Maximization (Revenue Growth) – maximize revenue growth in the short term. Startups should pursue maximization when there are no clear differences in customer segments’ willingness to pay, and when the optimal short term and long term prices are equal. Many mid-market software companies price with the goal of revenue maximization, negotiating for the highest possible price in each sale.
Penetration (Market Share) – price the product at a low price to win dominant market share. A bottoms-up strategy lends itself to penetration pricing. Price low to minimize adoption friction, grow quickly, and then move up-market after developing broad adoption. Penetration pricing leads to land-and-expand sales tactics. Expensify, Netsuite, New Relic, Slack follow this model. Penetration prioritizes market share.
Skimming (Profit Maximization) – start with a high price and systematically broaden the product offering to address more of the customer base at lower prices. Skimming is widespread in consumer hardware. Apple sells the latest iPhones at the highest prices, and repackages older models at lower prices to address different customer segments. As Madhavan tells it, Steve Jobs was both a product genius and pricing genius. By pairing the two skills, he led Apple to record-breaking profits quarter after quarter.