Section 7/14

Pricing & Margin Strategy

Strategic Pricing, ABC Curve & Optimization

Pricing Strategy Framework

Core Principle

Pricing is NOT static. It's a dynamic lever that affects CAC, LTV, and margin. Strategic pricing decisions should be based on:

  • • Product category (A, B, or C tier)
  • • Customer segment (first-time vs. repeat)
  • • Seasonality and demand
  • • Competitive landscape
  • • Margin targets
Curve A (Top Sellers)

Volume: 20% of products

Revenue: 80% of total

Strategy: Premium pricing, less discounting

Focus: Maintain margin, optimize conversion

Curve B (Mid-Tier)

Volume: 30% of products

Revenue: 15% of total

Strategy: Balanced pricing, selective discounts

Focus: Bundle with A, upsell opportunities

Curve C (Slow Movers)

Volume: 50% of products

Revenue: 5% of total

Strategy: Aggressive discounting, clearance

Focus: Move inventory, free up capital

Pricing Tactics by Segment

First-Time Buyers

Goal: Lower CAC, increase conversion

Tactics:

  • • Introductory pricing (10-15% discount)
  • • Free shipping threshold
  • • Bundle with complementary products
  • • Money-back guarantee (reduces risk)
Repeat Customers

Goal: Increase LTV, reduce churn

Tactics:

  • • Loyalty discounts (5-10%)
  • • Subscription pricing (auto-delivery)
  • • Exclusive member pricing
  • • Tiered pricing by purchase frequency
Seasonal Pricing

Goal: Maximize revenue during peak seasons

Tactics:

  • • Premium pricing during high-demand seasons
  • • Flash sales and limited-time offers
  • • Seasonal bundles
  • • Clearance pricing for off-season inventory

A/B Testing Pricing

Testing Framework

Frequency: Test 2-3 pricing variations per month

What to Test

  • • Price points ($X vs. $Y)
  • • Discount depth (10% vs. 20% vs. 30%)
  • • Offer types (% off vs. $ off vs. BOGO)
  • • Bundling strategies
  • • Free shipping thresholds

Success Metrics

  • • Conversion rate (primary)
  • • Average order value
  • • Gross margin per order
  • • CAC efficiency

Note: Optimize for margin, not just volume. A 5% price increase with 2% conversion drop = higher profit.

Margin Optimization

Gross Margin

Focus: COGS optimization

  • • Negotiate supplier costs
  • • Optimize packaging
  • • Reduce waste
  • • Bulk purchasing
Net Margin

Focus: Operational efficiency

  • • Reduce fulfillment costs
  • • Optimize marketing spend
  • • Reduce customer service load
  • • Automate where possible

Connection to Strategy

✓ Pricing directly impacts CAC and LTV calculations

✓ ABC curve informs product bundling and promotion strategy

✓ Seasonal pricing aligns with calendar and demand patterns

✓ A/B testing ensures data-driven pricing decisions

✓ Margin optimization enables reinvestment in marketing and growth