Key Takeaways
- Pricing is more than setting a number; it captures the financial, physical and psychological value customers receive from an offer.
- Effective pricing aligns the value proposition, market positioning, customer needs and profitability rather than relying solely on costs or competitors.
- Cost-plus pricing can provide a simple starting point, but it can lead to under-pricing, overpricing and missed margin opportunities.
- Value-based pricing uses customer value drivers, willingness to pay and segmentation to support stronger pricing and profitability decisions.
- Businesses can use different pricing strategies, including penetration, promotional, premium, psychological and geographical pricing, depending on their market and objectives.
- T-Mobile demonstrates how understanding customer needs and simplifying the pricing model can create differentiation and support growth.
- Strong pricing outcomes depend on building the right pricing skills, commercial insight and team capabilities to make evidence-based pricing decisions.
Pricing and marketing, whether online or offline, are the greatest sources of profitable revenue growth for the majority of small businesses and sustainable sources of value capture for large businesses. Still, many business owners ask: how do we define pricing in marketing?
How to Define Pricing in Marketing
To define pricing in marketing, businesses need to look beyond simply putting a number on a product or service. Pricing is the process of setting a price that reflects customer value, market conditions, business objectives and profitability.
In practice, effective pricing involves:
- Understanding customer value: Identify the financial, physical and psychological benefits customers receive from the offer.
- Considering the market: Account for customer needs, competition, demand and market conditions when setting prices.
- Choosing the right pricing approach: Businesses may use cost-plus, value-based, penetration, promotional, premium, psychological or geographical pricing depending on their market and objectives.
- Protecting profitability: Pricing should support revenue and margin rather than relying solely on costs or competitor prices.
- Building pricing capability: Strong pricing outcomes require the right skills, commercial insight and teams to make evidence-based pricing decisions.
The right approach therefore depends on the product, customers, market and business objectives. This becomes particularly important when setting pricing strategies for different stages of a business and its target market.
Your small business’s pricing strategy helps position your product or service in the marketplace and plays an important role in both your bottom line and your competitive edge. Early in the life of your small business, for example, you want to attract and maintain your intended market as effectively as possible and pay close attention to what customers value most and to past fluctuations in competition and demand.
For those who are unfamiliar with pricing, the price you charge customers is a vital component of the marketing mix and a key driver of profitable revenue growth. In simple terms, you need to set your prices according to what your customers value the most about your brand.
In summary, price is more than a number. A price reflects the financial, physical and psychological benefits your offer provides to customers, as well as the costs they incur, such as money, energy, time and mental effort.
Table of Contents:
I. What is Pricing in Marketing Management? Kellogg’s Case Study
II. How to Define Pricing in Marketing? A New Horizon for Australian B2B Businesses
III. The World’s Best Telcos: How to Define Pricing in a Marketing Strategy
IV. Define your Pricing Strategy in Marketing: Closing Skill Gaps in your Team
Capability Building Programmes For Pricing & Sales Teams!
What is Pricing in Marketing Management? Kellogg’s Case Study
To explore pricing in marketing management, this case study looks at Kellogg’s and the pricing challenges associated with its cereal and snack businesses. In October 2023, Kellogg Company separated into two independent businesses: Kellanova, focused on snacks and international cereal, and WK Kellogg Co, focused on cereal in North America. Mars completed its acquisition of Kellanova in December 2025, while Ferrero completed its acquisition of WK Kellogg Co in September 2025. The following examples examine historical pricing, competition and changing consumer preferences.
Kellogg’s uses competitive pricing, which is based on research and market conditions. It relies heavily on pricing levers like discounts and coupons, which can be redeemed for free products. It keeps prices flexible to compete with other players and support sales growth. However, given its market leadership, Kellogg’s relies heavily on advertising and promotional pricing to support its brands.
Historically, cereal and snack businesses have faced changing consumer preferences, competition from private-label products and pressure on margins. These factors can affect brand equity, demand and pricing power, although their impact varies by product and market.
Introduction to Value Culture 💡 Podcast Ep. 96!
What is pricing in marketing management in today’s reality?
