The three main pricing strategies are price skimming, neutral pricing, and penetration pricing, and they roughly relate to setting high, medium, or low prices. The factors involved in deciding to use each technique are how the market is performing (based on competition) and what your needs are as a company.
Price skimming involves setting the price of the product to the maximum price a customer would pay for it (the natural value of the product). Then, as time goes on, you can “skim” the price by lowering it based on the demand curve. This helps to recoup any extra sunk costs in the product if that is a major business need. This is also useful if you are one of the first entrants into the market with this product or have a major competitive advantage.
Neutral pricing happens when there is an equilibrium in the market, and it is when you set your prices equal to your competitors. By doing this, you set the price at a point you know consumers will buy, and you will also make profit.
Penetration pricing involves undercutting competitors. This often results in a price war. The benefit of this method is that you will, initially, gain a large portion of customers who switch to a cheaper product. After this point, your competitors will change prices, so your firm will need to be prepared to adjust and retain those customers in one way or another.