Pricing strategy: when to hold your price and when to discount

A pricing strategy is the decision about the place a company wants to occupy in the customer’s mind when the customer puts its offer next to others, together with the rules that defend that place. Pricing power is what that strategy produces when it works: the ability to hold or raise a price without losing the customer to a competitor.

A discount may bring in orders, but it also changes profit on each unit sold. If discounts are frequent, check whether buyers have begun to expect them at every negotiation. The answer depends on the market and how the offer is presented.

TL;DR. When setting a price, compare your costs with competing offers and the benefit buyers can verify. Price remains an important criterion; evidence helps buyers understand what they receive for it.

To support a higher price, a company can explain and demonstrate what its product or service delivers, from time saved to lower operational risk. Check whether that result matters in the buyer’s decision and whether a cheaper alternative already provides it.

This article shows what a discount of a few percent costs in profit, what price signals about a company, and what the change of unit of value looks like in four Romanian companies whose audits we have published.

Romania is where our clients are, and it also makes a useful case study of what happens to prices when inflation falls. At the end you will find a calculation you can run on your own figures in ten minutes.

I wrote separately about why a price war starts, in the article on price war as a perception problem. Here I deal with the practical side, which is what a company does to hold its price while competitors lower theirs.

What is a pricing strategy?

A pricing strategy sets the position a company takes against its competitors and what the customer receives in return for the price difference. Textbooks usually describe three methods, cost-plus, competitor-based and value-based pricing. Their reference points differ, respectively the company’s costs, competitors’ offers and the benefits to the buyer.

Cost-plus pricing is easy to calculate and helps a company avoid selling below cost by mistake. Its own costs, however, do not show how much a buyer is willing to pay. The decision also needs to consider competing offers and the benefit the product brings the buyer.

Competitor-based pricing provides a reference for the offers available in the market. Following every rival’s discount without checking your own costs and benefits, however, gives that rival too much influence over your price. The same price does not produce the same margin for companies with different costs.

Value-based pricing puts the buyer’s benefit at the centre of the decision, but that benefit must be visible and credible before negotiation. Without evidence, even a carefully designed price list may lead to a discussion about discounts.

Before answering a discount request, find out what the buyer compares: unit price, total cost, delivery time or the risk of downtime. The answer shows which arguments matter and whether a discount is justified.

What is the difference between a pricing policy and a pricing strategy?

A pricing policy is the set of operating rules about prices, meaning price lists, volume discounts, payment terms and who approves an exception. A pricing strategy is the positioning decision from which those rules derive.

A detailed pricing policy may exist even when commercial goals are not clearly stated. In that case, the team applies rules without knowing what they are meant to achieve.

Hermann Simon, founder of Simon-Kucher, one of the best-known pricing consultancies, described the link between the two in his article “Pricing and the CEO”, published in The Marketing Journal.

Simon argues that premium and low-price positions demand different choices across a company’s strategy, culture and execution.

Simon adds that once the position is chosen, management has to align every function of the company with it and defend it against pressure from inside and outside. A price position is decided at the top and defended in every single offer.

A discount policy approved only to close the month may conflict with the chosen price position. Its effect on margin and buyer expectations needs measuring rather than assuming.

Communication is one place where the strategy appears. An offer can present price, terms and evidenced benefits together, so a buyer can compare more than the amount on the first page.

What founders tell us about price

When we talk to founders about price, the same situations keep coming back, however different their companies are.

First comes the price cut that changed nothing. The founder lowered the price hoping sales would respond, and the numbers stayed almost the same. Founders tell us simply: “We cut the price quite a lot and it didn’t show up in orders at all.” Under that sentence you can hear the disappointment of having given up margin and gained nothing in return.

Others describe a market with little money. Customers count carefully, and price becomes the main criterion in every conversation. “My customers look at what it costs first and only then at what they get.” For a founder who knows how well the product is made, it is frustrating to see it compared by a single number.

And some are simply worn out. “We can’t win on price, and still that’s where the market keeps pulling us.” Anyone who speaks like this has ended up fighting on ground they never chose.

If you recognise one of these situations, the calculations in this article show what a price cut costs in profit. The checks that follow help you see what you can set beside the price in the customer’s eyes.

Why does a price cut cost more than it seems?

A price cut reduces the contribution from each unit sold. To recover that amount through volume, you must sell enough additional units, each with its own variable cost. The threshold depends on your contribution margin; calculate it before approving the cut.