Kellogg’s is now having to face consumers’ changing tastes and new desires for a “healthy” lifestyle. Consumers are also now more willing to buy private label substitutes for cornflakes and other cereals. This means the products that brought Kellogg’s to life as a company, such as cereal, have lost a lot of their brand equity and pricing power. Supermarkets are also expanding their range of dry goods, including cereals, and consumers have been responding positively.
Kellogg’s is facing the new reality that being the best cereal company in the world is no longer enough to drive demand, especially for millennials. To survive and thrive, Kellogg’s must turn to new options and healthier alternatives.
But what is pricing in marketing management in today’s reality? The company has been working to make its products more attractive to younger consumers. Customers are increasingly conscious of what goes into their food, and companies are having to respond to these changing expectations.
Historical product commitments around ingredients and animal welfare illustrate how consumer expectations can influence business decisions. Any assessment of whether these commitments were achieved should be based on the relevant company’s published progress reports. More broadly, businesses may need to review their pricing strategies as consumer preferences, competitive conditions and affordability concerns change. Common pricing strategies include:
Pricing Strategies in Marketing
- Penetration pricing is a strategy that tends to be used when an FMCG business wants to enter a market and/or gain market share from its competitors. Businesses initially price products low to build a customer base in a particular market. An example is when brands offer free trials for a short period or give away free or discounted products at their release.
- Economy pricing uses a no-frills, low-price approach that keeps promotional and marketing costs to a minimum. Businesses often use this approach for high-volume products, such as grocery items.
- Psychological pricing is an approach that considers how customers perceive prices and make purchasing decisions. For example, a price of $4.99 may be perceived as lower than $5.00, even though the difference is only one cent.
- Product line pricing is an approach that involves setting prices across a range of related products or categories. This strategy seeks to optimise prices across the portfolio, while keystone products are highlighted in the range. One example is a restaurant bundling an appetiser and a drink to increase the value of the offer and encourage customers to purchase both.
- Optional product pricing is a strategy in which companies decrease the price of the main product or service while increasing the price of added services to achieve incremental margin uplift. For example, airlines may charge more for a window seat or a seat with extra legroom. This generates ancillary revenue.
Define Pricing in your Marketing Management
- Captive-products pricing is a strategy in which a business sells a main product alongside complementary products that customers need or regularly purchase to use it. For example, a printer may require compatible ink cartridges. Businesses consider the pricing of both the main product and the associated consumables when setting their pricing strategy.
- Promotional pricing is a strategy to drive volume and revenue by promoting or highlighting offers through discounts, promotions, freebies or coupons. Promotions can attract customers and generate short-term sales spikes that help businesses pursue revenue targets.
Pricing Recruitment For Pricing Managers!
- Geographical pricing refers to prices that vary by postcode or location. This is because spending power tends to vary by region or postcode. Product scarcity and the cost of delivery are also taken into consideration. Local taxes and exchange rates also vary and impact the final invoice price.
- Everyday-Low-Pricing is a strategy in which a retailer maintains consistently low pricing rather than relying heavily on frequent promotional discounts. The aim is to offer customers predictable pricing and reduce dependence on short-term promotions.
- Premium pricing involves setting prices at a relatively high level to reflect a product’s positioning, perceived quality or brand value.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Conclusion
To succeed as a business, your positioning, value proposition, and pricing strategies must be aligned. This allows you to maximise revenue and profits. Pricing and promotional strategies also influence market perceptions of your product. Considering which strategy is best for your brand will help you answer the question of what pricing means in marketing management, deliver a consistent brand message and allow consumers to value your offerings properly.
Capability Building Programmes For Pricing & Sales Teams!
How to Define Pricing in Marketing: A New Horizon for Australian B2B Businesses is Here
Pricing is the process whereby large organisations set the right prices for their products, services and assets. Businesses use pricing to set optimal customer price points, drive profitability and influence demand. Unbeknownst to many, pricing is more complicated than it looks.
What is pricing in marketing management and business environments?
