Just like product and service quality, pricing affects your overall business health. Undervalue your products and you shrink your profit margins, put pressure on cash flow, and risk cheapening how the market sees your brand. Price too low for too long, and customers start to question whether the product is actually any good. That’s a harder problem to fix than a price tag.

Cost pressure is a big part of why this happens. In the Singapore Business Federation’s National Business Survey 2025, manpower, rental, and logistics costs were the top three contributors to cost increases for Singapore businesses, and only 4% of respondents reported higher profitability over the prior 12 months against 34% reporting a decline. Facing that squeeze, 51% of businesses turned to cost-saving measures and 36% raised prices. But raising a price without a strategy behind it is exactly how undervaluing turns into underpricing, or a sudden increase turns into lost customers.

Getting the price right starts with understanding three things: your costs, your market, and the value customers place on what you sell. The sections below walk through seven pricing strategies used by Singapore SMEs, a simple framework for choosing between them, and the practical execution steps that make any of them work.

Pricing Strategies in Marketing

Most SME owners default to one of two textbook approaches — cost-based or value-based pricing — without realising there are at least five other models worth considering depending on the product, category, and competitive landscape. Here are seven, from the most common to the most situational.

1. Cost-based pricing

Add up everything it costs to make and sell the product — materials, labour, overheads — then layer a profit margin on top. If production costs 20 SGD and the target margin is 30%, the selling price lands around 26 SGD. Reliable when costs are stable and the market is predictable. Weak spot: it says nothing about what competitors charge or what customers think the product is worth, so a rival can still undercut you on price alone.

2. Value-based pricing

Here the price tracks what customers believe the product is worth, not what it costs to produce. A handmade leather bag might cost 40 SGD to make but sell for 100 SGD if buyers see it as a premium item. Getting this right takes real customer insight, from surveys, feedback and watching what people actually pay for elsewhere. But the potential payoff is stronger loyalty and fatter margins once it’s dialled in.

3. Competitive pricing

Price is set relative to what direct competitors already charge rather than working purely from your own cost base. Either by matching, undercutting slightly, or sitting at a premium. F&B, retail, and other categories where customers compare and shop tend to reward this approach. Watch for the trap: if every competitor plays the same game, the category races to the bottom on price together.

4. Penetration pricing

Launch deliberately low to win market share fast, then raise prices once a customer base and repeat-purchase habit are established. New SMEs entering a crowded category often use this to build traction before profitability. It demands thin or negative margins in the early months, which is fine on paper and painful in practice unless there’s enough working capital to sustain the business until prices can rise.

5. Price skimming

The opposite of penetration pricing: launch high to capture customers who’ll pay a premium for being first, then lower the price in stages as demand from early adopters is captured and the product reaches a wider, more price-sensitive audience. A new seasonal menu item or a limited product drop suits this well; a commodity good with easy substitutes does not.

6. Bundling

Group two or more products or services into one package priced below what customers would pay buying each separately. Average transaction value goes up, and slower-selling items can move alongside popular ones. One condition applies throughout: the bundle has to feel like a genuine deal, or it reads as a discount trick padded with items nobody wanted.

7. Dynamic pricing

Prices adjust in real time based on demand, timing, inventory, or other live signals. Think peak-hour F&B surcharges, special event pricing, or e-commerce flash sales. Done well, it captures more revenue during high-demand windows. Done without the right systems to track demand and adjust cleanly, it may confuse or alienate regular customers.

How to choose the right pricing strategy

There’s no single “correct” strategy. The right one depends on where the business is and what it’s optimising for right now:

  • Just launched and need traction: penetration pricing, sometimes paired with bundling to make the low price feel generous rather than desperate.
  • Established with a loyal base and a differentiated product: value-based or price skimming.
  • Selling close substitutes in a crowded, price-comparable category: competitive pricing, informed by (not copied from) what competitors charge.
  • Stable costs, predictable market, no strong brand differentiation yet: cost-based pricing as a reliable floor while the other signals above are still being gathered.
  • Demand fluctuates predictably by time, season, or inventory: dynamic pricing, if the systems exist to manage it without frustrating regular customers.

A Singapore-based example: a Tiong Bahru café opening its second outlet might use penetration pricing on new menu items for the first month to build trial, competitive pricing on staple items like coffee and toast sets (since customers price-compare against the coffee shop next door), and bundling for a weekday lunch set to lift average spend — three strategies, one business, applied to three different parts of the menu.

