Strategic Pricing is more than numbers, it’s positioning
When a business is underperforming on profit, most owners instinctively look at costs or sales volume. But the most powerful variable they overlook?
Price.
Strategic pricing doesn’t simply consider margins it also reflects your confidence, your positioning, and the value you believe your business delivers to customers.
Whether you’re selling complex services, niche software solutions, or physical products, pricing tells the world what to expect. Undervalue your work and the market will follow suit.
This post explores how to spot when you’re under-pricing and how to apply strategic pricing principles in a practical, SME-friendly way.
1. Why so many SMEs under-price (and don’t realise it)
Undervaluing is rarely intentional. It usually stems from:
- Legacy pricing: Rates set years ago, based on attracting customers, not strategic positioning.
- Cost-plus thinking: “What do we need to cover our costs?”, rather than “What is this worth?”
- Fear of losing clients: Pricing decisions made emotionally, not economically.
- Over-servicing: Doing more than agreed, without charging more. “What value are we giving away.”
It’s especially common in founder-led businesses. You care. You want to be supportive and helpful. And with this, somewhere along the way, your pricing stops reflecting your true value.
“We hadn’t reviewed our pricing in five years. We were delivering more, doing better work but our margin was going backwards.”
2. The cost of under pricing: beyond margin erosion
When your pricing doesn’t align with your value, the consequences are tangible:
- Reduced net profit: Small gaps compound into significant losses over time.
- Attracting price-sensitive clients or customers: Who negotiate harder, churn faster, and often drain more time.
- Team frustration: When employees know the service is premium, but the fees are not it can damage morale and culture.
- No buffer: You can’t build resilience or reinvest when margin is wafer-thin.
Most importantly, under-pricing traps you in a cycle of busy-ness, not business growth.
3. Understanding the three core pricing models
You don’t need to be an economist to think like a strategist. At the heart of every pricing decision are three core models:
1.Cost-Plus Pricing
“Let’s add 20% margin on top of our costs.”
✅ Easy to calculate
❌ Ignores value, market positioning, or a customer’s willingness to pay
2.Market-Based Pricing
“What are others charging?”
✅ Keeps you competitive
❌ Assumes competitors are pricing well (often, they aren’t)
3.Value-Based Pricing
“What is this worth to the client?”
✅ Aligns pricing to outcomes, ROI, and perceived value
✅ Reflects differentiation
❌ Requires clarity in delivery and positioning
Your goal isn’t to pick one it is to blend them. Use cost and market data to inform boundaries, but let value drive the decision.
4. When to stop and re-assess pricing
Signs you need a strategic pricing review:
- You’ve added value (provided extra), but not changed the price.
- You’re busier than ever but profit hasn’t grown.
- You discount too easily or feel pressured to do so.
- You avoid quoting large fees even when justified.
- You win every quote, which might mean you’re priced too low.
If this sounds familiar, it’s time to step back and re-anchor.
5. Anchoring, Tiered Pricing, and Perceived Value
Pricing isn’t just economic it’s psychological. One of the most powerful tools you can use is anchoring:
The first price a customer sees sets the mental benchmark for what follows. This applies whether you sell software, services, or physical products.
How anchoring works:
- A £100 product feels expensive until it’s placed next to a £300 alternative
- A £2,000 monthly retainer sounds steep unless there’s a £3,500 premium plan above it
- A “Pro” subscription looks affordable when it sits between “Basic” and “Enterprise” tiers.
Anchoring helps shift the customer’s frame of reference and nudges them toward your target offer.
💼 For service businesses:
Offering tiered packages (e.g. Bronze, Silver, Gold) allows you to:
- Frame mid-tier as the most attractive (highest perceived value)
- Reduce price objections by giving structured choices
- Scale delivery based on value and complexity
📦 For product businesses:
Anchoring can influence both product mix and bundle structure:
- Place high-margin SKUs beside premium options to shift perceived value
- Offer a top-end “flagship” product to lift the perceived quality of your range
- Use good–better–best positioning, even if most customers buy “better”
Example: A £79 bundle outselling a £49 starter set but only when placed next to a £119 “ultimate” kit.
🔁 For subscriptions and recurring services:
Tiers are often feature-led (e.g. number of users, volume, support level), not outcome-based but anchoring still applies:
- “Free, Pro, Enterprise” models steer customers to the middle
- Smart SaaS businesses highlight the best value tier with visual cues
- Tier naming (e.g. “Starter”, “Growth”, “Scale”) creates emotional alignment
The key is intentional structure not just pricing options, but how they’re presented and perceived.
Takeaway:
Anchoring works because customers rarely know what a product or service should cost. You’re shaping their expectation by showing them what’s possible and guiding them to what’s optimal. Don’t let them anchor to your cheapest offer. Create a pricing structure that reflects value and nudges them to the right fit.
6. Price elasticity: When price changes matter (and when they don’t)
Another strategic concept often overlooked by SMEs is price elasticity i.e. how sensitive demand is to changes in price.
Some services are elastic (e.g. commodity goods, where small price changes impact volume).
Others are inelastic (e.g. expert advisory, urgent delivery, niche products).
“If I raise prices by 10%, will I lose 10% of clients, or none at all?”
You can test elasticity by:
- Piloting higher prices for new clients
- Offering premium versions of existing services
- Observing whether value-focused clients push back (often, they don’t)
Low elasticity = pricing power.
And pricing power = long-term profitability.
7. How to run a strategic pricing review, step by step
Let’s turn theory into practice:
✅ Step 1: Audit your current pricing
- When was it last updated?
- Does it reflect delivery time, seniority, and outcomes?
- Is it consistent across clients, or reactive?
✅ Step 2: Segment your offerings
- Group by effort, complexity, and client impact
- Highlight where margin is lowest vs highest
- Watch out for over-servicing low-fee clients or products
✅ Step 3: Clarify your positioning
- Are you priced like a premium service or a commodity?
- Does your website, proposal, and delivery match your price point?
✅ Step 4: Introduce structure
- Use tiered pricing where appropriate
- Standardise scope and inclusions
- Remove ambiguity (it reduces negotiation)
✅ Step 5: Reframe pricing conversations
- Focus on value and outcomes, not inputs
- Use case studies, impact metrics, or testimonials to support fees
Set payment terms that support cashflow (e.g. upfront, staged, recurring, automated).
8. Pilot, test, and refine
Strategic pricing isn’t a one-time event, it’s an evolving process.
Start small:
- Apply new pricing to all new proposals
- Phase in increases for legacy clients (with notice and clarity)
- Test tiered options and track uptake
Review quarterly:
- Win rate
- Average order value
- Gross margin by service or product
Remember, pricing is both a science and an art. Don’t wait for perfection. Wait for traction.
When you value your work, others do too
Pricing is positioning. It’s permission. It’s power.
When you under-price, you overwork.
When you align pricing with value, you achieve growth.
You don’t need to guess. You need to review strategically, confidently, and with the same rigour you apply to every other part of your business.
Because if you’re doing exceptional work, it should be priced that way.
Want Our Help?
If it’s been more than 12 months since your last pricing review, or if you’re scaling and want to align fees with value:
✅ Download our free Strategic Pricing Review Template
✅ Or book a 30-minute call with our advisory team at Grasp
Let’s make sure you’re charging what your work is truly worth.
This blog is for general information only and does not constitute professional advice. Always seek tailored advice relevant to your specific circumstances before making decisions based on this content.