Pricing can be a highly leveraged profit driver. McKinsey reported in 2014 that a 1% price increase could translate into an average 8.7% increase in operating profits, assuming no loss of sales volume. This is an illustrative estimate, not a guaranteed result for every business.
This is why pricing and revenue management teams are essential to the success of businesses. These teams aim to make pricing processes more efficient and innovative. It’s no longer acceptable to make pricing decisions based on gut feeling that lead to margin loss and strained customer relations. Doing so breaks down an entrenched commodity mindset and slows down progress.
Cost-Plus Pricing
For some time, the dominant approach to pricing was cost-plus pricing. This focused on setting the selling price for different assets based on how much it costs to make or deliver an item plus a flat percentage margin. Target margins usually range from around 25% to 50%, depending on the industry. This method typically works for hard, durable goods and supply-constrained commodities. Examples include fuel, gas, chemicals, and grains.
Typically, businesses that use cost-plus pricing also have a fairly fixed pricing process. Fixed pricing refers to predefined pricing strategies or structures. These are fairly static regardless of customer value drivers, demand, or market changes. The danger of cost-plus pricing is that businesses tend to overcharge or undercharge customers depending on the market situation.
Often, as costs decrease, selling and cash margins also decline. Year on year, profits can fall significantly even when sales volumes remain unchanged.
Individual sales managers tend to favour cost-plus pricing because it is straightforward. This method also gives sales teams broad authority to negotiate individual deals by heavy, non-standard discounting. This is what’s referred to as a list-less discount.
Procurement teams can review SKUs (stock-keeping units) to identify pricing inconsistencies and opportunities to improve pricing.
Pricing Recruitment For Pricing Managers!
Value-Based Pricing
Value-based pricing is a more sophisticated way to set prices. This is because understanding customer value drivers and price sensitivities across segments can help drive productivity.
Value-based pricing can also be implemented in cost-plus businesses. Read more about that here.
Key value-based questions pricing teams ask are: What is pricing in marketing management and what does it look like in our situation? Why do our customers buy from us, and what role does price play in articulating the value we offer to our customers? What’s our share of wallet across different brands and products?
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Conclusion
Understanding pricing, its strategies, and its value drivers helps businesses grow and succeed. It also helps you answer what pricing means in marketing management. Your pricing approach directly drives profitability. However, pricing never works in isolation. You must align pricing with your business and revenue models. With the right expertise, you can strengthen capability and achieve financial goals.
Strategic Team Planning For Pricing & Commercial Teams!
The World’s Best Telcos: How to Define Pricing in your Marketing Strategy
T-Mobile’s historical Un-carrier strategy provides an example of how a telecommunications provider can use customer feedback and simpler plan structures to differentiate its offers. The case study below examines the company’s approach during the 2010s, rather than describing its current plans.
Telecommunications providers use different pricing structures, data allowances and service conditions to target customer needs. Comparing these offers can help explain how pricing complexity, perceived value and service limitations affect customer choice. Specific plan details should be checked against dated product information before being used as examples.
A bonus feature for Telstra subscribers is mobile data. However, the provider has limited its free data offer to 150GB a month. If customers exceed the 150GB data cap, their connection slows to 1.5Mbps. This means customers may not be able to watch HD video or use high-speed applications. Some web pages, video and social media content, and large files may also take longer to load after customers reach the cap. Customers on the basic package must wait until their next billing cycle for their data service to return to its normal speed.
T-Mobile’s historical financial results provide another example. Its adjusted EBITDA margin was 26% in 2013 and 37% in 2017. These figures describe performance over that period and do not prove that pricing changes alone caused the improvement. Any comparison of margins should use the same financial metric and clearly state the reporting periods.
What should a Marketer know about Pricing? 📚 Podcast Ep. 61!
What is pricing in marketing management in the Telco industry? A look into “Un-carrier” plans
Mobile users want more of everything, especially unlimited data.
However, telco operators are worried about giving away too much data. Unli-data is not something that telco operators are willing to give for free right now. Because of this, they are experiencing considerable margin pressure.
Telecommunications providers need to balance customer demand for data with network capacity and the cost of delivering their services. Data allowances, download speeds and network-management policies are different considerations and should not be treated as interchangeable.