McKinsey measured the effect on US companies in the S&P 1500 index, in its analysis “The power of pricing”. A 1% price increase, at constant volume, raised operating profit by 8%, almost 50% more than the effect of a 1% drop in variable costs.

For the cost structure in its S&P 1500 analysis, McKinsey calculated that a 5% price cut would require 18.7% more volume to hold profit level. That is an example, not a threshold for every company. The analysis appeared in the early 2000s; the formula remains useful, but the result needs recalculating with your own margin.

The authors warn that the required volume may be difficult to achieve. Before cutting price, a company also needs a realistic estimate of the extra demand.

Planned price increases do not always reach customers in full. In the 2025 Simon-Kucher global pricing study, covering more than 2,200 executives in 28 countries, respondents reported achieving an average of 43% of the increases they sought. They cited customer resistance, at 23%, and competitive pressure, at 22%, among the obstacles.

The red card shows how much additional volume the cut required in McKinsey’s model. Your company’s threshold may be lower or higher. Additional volume must still be produced, delivered and served; the calculation at the end therefore uses your own contribution margin.

There is one more cost, and it does not show up in the figures for the month.

Carl Mela, Sunil Gupta and Donald Lehmann followed the behavior of buyers of a packaged consumer product for more than eight years. Their 1997 study in the Journal of Marketing Research showed that over time customers become more sensitive to price and promotions, as promotions grow and advertising shrinks.

The study covers a single consumer product, so the result reads only as an indication. In Romania, promotions account for a visible share of spending: according to a YouGov analysis, in the first quarter of 2025 promotional purchases made up 23% of household spending on fast-moving consumer goods, excluding fresh products.

What does price signal about a company?

Price can influence a customer’s expectations of quality before they try the product. Its meaning depends on the category and the evidence in the offer. A high price may raise expectations without proving superior quality on its own.

The effect has been measured directly in the brain. In 2008, Hilke Plassmann and her colleagues at Caltech and Stanford published in PNAS an experiment in which participants tasted the same wine presented at different prices. The higher price raised both the reported pleasantness and the activity in the area of the brain associated with experienced pleasure.

In that experiment, the displayed price influenced participants’ experience of the wine, although the wine was identical. The study does not show what happens when a company maintains a discount for months. For that decision, the effect on buyer expectations needs tracking separately from the immediate effect on revenue.

The signal often starts well before the price itself, in the words a company uses to describe itself. In the positioning audit for TAMOS, a furniture manufacturer, I read on August 27, 2026 the description the company gave to search engines. The first word describing the product was “ieftina”, the Romanian word for inexpensive, and the second was “quality”.

The main page’s description put low price ahead of other benefits. That message may appeal to price-sensitive buyers, but the audit does not show which keywords brought visitors in or how they negotiated. Its conclusion was that the design message did not yet support a premium position.

Some founders tell us they feel caught in the middle, between a price that scares buyers off and one that cheapens the company. They are looking for a price position they can defend without seeming expensive.

Warren Buffett put pricing power at the centre of evaluating a business in his 2010 interview with the US Financial Crisis Inquiry Commission, reproduced by Barry Ritholtz. His test was whether a company could raise prices without losing customers to competitors.

He contrasted that with a business where even a tiny price increase risks losing customers. Buyers’ responses to an offer and its alternatives are the way to test this in a particular market.

How do you get out of price competition in B2B?

In B2B, you can broaden the comparison beyond the product’s price by showing which economic outcome it helps protect. Buyers can then consider risk, time and total cost as well. Price remains part of the decision, and the argument works only when the outcome matters to the buyer and can be demonstrated.

Comparison on price appears as a pattern in eight of the audits we have published, from cable and furniture manufacturers to dairy producers, and in five of them the framing is confirmed by the audits’ internal labels.

At Cablero and TAMOS, the company described itself through quality and price, and at Therezia through “tradition, quality, taste”, in all three cases through the minimum definition of the category it competed in.

Cablero, a steel cable manufacturer from Iasi, talked about “premium quality”, a message also used by competitors. The Cablero positioning audit proposed explaining more clearly what the cable can do in a customer’s installation. That message needs specifications and evidence, and its effect on negotiations needs testing.

The first ad proposed in the audit states the mechanism in a few words. “A 20-lei cable. A 20,000-lei stoppage.”

