7 things about product pricing
July 13, 2009 7 Comments
Here are 7 things I have learnt about product pricing.
#1 If price is your ONLY product differentiator, you are selling a commodity. And if your competitor is much larger than you, you may not have a prayer – they can run you out of town by giving the product away for free.
#2 There is nothing called perfect price. You will either overprice or underprice your product. The key is to test quickly to see what the market can bear, quickly iterate and arrive at your final price. Pick test markets, learn and manage, so that if you do not get it right, you do not have a customer backlash to deal with.
#3 Never roll out pricing increase to existing customers all at once. Why? – see #2.
#4 You cannot increase price without adding additional value for your customers. Customers don’t care about your expenses especially when they have choices. Focus on value you bring to the table for the customer, how it solves their pain points, not your expenses.
#5 You do not have to drop prices if your competitors do. If price is all you have to talk about, see #1. Refocus the discussion to customer value you provide and why the value is worth the additional price. If the customer will not, assess if the customer is worth acquiring. Not all customers are.
#6 You do not have to have single pricing. Promotions to attract new customers, rebates for large volume customers are things to consider only if it makes business sense. Don’t do any of this unless you have a sales strategy in place – what is the end goal for promotions and rebates – new customer acquisition? customer retention?
#7 If you want to price products based on value, think about packaging. Car companies do it – EX, LX, RX; consumer products do – large, medium, small; online services do – Basic, Pro, Premium.
What are your learnings about pricing based on your experience? Please share with me and other readers.
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