What phase of the product lifecycle are you in?

If you are in the introduction phase, the typical pricing strategies are skimming or penetration pricing. Examples of skimming are the iPhone and PS3 introductions where they were priced significantly high. This captures the value that the early adopters place on your new product while at the same time signaling the value of your product to the market. You are strategically targeting the early adopters and aligning your pricing strategy to be aligned with this. This market segment will wait in line to buy your product, even if it is twice as expensive as the next best competitor, just so that they can try it out and to be the first ones on the block to use it (assuming that you have a compelling product). They see the value of your product and you can price it based on their value proposition without much regard for competitive forces. These buyers will typically see past the warts and appreciate the best features that your product delivers and you can capture that value with a high price. The other option is penetration, which is pretty good if you are introducing a me-too product with little differentiation. This is aligned with a share growth strategy for your product.

In the growth phase of your product's lifecycle, you will want to price competitively because you will be targeting the “majority” that doesn't value all of the features that your product has to offer. Pricing competitvely doesn't necessarily mean to match the competition. Instead, you can charge a price premium for the differentiating features that you provide. Flexibility is required here, because you will often be targeting multiple market segments and everyone will not have the same utility function.

At the end of the lifecycle for your product, you might use clearance pricing to kill your product and eliminate stock or you might increase pricing to capture the value from buyers who need continued support of older technologies because their switching costs are too high to replace it with something newer.

How do you handle transfer pricing and commissions?

Transfer pricing rules, sales compensation, and commissions can affect the motivations of your channel to sell your product at the highest price possible. If you have oppressive transfer pricing rules and misaligned sales compensation, your channel will optimize their local performance in opposition of your product strategy. Straight commissions are great if you have a penetration strategy, but they can also drive your sales force to sell at any price and erode the profitability in the market.