What is a pricing strategy?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
A pricing strategy is the approach a business takes to setting the prices of its products or services and changing them over time. It might start from what each item costs, from what competitors charge or from the value customers see, and it links prices to goals such as profit, market share or brand reputation.
A pricing strategy is the reasoning behind prices rather than the prices themselves. It decides what a price starts from, how far it can move and what prompts a change, such as a supplier putting up its prices, a new competitor or a quiet season. Different products in the same business can follow different strategies.
Whatever the approach, the books supply the evidence. Pricing from cost needs current figures for materials, labour and running costs. Whichever approach is used, sales and gross profit by product show whether prices are doing what the strategy intended, and stock records show which lines are moving. Prices chosen without those figures are hard to test.
Mark-ups, discounts and mark-downs are tools a strategy uses rather than strategies in their own right. A mark-up is added to cost and a discount or mark-down comes off the price; the strategy decides when each one is used and how far it goes.
In Australia
business.gov.au's guide to choosing a pricing strategy says a strategy helps you set prices, react when your market changes and work towards your business goals. It suggests settling your pricing goals first. Making a profit is the most common goal, it says, but others include winning a bigger share of the market, improving the business's reputation and lifting demand, and those goals should sit comfortably with your business plan and marketing plan.
The guide describes a range of common strategies: building a price from the full cost of making and supplying a product, working out all business costs as an hourly rate for work done for customers, pricing at about the going rate in the market, pricing on the value customers receive, premium pricing for exclusive products, starting low to win customers or high for early adopters, selling one line below cost as a loss leader, and dynamic pricing, where prices move with demand, timing and stock levels. It says strategies can be combined, and that dynamic pricing is allowed in Australia as long as the prices are clear, fair and not misleading.
Before settling on a strategy, it suggests checking that it supports your pricing goals, matches what your market research shows, is realistic for the size and resources of the business, and rests on a reason you could explain to a customer, partner or staff member. Its list of pricing laws to check includes minimum resale prices, price fixing and predatory pricing.
Worked example
| Approach | Starts from | Records it relies on |
|---|---|---|
| Pricing from cost | The full cost of making and supplying the item | Supplier bills, wage records and the running costs in the profit and loss statement |
| Going rate | What competitors charge | Gross profit by product, to confirm the price still covers costs |
| Dynamic pricing | Demand, timing and stock levels | Sales by day or season, stock on hand and a note of which price applied when |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Choosing a strategy before deciding what the prices are meant to achieve.
- Following a competitor's prices without checking them against the business's own costs.
- Running a loss leader without tracking whether extra sales of other products make up for the loss.
- Changing prices often without recording which price applied on which day, so the sales figures are hard to explain later.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Choose a pricing strategy
business.gov.au, Australian Government. Current at 16 October 2026, released 1 October 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.