Lei is the Romanian currency. This is a proposed advertising comparison, rather than a documented stoppage cost for every customer. An industrial buyer ordering cables from the manufacturer needs to know whether they meet the installation’s requirements and how they can reduce the risk of a stoppage. The argument needs cable specifications and the customer’s actual costs, without promising that every stoppage will be prevented.

The right-hand column calls for specifications and evidence buyers can use. Some may already exist inside the company, but they need to appear in the offer when they matter to the buyer.

In our audits, we have also found cases where evidence exists but does not appear in sales communication.

At TAMOS, the audit proposed presenting complete solutions for a room rather than only selling products separately. That would give buyers another basis for comparison, which needs testing before prices change.

The audit advised building the offer that could support a premium position first. A broad price increase without evidence may lose customers; decisions about ranges and prices need figures and market testing.

What do the margin comparisons in the Romanian audits show?

The difference between a company’s margin and a category benchmark, multiplied by revenue, shows the financial stakes of a change in margin. The calculation may reach hundreds of thousands or millions of lei a year, but does not measure pricing power on its own. Margins also differ because of costs, product mix and other factors.

Founders put the same problem more simply. Revenue is higher, profit is still falling, and they can no longer produce a serious forecast for the year ahead. Their question is one of diagnosis, and margin is the first place to look for the answer.

At NordicaMoto, a distributor of enduro gear from Odorheiu Secuiesc, the positioning audit calculated the order of magnitude of the stake. The gap between the current profit, 3.01 lei for every 100 lei sold, and 5.36 lei was worth about RON 1.73 million a year, almost three quarters of the company’s 2025 profit.

The audit used that amount as an arithmetic reference for the gap against a benchmark margin. It is neither a sales forecast nor a recoverable gain, and it does not show that positioning caused the difference. Costs and product mix need separate analysis.

At Therezia Prodcom, a dairy producer from Panet, the situation was the opposite. The company already had a net margin of 11.51%, against 5.2% for the category average, and the Therezia audit framed the problem as a choice between two kinds of demand.

New capacity can be filled with demand that looks for the company by name and accepts its price, or with volume that gets negotiated on price.

The audit’s hypothesis was that demand drawn by the brand might support margin better than volume negotiated mainly on price. The 11.51% and 5.2% figures are observed benchmarks, not forecasts for those two types of demand. At TAMOS, net margin had fallen from 11.45% to 4.20% in one year, according to the public figures analyzed in its audit; those figures alone do not establish the cause. The table sets the four cases side by side.

The middle column shows the benefits the audits proposed making visible, using resources already present in the companies. To support the price, buyers need to consider those benefits relevant and be able to check the evidence. A proposed message does not, on its own, prove that the price was maintained.

In the 2025 Simon-Kucher study, 86% of surveyed companies reported higher revenue in 2024. Separately, 68% fell into the study’s “pricing-power leaders” category, based on revenue growing faster than costs. That measure does not show how much of the difference came from price, volume or sales mix.

How does inflation change pricing strategy?

Inflation affects prices through suppliers’ costs and buyers’ budgets. When its pace changes, a company needs to explain which of its costs changed and what the buyer receives for the price.

Founders tell us that energy, raw materials and wages have gone up, while customers will not accept increases to match, so the company absorbs the difference from its margin. Many of them describe this period as one of the hardest their company has faced.

According to the National Institute of Statistics, the annual inflation rate was 9.7% in December 2025. By August 2026 it had fallen to 6.2%, according to the institute’s release reported by Agerpres. A lower rate does not mean prices or costs fell; the case for each adjustment needs checking.

Consumer spending data show a separate pressure on budgets in 2025. According to NIQ data from 62,000 stores, reported by Business Review, Romanians spent about 139.8 billion lei on fast-moving consumer goods and consumer electronics and IT products. Volumes fell by 0.4% in the last quarter, and shoppers visited discount stores more often. These data do not show how B2B buyers responded to inflation in August 2026.

In B2B, a price increase needs to be explained through the supplier’s costs and the buyer’s benefit. Lower inflation means prices are rising more slowly, without proving that the company’s own costs have stopped rising. The sales argument therefore needs the company’s own figures alongside the macroeconomic context.

Companies that explain their benefits with evidence have an additional argument when cost pressures change. A price cut remains a decision to assess using the figures alongside other commercial options.

On which layers does a company’s price break?

