Pricing is always a tricky task but even more so when trying to find the best price sticker for a brand new product or service.
How do you start? Here are a few tips learned from trial and error.
- Remember – pricing needs to reflect the customers value – not yours. Too often entrepreneurs either have an overinflated view of how revolutionary their new product is. Or, they may automatically opt for a “freemium” model and undermine their income from the onset. Honestly, your opinion doesn’t matter – “value” can only be determined by the customer. So start by deeply understanding what it is that your product or service is really doing for them.
- Don’t bother asking prospective customers directly, “What would you pay?” Studies consistently show that there is a big gap between what shoppers say they will pay, and what they actually pay. Instead consider setting up experiments where you offer two sets of pricing and measure the response.
- The bigger the pain, the bigger the gain. Any pricing research should start by understanding the problem you are solving. How painful is it? What is it costing now in terms of time, money and hassle. The idea of “negative pricing," is a function of what the problem currently costs the customer, or what it costs the customer NOT to use your product. For example, one provider of A/B testing software was able to increase their prices by 500% when they realized that their marketing clients were able to have fewer conflicts with their highly paid (and therefore expensive) engineering teams.
- The deepest pockets are someone else’s. The airlines have long taken advantage of this gap which is why executive seats are so much more than consumer seats. Construct different pricing strategies for consumer versus enterprise markets, or for larger companies versus small ones
- Create reference pricing. When is a product “cheap” or “outrageously expensive”? It all depends on your reference pricing. If possible set up three levels of pricing with the best value (or middle priced) product featured most prominently. This sets up a “range” of acceptable prices. Test different features sets and descriptions and see what package is selected most often.
How do you price new products? Share in the Comments below.