SOSTAC: Transforming a Marketing Strategy into a Pricing Strategy

In the realm of marketing strategies and business planning, numerous concepts and models exist to guide and support business operations. Among these models, SOSTAC is one of the most renowned and effective, a framework recognized by leading experts in the field.This article explores the components of the SOSTAC model and demonstrates how it can be applied effectively to develop a pricing strategy.

Understanding the Core Elements of SOSTAC Model

The SOSTAC model was developed in the 1990s by British expert and fellow of the Chartered Institute of Marketing, Paul Smith. Detailed extensively in his 2004 book, "Marketing Communications", the SOSTAC® model is a registered trademark and is held in high regard, securing a spot in the top three global business models as per the Chartered Institute of Marketing.

This model for effective planning of marketing strategies consists of 6 components:
The SOSTAC model is widely utilized in the development of marketing plans. It aids in the setting of realistic goals and finding the means to achieve them in marketing.

However, it can also be successfully applied to one of the 4Ps of the marketing mix (Product, Price, Promotion, Place), specifically for planning pricing strategy. Let's examine how to use it.

The development of a pricing strategy requires a series of tasks, calculations, and actions. These should be reviewed and revised as necessary when new products are launched, or when there are changes in market conditions or the competitive environment.

Applying the SOSTAC Model to Pricing

1) Situation Analysis

1.1. Analyze your current pricing situation. Ask yourself: in which pricing segment do you intend to compete?

Globally, four types of pricing segments are generally recognized:
  • Low-priced segment or economy offerings
  • Mid-priced segment
  • High-priced segment
  • Luxury segment

1.2. Assess the current market situation, the competitive environment, and your target audience.

1.3. Identify key competitors for benchmarking your price positioning.

1.4. Conduct a pricing audit and an assortment matrix audit; identify your strengths and weaknesses.

2) Objectives

Formulate your objectives. Common business objectives include profitability, promoting a new product, retaining a customer base, brand development, and market share acquisition, among others.

3) Strategy

Break down your goals into tasks:

  • identify your primary target markets;
  • find your unique advantage;
  • formulate the product positioning;
  • define the overall pricing strategy for the company.

4) Tactics

  • Conduct a critical price analysis for your products. Define the pricing structure of your product range, form pricing baskets.
  • Set the principles of pricing. Create separate rules (price optimization formulas) for categories, brands, individual products.
  • Specify the key performance indicators for each product group or category.

5) Action

Plan what needs to be done to implement the plan.

  • create a schedule of pricing activities;
  • assign responsibility for pricing;
  • allocate a budget for the implementation of the plan (payment for price monitoring services, repricing, CRM and ERP system setup),
  • organize the process of regular price monitoring and repricing.

6) Control

Check whether the prices you have set lead to the achievement of the set KPIs.

These can be sales volume, revenue, gross profit, turnover, etc.

Conclusion

The SOSTAC strategy planning model is a valuable tool that enables systematic pricing work, clear identification of key stages, and outlines the necessary actions.

While this model is straightforward to understand, it does involve comprehensive and often complex tasks at each stage. Their implementation allows for a thorough development of the pricing strategy, without missing any important moments.

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