Pricing strategies play a major role in positioning a product or service. The “right” price depends on target market perceptions that most often relate product or service quality to price as well as company pricing objectives and pricing methods used. Because no single pricing strategy is suitable for every product or service or every situation, knowing how to conduct a pricing strategy analysis is crucial for determining which pricing strategy or combination of strategies is the most appropriate for both the product or service and the situation.

Prioritize Pricing Strategy Objectives

Start by defining a set of pricing strategy objectives and then list these objectives on a paper or computerized spreadsheet in order of importance. Each different pricing strategy supports different pricing objectives, so prioritizing according to expectations provides a good starting point for further analysis. Pricing strategy objectives may, for example, be to maximize profits, achieve sales revenue and market penetration goals, match what consumers are currently willing to pay, reflect the value your product or service provides versus what the competition is offering or provide brand support.

Evaluate Pricing Strategies

Familiarize yourself with the variety of different pricing strategies. Each has a different focus and different characteristics. Then add each strategy and one or two important characteristics to your strategy analysis spreadsheet. For example, include premium pricing, which is mainly used for high-priced, luxury items; penetration pricing, which is a temporary pricing strategy used to gain market penetration; and product bundle pricing, which groups different items together and is used to cross-sell or move slow selling products or old stock items. Psychological pricing, such as pricing an item at $4.99 rather than $5, is used to encourage an emotional rather than rational response to price. Economy pricing is a no-frills pricing strategy, and value pricing is a sales retention strategy.

Compare and Contrast

Different pricing strategies will be more or less appropriate depending on whether the product or service is in the introductory, growth, maturity or decline stage of its product life cycle. The next step in writing a pricing strategy analysis is to first determine where in the cycle the product currently lies; second, to compare and contrast it to pricing strategies and strategy characteristics; and, third, to determine which strategy or strategies may apply. For example, penetration pricing, psychological pricing and product bundle pricing may all work with products in the introductory phase of the product life cycle.

Timing and Implementation

The final step in writing a pricing strategy analysis is to first decide whether to use a single strategy or create a custom pricing strategy and, second, to decide how to time strategy implementation. The decision to use one or a combination of strategies depends on the product or service, pricing objectives and the strategy options you chose as most appropriate. Timing, however, can be more specific. With a new product introduction, for example, you might choose start to start with a combination of penetration and psychological pricing. If after a specific time sales aren’t meeting expectations, you might decide to combine it with a high-volume item and implement product bundle pricing. Once you achieve market penetration objectives, you might then decide to raise the price of the item but continue to use a psychological pricing strategy.

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