Market-based pricing is the act of setting prices that are closely aligned with the current market prices of similar products. If a business creates products that are differentiated from those of the competition, then there may be room to set prices somewhat higher than market rates, depending on how customers perceive the value of the incremental differences offered by the company. Conversely, if a company's products have a low-quality or commoditized reputation with customers, then it may be necessary to set price points somewhat lower than the market rate in order to sell a reasonable quantity of goods.
The market may be willing to pay a higher price when goods are first introduced, and a lower price later, when competing goods reach the market or the product is considered to be late in its life cycle. If this is the case, a business could set its prices higher at the introduction of the product, and eventually drop its price points or offer discounts later, as market interest declines.