How to set the right price?
What is the right price I should ser for my product? what if I leave money on the table? should I set a percentage over my cost? how much are my customers willing to pay for my product or service? Does it sound familiar?, These are just some of the questions that many marketeers ask themselves when setting a price for a new product they are about to launch. There are many different price strategies but all of them must comply to your brand positioning and brand strategy, not doing so is a receipe for disaster.
In order to start assessing a pricing definition, first make sure you select your objective and what would you like to achieve to set a Price, based on company performance, market conditions and or industry your brand or service is competing. Take into consideration that today´s environment is far more complex and companies that use to compete in one particular industry, now are competing in many industries at the same time, making more distractions, more competitiveness and far more complexity. For example, companies such as Google, Apple, Amazon, Microsoft, Samsung, just to mention a few of the global known companies, today due to technology, these enterprises are starting to be involved in software, computers, phones, logistics, payment, retail, cloud services, cars and are involve in industries such as banks, distribution, technology, software, mobility, consumables, marketing services at the same time and this is just an example on how all these trends creates more difuse and blury pricing decisión; because assessing impacts or how decisions might be made becomes more difficult.
However, pricing strategies remains the same and some of the main strategic actions you could be defining for your company or product are:
1. Survival strategy applies when you are in a competitive economy cluttered with new players, the implementation of survival strategies would help you to designed and help you survive and thrive. There are a number of things they can do to help re-energize their efforts, from reviewing costs and pricing to evaluating competitive positioning and exploring new marketing tools. 2. Promotions and incentives to play with the value of your product and maintain consumers interested in your offer. 3. Maximizing current profits by increasing price and reducing cost. You might have a portfolio strategy that use to leverage this, but also you could kill a product by doing so to protect the portfolio or the company or cannibalizing. 4. Maximizing market share, for some people share of market is the most important thing, only if your industry is growing, in a declining market that every year is selling less, winning market share will not take you far. 5. Price skimming a strategy that works for new introductions and innovations. When you know there are potential customers who are willing to pay more to have something before everyone else. 6. Leadership product. Basically when your product owns a category or is related to the category, you tend to set the price of the category and become a reference. Others: Cost?, pscicological?, penetration? Bundles? These are additional strategies that help to set the price depending what strategy you are aiming to your product.
Once you have decide what is the best strategy for your product or service, you need to set the demand and you will need to determine it based on the varibales and characteristics of your strategy, calculating demand is not always easy, speacially for new products, when you have an existing category you can always do cojoint analysis or other tools to help you determine volume.
Altenratives on how to set a price:
- Managerial Judgement or Experience, when you have been many years in an industry that is not that dynamic you could be able to set a price an forsee the results. - Analogous products. Set a price from company owned or prior generation products.
- Incremental innovations. You add some features to your product i.e. iphone - Benchmarking. Compare your product to competitive products in the market - Focus groups. To gather reactions and evaluate perceptions - Surveys. Generate demand curves by having quantitative information - Experimentation. Set a field market pilot to assess demand and reactions - Historical Data. Use regression analyis to estimate a demand curve - Economic value to consumer. EVC = reference Price + differential value - Conjoint analysis. research to capture value features.
With these strategies and pricing alternatives you should be able to have far more information to set a price.
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