PRICING STRATEGY: Choosing the Right Pricing Approach

The six most common approaches are cost-based pricing (margin over costs), value-based pricing (perceived value), competitive alignment, skimming, penetration, and dynamic pricing

Most companies combine several of these approaches depending on the product line.

The pricing strategy involves choosing a pricing method (cost-based, value-based, competition-based, or demand-based)

The pricing policy then formalizes the governance rules that govern the implementation of this strategy over time: who approves it, what thresholds apply, and what exceptions are allowed.

Yes, it's even recommended: a product launched using a skimming strategy often shifts to competitive pricing once the demand from early adopters has been met, and then to dynamic pricing toward the end of the product cycle to clear out inventory.

Three trends are currently shaping retail pricing: the widespread adoption of AI-powered pricing engines that combine elasticity modeling and business rules rather than simple static rules; the rise of agentic AI pricing, where AI evolves from a mere co-pilot (providing suggestions for validation) to autonomous execution—subject to safeguards—in the least sensitive segments; and the growing demand for governance: minimum margins, price corridors, and systematic human validation of key performance indicators (KPIs), regardless of the chosen level of autonomy.

These trends do not replace the six historical approaches (cost-based, value-based, competitive alignment, skimming, penetration, dynamic); rather, they change the pace and scale at which they are applied.

The three most common challenges are the quality and availability of data (sales, net costs, inventory, competitor prices over a sufficient time period), alignment among teams (pricing, category management, and sales management often have conflicting objectives), and the difficulty of reconciling multiple strategies within a single catalog: cost-based pricing for one product family and dynamic pricing for another require a governance structure capable of resolving borderline cases.

The transition from strategy (the choice of method) to pricing policy (the rules for day-to-day implementation) is often the breaking point: a good strategy that is poorly managed produces inconsistent results.

An explicit pricing strategy avoids two common pitfalls: pricing decisions made on a case-by-case basis, without consistency over time, and instinct-driven decision-making that is disconnected from actual business objectives (margin, volume, market share, brand image).

It also aligns teams (purchasing, category management, sales management) around a common methodology, which speeds up decision-making and reduces price inconsistencies across product families or channels.

Beyond the three mistakes already mentioned above (applying a single strategy across the entire product line, copying competitors without understanding their profitability, and confusing strategy with pricing policy), a common pitfall is changing strategy too often without allowing time for results to materialize—or, conversely, never questioning it even when the product life cycle or competitive position has changed.

We discuss these pitfalls in detail in our article, “7 Pitfalls to Avoid in Your Pricing Strategy.”

A comprehensive pricing strategy consists of four components: an explicit business objective (margin, volume, market share, or brand image), a pricing method chosen from among the major approaches (cost, perceived value, competition, or demand), a set of operational constraints (minimum margin, product line consistency, competitive corridors on key performance indicators), and a pricing policy that formalizes who makes decisions—and according to what rules—once the strategy has been chosen.

Without any one of these four elements, the strategy remains theoretical: it is their interplay that makes it possible to manage prices on a day-to-day basis.

For a new product, the choice comes down mainly to skimming or penetration, depending on the competitive landscape: a truly differentiated launch may aim for a high price to attract customers who are less price-sensitive and recoup development costs, whereas a market already occupied by established competitors tends to favor a penetration price to quickly gain market share.

In both cases, the strategy should be designed to evolve: a product launched using a skimming strategy typically shifts to competitive alignment once initial demand has been met, and then to dynamic pricing toward the end of its life cycle.