Last updated on June 19th, 2025 at 09:33 am
I used to think pricing was simple: pick a number, slap it on a product, and watch the sales roll in. As it turns out, it’s anything but. Pricing is a balancing act; part psychology, part strategy, and entirely make-or-break for a business.
Whether you’re launching something brand new, trying to outmaneuver competitors, or squeezing the last bit of profit from a mature product, the right pricing strategy is what keeps businesses alive. And if you’re in finance, knowing how to price smartly isn’t just a bonus; it’s a must.
That’s why I always recommend the US CMA course to professionals who want to sharpen their skills in financial planning, cost management, and pricing strategies.
So, let’s break down how product pricing strategies shift at every stage of the product life cycle and why a strategic approach is needed at every stage.
Understanding the Product Life Cycle and Its Pricing Strategies
Every product goes through four main stages:
- Introduction: The product hits the market.
- Growth: Sales pick up as more people adopt.
- Maturity: The market stabilises, and competition intensifies.
- Decline: Demand fades, and businesses decide whether to phase out or reposition the product.
Each stage calls for a different pricing approach, shaped by costs, competition, demand, and consumer perception.
| Stage | Key Objective | Optimal Pricing Strategy |
| Introduction | Gain market acceptance | Penetration Pricing (low price to attract buyers) OR Price Skimming (high price for early adopters) |
| Growth | Maximise revenue | Competitive Pricing (align with market rates) OR Value-Based Pricing (based on perceived value) |
| Maturity | Maintain profitability | Product Bundle Pricing Strategy (packaging multiple products at a discount) OR Promotional Pricing (temporary discounts to retain customers) |
| Decline | Minimise losses or exit | Markdown Pricing (discounts to clear inventory) OR Premium Pricing (if product remains niche) |
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Types of Pricing Strategy for New Products
Pricing a new product is tricky. Go too high, and people hesitate. Go too low, and you could lose profit potential. The sweet spot depends on market demand, competition, and perceived value.
Here are the key types of pricing strategy for new product launches:
1. Penetration Pricing (Low Price for Market Entry)
- What it is: Start low to attract customers fast
- Best for: Highly competitive markets where gaining early adoption is crucial.
- Pros: Increases brand awareness, discourages competitors from entering.
- Cons: Low margins initially; difficult to increase prices later.
2. Price Skimming (Start High, Lower Over Time)
- What it is: Start high, lower the price over time..
- Best for: Innovative, premium, or tech-driven products.
- Pros: Maximises early profits, targets early adopters.
- Cons: Can limit mass adoption in the beginning.
3. Value-Based Pricing (Price Reflects Perceived Worth)
- What it is: Charge based on how much customers think it’s worth.
- Best for: Unique or high-quality products with strong branding.
- Pros: Customers pay based on benefits rather than costs.
- Cons: Requires strong market research to justify pricing.
4. Competitive Pricing (Match or Undercut Competitors)
- What it is: Set prices in line with or slightly below competitors.
- Best for: Crowded markets where customers compare options.
- Pros: Helps maintain relevance, prevents losing customers to competitors.
- Cons: Can lead to price wars that eat into profits.
Introduction Stage: Capturing Market Attention
When launching a new product, the pricing strategy determines whether consumers embrace it or ignore it.
New Product Development Pricing Strategy Options:
- Penetration Pricing
- Price Skimming
Example:
Think about the launch of streaming services. Disney+ entered with a low introductory price to build a massive subscriber base (penetration pricing), while Apple TV+ started higher but with premium content, later adjusting as competition grew (price skimming).
Choose a pricing model that aligns with your market entry strategy.
Growth Stage: Maximising Revenue While Staying Competitive
Once the product gains traction, competition follows. This is where pricing needs to be aggressive yet strategic.
Popular Pricing Strategies in This Stage:
- Competitive Pricing
- Value-Based Pricing
Example:
Tesla initially had no competition in the EV space. Now, as Ford and GM enter the market, they price their electric vehicles strategically to compete (competitive pricing). Meanwhile, Tesla maintains its premium pricing based on brand reputation and tech superiority (value-based pricing).
Keep an eye on competitors while ensuring customers see value in your pricing.
Maturity Stage: Defending Market Share & Increasing Profitability
At this stage, sales peak, competition is fierce, and and brands need to differentiate. The goal? Sustain profitability.
Effective Pricing Tactics in the Maturity Stage:
- Product Bundle Pricing Strategy
- Promotional Pricing
Example:
Fast-food giants like McDonald’s and Burger King keep introducing bundle deals (e.g., “2-for-1” offers) to keep sales high in an already saturated market.
Use bundling and promotions to maintain profitability while fending off competitors.
Decline Stage: Managing End-of-Life Pricing
When a product reaches its decline phase, companies must decide whether to phase it out or maintain it for niche buyers.
Common Pricing Strategies in This Stage:
- Markdown Pricing
- Premium Pricing
Example:
Nostalgia products like vinyl records saw a decline but later made a premium-priced comeback as collectors and audiophiles reignited demand.
Decide whether to liquidate inventory or reposition the product for a niche audience.
Additional Resources on Product Pricing Strategies
- What Are Product Pricing Strategies? (Productside)
Wrapping Up
Pricing is not just about setting numbers; it’s about understanding markets, consumer behavior, and financial forecasting. Every stage of the product life cycle demands a different approach, whether you’re dealing with a new product development pricing strategy, optimizing revenue in a competitive market, or figuring out how to bundle products to maximize profits as demand declines.
If you’re serious about mastering product pricing strategies, the Certified Management Accountant (CMA) course is your answer. It will help you gain practical know;edge in cost analysis, financial planning, and revenue management. It’s designed for professionals like you who want to upskill and advance in financial management roles.
Smart pricing leads to smart profits. Take control of your financial career with the course.
FAQs
- What is opportunity cost in pricing strategy?
Opportunity cost is the potential benefit lost when choosing one pricing strategy over another. For example, if you set a high initial price (price skimming), you might lose early market share that penetration pricing could have captured.
- What are the best types of pricing strategy for new products?
It depends on your goals. If you want rapid market penetration, go with penetration pricing. If you’re targeting early adopters and want high margins, price skimming works well.
- How does the product bundle pricing strategy work?
Bundling means selling multiple products together at a discounted rate. It increases perceived value and boosts overall sales.
- What is the best new product development pricing strategy?
It depends on the market. Penetration pricing is best for fast market adoption, while price skimming is ideal for premium, innovative products.
- Why do pricing strategies change over the product life cycle?
Markets evolve. What works during a product’s launch won’t necessarily work when competition increases or demand declines.
- Can a company use multiple pricing strategies?
Absolutely. Many companies start with price skimming and later shift to competitive pricing. Others mix promotions with bundling to attract different customer segments.