The data system works like this: bandwidth is what keeps data moving. Bandwidth is needed for activities ranging from finding information in search engines to streaming videos on YouTube. Essentially you are downloading data to the device’s buffer files. Once the download or playback process is finished, those buffer files are deleted. The more usage, the more bandwidth is required.
That’s why the business strategy for telecommunications companies is to constantly upgrade their network to meet the demands of the users and offer the best deals. This keeps them from abandoning their mobile plans in favour of other telecommunications companies.
T-Mobile Marketing and Pricing Strategy
T-Mobile went beyond traditional pricing methods, and its pricing strategy paid off. They addressed the gripes of the users and unveiled their Un-carrier rebranding. The Un-carrier strategy included initiatives such as simplifying service plans, removing data caps for music and video streaming, and including taxes and fees in advertised prices.
T-Mobile reported 1.1 million total net customer additions in the first quarter of 2017. This is a historical result for that quarter and should not be treated as evidence that the pricing strategy alone caused the customer growth.
At the time, T-Mobile competed with larger rivals such as Verizon and AT&T by differentiating its offers and simplifying aspects of its pricing structure. Any comparison of customer numbers or bundled offers should be tied to the relevant period.
A Phone Line vs. Data
T-Mobile offered promotions such as free additional lines for families and plans aimed at couples aged 55 and older. These offers were intended to attract customers and support customer lifetime value while managing customer acquisition costs. They aim to maintain a stable average revenue per user while pursuing aggressive pricing to attract new users.
Customer segments can differ in their service needs, spending patterns and preferences. Telecommunications providers should use relevant customer research to understand these differences and assess the profitability of each segment, rather than assuming that age alone determines customer value.
While its rival companies are trying to keep their margins profitable by offering higher-priced plans, T-Mobile is lowering its prices and adding more value to its plans to entice more customers.
Contractual Mobile Plans
Telco companies can support their profit margins by subsidising smartphones through bundled data plans. Admittedly, no one wants to pay the full price of a smartphone. They may offer the device at a heavily reduced price or for free, provided subscribers continue using their plans for the duration of the contract.
Users pay the companies a subscription fee to use their services. Telco companies may charge users an early termination fee (ETF) to recover the subsidy on their devices if they end their contracts early.
Contract-less Mobile Plans
Gadgets are constantly being upgraded, which leaves you stuck with outdated versions. This makes you powerless to change the terms of the contract. But with T-Mobile’s flexible plans, you pay a portion of the price of the gadget upfront plus the monthly rates. At any time you want to end the contract, you can pay the price of the device minus the monthly payments already paid.
T-Mobile’s historical plan changes included alternatives to traditional service contracts. The terms and flexibility of these offers varied by plan and period, so specific claims about contract length, cancellation and device payments should be checked against the original plan conditions. Subscribers found the plans easy to understand. Additionally, there were no activation fees.
However, in terms of performance, the coverage is not the best if you live in a suburban or rural area. All in all, T-Mobile plans are in harmony with the needs of the subscribers.
Pricing Recruitment For Pricing Managers!
Let’s Define Pricing in Marketing Management: Overpricing vs. Underpricing
Pricing is what keeps telco companies attractive to consumers. It dictates the value of the product and the benefits the customers can get from it.
If products are overpriced, they will not perform well in the market. If underpriced, the product becomes unprofitable for the company. This forces the telco company to discontinue the product line, which results in a deterioration of its relationship with customers.
- T-Mobile’s marketing and pricing strategy were based on what subscribers wanted in their plans. The company removed the data cap and allowed customers to pay for lines rather than data plans.
- Its unlimited plans, called Un-carrier plans, are gaining market share in the telecommunications industry. The company understands its subscribers’ needs and offers plans designed to meet them.
- T-Mobile introduced contractless mobile plans that provide flexible payment options. Unlike some other plans, these plans allow customers to buy a phone and offset its balance with previous payments.
