Pricing isn’t simply about the cost of raw materials, manufacturing and delivery. Consider who you want to sell your product to, how much they make, and what would be affordable for them. It is as much marketing as it is a financial matter. Price your products too low, and the public will perceive it as of a lower quality than the competition. Price it too high, and you maybe alienating your target audience.
Take, for example, the case of the iPhone. When it was first released, it retailed for $599 – fairly expensive for cellular. Mostly, only the die-hard Apple fans and gadget fashionistas went out to buy them. When their niche market was nearly exhausted, Apple made a huge price cut and sold the iPhone for $399 – just 68 days after the product was launched. This was good news to a lot of people, but not to those who already owned an iPhone, and felt the cut was too much, too soon. These once loyal Apple fans felt cheated, prompting Steve Jobs to announce a $100 rebate on all iPhones sold before the price cut. See how messy it can get when you don’t get the price right?
So what should you do?
A common mistake for businesses starting out is to price themselves too low. The public perception of the product is then compromised, and when you raise your prices later, they’ll object by not buying them, or vice versa. Always price the products to turn in a profit. If you’re pricing it substantially more than the competition, make sure you have something to distinguish it as having superior quality. If you’re going to lower prices after the launch, make sure it’s based on thorough research. Have your customers firmly in mind.
Identify your direct competition
Let’s say you have several products of varying quality, consider each of their direct competition from the product lines of a different manufacturer. Check their quality. Are their manufacturing processes more efficient? Is there something better with the products you are making? Create perception, and exploit them. People will gladly pay for quality, provided they can tell why it’s better.
Set your sights on the future
Set a price that goes along with your current long term plans. A price set that doesn’t meet goals now, will not likely meet them later. Price a product for success, and market it accordingly.
Originally posted on December 20, 2007 @ 12:00 am