Kotler's Pricing Strategies
Kotler's pricing strategies are a menu, not a formula - cost-plus, value-based, skimming, penetration and competitive pricing each fit a different situation, and picking the wrong one for your situation is the most common pricing mistake.
Work moves through five steps in order: define the objective, calculate cost and value, choose the strategy, set the price, then monitor and adjust.
Reach for this when…
- You're pricing by copying the competitor down to the cent.
- You're launching something genuinely new and have no reference price.
- Margin keeps eroding and nobody can say why the price is what it is.
How to run it
- Define your objective and who you're pricing for.
- Calculate your true costs and, separately, the value the customer perceives.
- Choose the strategy that fits: cost-plus, value-based, skimming, penetration, or competitive.
- Set the price and the reasoning behind it, in writing.
- Monitor the market response and be willing to change strategy, not just the number.
A worked example
Situation. Javier Ortiz runs Ortiz Bodega, a small wine exporter in Mendoza, Argentina, that had priced every vintage a few pesos under the nearest competitor for years.
Applied. He split his range: competitive pricing stayed for the everyday table wine, but the single-vineyard Malbec moved to value-based pricing tied to its terroir story, and a new entry into the German market used penetration pricing to build volume fast.
Result. The single-vineyard line's margin nearly doubled once it stopped being priced against a wine it wasn't actually competing with.
The catch
The framework names the options well but doesn't tell you which one fits your situation - that judgement call is where most of the value and most of the risk sits. Skimming and penetration are also easier to start than to exit: customers remember the first price you set.
Competitive pricing is not a strategy, it's the absence of one - it just outsources your pricing decision to whoever you're watching.
Origin: Philip Kotler