Pricing Strategies for SMEs

Whichever strategy fits, the execution steps below may help keep the price both practical and sustainable:

1. Pick a goal to focus on

Tie the pricing decision to a clear business objective — maximise profit, gain market share, or attract new customers — rather than picking a number and working backwards. A new brand might price low temporarily to build first-time buyers and recognition. An established brand with a loyal base might instead optimise for margin. Decide the objective first; the number follows from it, not the other way round.

2. Understand what makes your product unique

Identify what actually sets the product apart and let that justify the price. Whether it’s quality, design, service, sourcing. Customers pay more for something that feels distinct or exclusive, and a genuinely differentiated product is also the way out of a price war, since competitors can’t undercut a feature they don’t have.

3. Calculate your total expenses

Underpricing often comes down to missing costs, not misjudging the market. Direct costs (materials, manufacturing) and indirect costs (rent, marketing, packaging, wages) both need to be on the table, so the price never quietly falls below break-even. Every strategy above still depends on this number being right, even the ones that aren’t primarily cost-driven.

4. Know your competitors’ prices

Check what others charge, but treat it as a reference point, not a script. A product with genuinely better features or quality can sit above competitors without customers blinking. Businesses can position deliberately, above, below, or at par, based on real value rather than habit.

5. Learn your customers’ preferences

Willingness to pay varies by audience. A base of young professionals may prioritise convenience and quality over price, while a price-sensitive customer base weighs affordability more heavily. Surveys, polls, or direct feedback surface this faster than guesswork ever will.

6. Determine your desired profit margin

Decide the margin needed per sale after costs, then revisit it as costs, competition, and market conditions shift. A margin set once and never rechecked tends to erode quietly, so build in a regular check rather than a one-time calculation. As a rough example: a 20 SGD product with a targeted 50% margin could sell at 30 SGD.

7. Test your strategy and gather customer feedback

Pricing is not a one-off decision. Launch a price point, track sales and feedback, then adjust. Repeated “great value” comments suggest room to raise prices; a sales drop signals the opposite. Limited-time discounts, bundling, or premium upgrades all get tested here before becoming permanent fixtures.

Why undervaluing happens and how to avoid pricing for survival, not strategy

Most SMEs undervalue their products for one reason: limited capital. When cash is tight, it’s tempting to set prices low just to keep sales moving, even though that erodes profitability and can position the brand as the cheap option long after the cash crunch has passed. A pattern the SBF survey data above suggests plenty of Singapore businesses are living through right now.

The alternative is pricing strategically rather than for survival, which usually means having enough working capital that price isn’t the only lever left to pull. Early-stage Singapore businesses can get a fixed amount of working capital with Start-Up Financing to cover initial costs, fund marketing, or invest in product development without the pressure to undercut on price just to keep cash moving. Funding Societies is a Participating Financial Institution under Enterprise Singapore’s Enterprise Financing Scheme.

Two tiers are available, both interest-free on timely repayments (terms and conditions apply):

  • Start-Up Financing: $10,000 quantum, 5-month tenor, fixed $2,000/month repayment, $500 origination fee (waived when you apply digitally). Open to businesses of any age, including under 6 months old.
  • Start-Up Financing PRO: $20,000 quantum, 5-month tenor, fixed $4,000/month repayment, origination fee from $1,000. Requires the business to be at least 6 months incorporated.

If the business needs more than $20,000, Micro Loans go up to $150,000 with tenors of up to 18 months and no early repayment fees. Worth a look once the business has more than 6 months of operating history.

Frequently asked questions

What is the most common pricing strategy for small businesses?

Cost-based pricing is the most widely used starting point, since it only requires knowing your own costs rather than deep market research. Most SMEs graduate to a blend of cost-based and competitive or value-based pricing as they gather more data on customers and competitors.

Can a business use more than one pricing strategy at once? 

Yes, most established SMEs do, applying different strategies to different products or customer segments (see the Tiong Bahru café example above). There’s no rule that a business has to pick just one.

How often should an SME review its prices?

Review pricing whenever costs, competitor pricing, or customer demand shift meaningfully — for most SMEs that’s at least once or twice a year, plus an ad-hoc check after any material cost increase (rent, raw materials, wages).

Is penetration pricing risky for a new SME?

It can be, since it means accepting thin or negative margins early on. It only works if the business has enough working capital to sustain operations until prices can rise — which is exactly the kind of gap short-term financing is designed to bridge.

Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.

Dorcas Pang
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