A pricing problem may show up in campaigns, offers or the way a company is described. We use the four layers of our methodology to look for the specific cause, without assuming it always lies in positioning.

The figure is a checklist. The highlighted layer concerns positioning, but the cause of a pricing problem has to be established from each company’s data.

L1 · Performance marketing. Check which searches bring visitors and what the ad or page description promises. At TAMOS, “ieftina” appeared in the main page description, and the audit estimated roughly 30,000 organic visits a month. It did not establish that those visits came from price-related searches.

L2 · Revenue and sales process. Check why offers are lost and how many sales depend on discounts. An automatic discount may conceal an unclear sales argument. The link between the offer and its price also appears in the article on the 4Ps.

L3 · AI Brain, orchestration. Test what information an AI assistant finds and cites about the company. A generic description such as “quality and good price” offers few distinctive details, but the answer also depends on the external sources the system uses.

L4 · Positioning and category. Check whether a buyer can name a reason to choose the company and whether the offer supports it. Cognitive ownership describes the ambition to be recognised for a relevant attribute. Recognition may help sales, but it does not automatically remove the need for promotion or price negotiation.

A clear message may help buyers understand the offer faster and compare the criteria that matter to them. We develop the idea in our article on the cost of an unclear brand.

The practical form of a position is a central attribute, one word carried through name, offer and proof, the way NordicaMoto received ENDURANCE as its attribute in the audit.

The principle we call brand as a foundation for growth requires consistency between the offer, the message and the evidence. This can help buyers remember the reason to choose the company, while discounts need assessing for their effect on margin.

How do you check your pricing strategy in ten minutes?

The check takes about ten minutes and has two parts, a calculation on your own figures and a reading of your own communication. The calculation tells you what a discount really costs you, and the reading tells you whether you give the customer a criterion for comparison other than price.

The calculation uses a simple formula. The extra volume needed to offset a discount equals the discount divided by the difference between your contribution margin and the discount. The formula assumes constant variable cost per unit and fixed costs, with a discount smaller than the contribution margin. If your contribution margin is 30%, a 5% discount needs 20% more volume just to stay level. At a 20% margin, the same discount needs 33%.

The reading of your communication takes three questions, in order.

1. How does your product description begin? Look at the site title, the Google description and the first line of the offer. “Inexpensive”, “good price” or “quality” may leave the specific benefit unclear. Check what buyers actually compare instead of inferring it from one word.
2. What outcome matters to the buyer? If the product helps reduce a cost, save time or avoid a risk, describe that benefit in one sentence and look for a figure you can document.
3. Does that benefit appear in the offer alongside the price? The order of information may change the discussion, but it cannot guarantee a decision. Include terms, total cost and the evidence the buyer needs.

If you cannot state a verifiable benefit, speak with buyers and examine the product, costs and alternatives. Positioning may be one of several causes.

To check your own assessment of the brand, you can start with our Romanian-language brand diagnostic. It gives an indicative score from 0 to 100 in two minutes; it does not measure buyers’ perceptions.

A useful pricing strategy shows when you can hold a price and when a discount makes sense. Track buyers’ responses, margin and the reasons offers are lost; those tell you more than a promise of fewer negotiations.

Frequently asked questions

What is a pricing strategy?

A pricing strategy is the decision about the position a company wants to occupy against its competitors when the customer compares offers, together with the rules that defend it. It sets the price level, the discount terms and the way the offer is presented, so that the customer compares the value received.

What are the main types of pricing strategies?

The three classic methods are cost-plus, competitor-based and value-based pricing. They use different reference points, respectively the company’s costs, competitors’ offers and the benefits to the buyer.

What is the difference between a pricing policy and a pricing strategy?

A pricing policy holds the operating rules, meaning price lists, discounts, payment terms and the approval of exceptions. A pricing strategy is the positioning decision from which those rules derive. A pricing policy without a strategy defends a place the company did not consciously choose.

How much volume do I need to offset a price cut?

The extra volume needed equals the discount divided by the difference between the contribution margin and the discount. At a contribution margin of 30%, a 5% discount needs 20% more volume. McKinsey calculated that, for companies in the S&P 1500 index, a 5% price cut required 18.7% more volume.

How do I raise prices without losing customers?

Prices are easier to justify when the offer explains the benefit to the buyer and supports it with evidence. Acceptance of a price increase also depends on the customer’s budget and alternatives. Check buyers’ responses and the effect on volume before applying the change across the whole offer.