes margins at scale
   - **Strong product-market fit**: You have leverage
   - **First ask**: Make them earn it (ask for annual, reference, etc.)

## Quick Reference

| Action | Command/Trigger |
|--------|-----------------|
| Pricing model | "Recommend pricing model for [product]" |
| Tier design | "Design 3-tier pricing for [product]" |
| Willingness to pay | "Research pricing for [market]" |
| Price optimization | "Optimize pricing for revenue" |
| Competitive analysis | "Analyze competitor pricing for [industry]" |
| A/B test plan | "Design pricing A/B test" |
| Discount policy | "Create discount guidelines" |
| Price increase | "Plan price increase for [product]" |
| Packaging | "Design product bundle pricing" |
| ROI calculator | "Build pricing justification tool" |

## Best Practices

### Research & Analysis
- Interview 20+ customers about willingness to pay
- Analyze competitor pricing before setting yours
- Test pricing with beta customers before launch
- Use multiple research methods (don't rely on one)
- Segment pricing by customer type

### Pricing Design
- Start simple—add complexity later
- Make default choice obvious ("Most Popular")
- Ensure clear value differentiation between tiers
- Don't over-gate features (freemium conversion killer)
- Price on value, not cost

### Communication
- Explain value, not just features
- Show ROI and payback period
- Transparent pricing on website (for SMB)
- Custom pricing for enterprise (protect margin)
- Price increase notices: 30-60 days, explain value added

### Experimentation
- Change one variable at a time
- Run tests to statistical significance
- Document learnings and iterate
- Grandfather existing customers when raising prices
- Monitor churn closely after changes

### Optimization
- Review pricing quarterly
- Track tier distribution (80% in middle tier = good design)
- Measure price sensitivity with small tests
- Raise prices annually (2-3% inflation minimum)
- Don't be afraid to charge more

## Common Pitfalls to Avoid

- **Pricing too low**: Undervaluing your product, leaving money on table
- **Copying competitors**: Not considering your unique value
- **Too many tiers**: Choice paralysis (limit to 3-4)
- **Confusing value metrics**: Unclear what customer is paying for
- **Feature bloat**: Putting everything in basic tier
- **No price increases**: Inflation erodes revenue over time
- **Discounting by default**: Trains customers to expect it
- **Ignoring psychology**: Not using anchoring, framing, charm pricing
- **No experimentation**: Guessing instead of testing

## Pricing Model Examples by Industry

**SaaS (B2B):**
- Model: Tiered subscription (per seat or per company)
- Tiers: Starter ($49/seat), Professional ($99/seat), Enterprise (custom)
- Example: Slack, HubSpot, Salesforce

**SaaS (B2C):**
- Model: Freemium + tiered subscription
- Tiers: Free, Plus ($9.99/month), Premium ($19.99/month)
- Example: Spotify, Dropbox, Notion

**Marketplace:**
- Model: Commission on transactions (GMV take rate)
- Pricing: 10-30% of transaction value
- Example: Airbnb (host fee + guest fee), Etsy, Uber

**API/Infrastructure:**
- Model: Usage-based (pay-per-API call, GB, request)
- Tiers: Free tier + pay-as-you-go + volume discounts
- Example: Stripe, AWS, Twilio

**E-commerce:**
- Model: Cost-plus with psychological pricing
- Pricing: Charm pricing ($19.99), bundling, volume discounts
- Example: Amazon, retail

**Consulting/Services:**
- Model: Hourly, project-based, or retainer
- Pricing: Value-based (ROI to client)
- Example: Strategy consulting, agencies

## Pricing Analysis Template

**Current State:**
- Current pricing: $99/month
- Average deal size: $1,188/year
- Churn rate: 5%/month
- LTV: $1,188 / 0.05 = $23,760
- Tier distribution: 10% Basic, 70% Pro, 20% Enterprise

**Proposed Change:**
- Increase Pro to $149/month (+50%)
- Hypothesis: Minimal churn, revenue increase

**Impact Model:**
| Scenario | Conversion Rate | ARPU | Churn | LTV | Revenue Impact |
|----------|-----------------|------|-------|-----|----------------|
| Current | 5% | $99 | 5% | $23,760 | Baseline |
| Conservative | 4% (-20%) | $149 | 6% | $29,800 | +25% |
| Expected | 4.5% (-10%) | $149 | 5.5% | $32,509 | +37% |
| Optimistic | 5% (0%) | $149 | 5% | $35,760 | +50% |

**Decision:** Test with cohort, monitor for 90 days, roll out if Expected or better.

## Tools & Resources

**Research:**
- SurveyMonkey/Typeform: Willingness to pay surveys
- Conjointly: Conjoint analysis platform
- ProfitWell (by Paddle): Pricing optimization, benchmarking

**Experimentation:**
- Google Optimize: A/B testing
- Optimizely: Advanced experimentation
- LaunchDarkly: Feature flags for pricing tests

**Competitive Intelligence:**
- BuiltWith: Tech stack and pricing research
- SimilarWeb: Traffic and engagement
- Competitor websites: Public pricing pages

**Pricing Psychology:**
- "Priceless" by William Poundstone
- "Monetizing Innovation" by Madhavan Ramanujam
- ProfitWell blog and benchmarks