- Other telco companies are catching up to T-Mobile’s marketing strategy. Now the bigger telcos are noticing T-Mobile’s unlimited plans. As a result, rival telcos may consider offering unlimited data rather than imposing data caps.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Conclusion
T-Mobile changed the way telco companies served their subscribers during the Un-carrier period. Many telco companies have neglected their subscribers and have not given them what they want: more data. The telcos need to address the concerns of their subscribers if they want to keep them using their plans. T-Mobile’s marketing and pricing strategy has increased its market share, while rival companies struggle to keep up by lowering their prices to match T-Mobile’s prices. This shows the power of insight and innovative thinking on a company-wide level.
Define your Pricing in Marketing by Closing Skill Gaps in your Team
We used to hear a lot about ‘the war for talent’ and how the scarcity of talent was the biggest HR challenge facing all businesses. But scarcity is not the real problem, as there’s lots of talent out there. The real problem is knowing what good pricing talent looks like and then securing that talent before your competitors do.
Today, it is much harder to find the right pricing talent. By this, we mean talent that can help your business develop the best pricing methods and strategies. Many businesses still rely on job titles and CVs to source talent for pricing roles. However, the increase in bad hires and talent churn in pricing functions tells you that you cannot just find niche skills by looking at people’s position titles or CVs. You need to look much closer at your applicants.
First, you need to identify the right skills for the pricing strategy, which can be difficult if you’re not sure what you’re looking for. Second, you need to find the best fit for the role, which is not as easy as it sounds because the best people for pricing roles may never have held a specific pricing role or position before.
What should a Marketer know about Pricing? 📚 Podcast Ep. 61!
What Should you Consider? Define your Pricing Strategy in Marketing through Capable Teams
The marketplace for pricing talent is more competitive than it has ever been. Candidates are much more informed about their choices and more discerning in their selections. On top of this, in sectors such as technology, finance and pricing, the in-demand skillsets are ever-changing.
This means you need to identify talent before the opportunity to hire the right candidate is lost. Their profiles should be a combination of unique skills and experience, rather than a general list of qualities individuals on your team already possess. Let go of the idea of the purple unicorn. This was an outdated idea that talent was rare. It isn’t. You just have to employ the right strategies to spot the people you need, which can be harder than it looks.
To find the best candidate for your team, it’s important to set the stage. Create a sophisticated digital strategy that highlights your direction or story and explains your branding. Give your applicants compelling reasons to work for your company. This will give you a better chance of finding the candidates you’re looking for.
It may seem counterintuitive, but you need to tailor your campaign for potential employees just as carefully as you tailor it for your target audience. It’s also helpful to create micro-sites apart from the main career landing page. This will help you spot uniquely specialized individuals you may have otherwise missed.
〉〉〉 Get Your FREE Pricing Audit 〉〉〉
Build Competitive Insight to Define Pricing in Marketing
The key to a successful hire is to identify the skill gaps you need to fill in your team. Your potential hires are also going to be looking from company to company to see who offers them the best deal. This is where you could miss out. Look at your direct competitors and see what they are proposing.
This isn’t to say you’ll be able to outbid everyone. You can gain insight into candidates’ values, aspirations and ambitions. Use this knowledge to make candidates feel valued in the workplace, and be consistent. This can also help you in the future. Managers should understand candidates’ goals and align their work with those goals before candidates become unmotivated or uncertain about their direction. This can address potential issues before candidates even consider moving to another company. Gain insight by reaching out from the get-go.
Companies must update hiring strategies to keep pace and build teams with the right mix of skills. Outdated practices often lead businesses to realise too late that they hired the wrong people. Leaders should regularly update information and digital platforms and target them effectively. They should also learn what candidates seek in a role or company and address those needs. This approach helps businesses attract the right talent and clearly define the responsibilities of pricing roles within the organisation.
For a comprehensive view and marketing research on integrating a high-performing capability team in your company, download a complimentary whitepaper on How to Drive Pricing Strategy to Maximise EBIT Growth.
Are you a business in need of help to align your pricing strategy, people and operations to deliver an immediate impact on profit?
If so, please call (+61) 2 9000 1115.
You can also email us at team@taylorwells.com.au if you have any further questions.
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