Pricing New Products Correctly

As difficult as it is to comprehend, a recession is a time when smart companies get creative and launch some of their most innovative products and services. Some will even revaluate their brand and execute something new, something fresh. There are a lot of things that go into a new product launch, most of which I will cover in a later blog, but one of the most important is pricing.

I feel that I can safely assume that before any launch or market introduction, a large sum of time and money goes into research and development, marketing and “beta” testing. All of these should be used as a helpful medium for discovering what your customers are willing (or not willing) to pay for – whatever it may be that you’re getting ready to offer or produce. Time and time again I have witnessed unsuccessful new product kick-offs due to poor market research or a very, very terrible pricing structure. I can understand though, there are a lot of things that are of concern during this process. What if you price it too low, everyone loves it and you’re stuck with the price? What if you price it too high and there isn’t enough interest for it to move? What if the price is right in-between the both and as a result, the product performs badly? Don’t fret! There are answers to all of these questions but you have to ask some more before you get there.

First, why did you create this new product? If it was to benefit your customers and improve their experience, price it low enough that they can adopt it without feeling robbed. You see, when Apple first launched the iPhone, it decided just a few weeks later that the best price point was $200 less. This was one of the very few things I will condemn Apple for but they made it right after quickly offering customers who paid the higher price a $100 Apple gift certificate. The key to success with a product launch of this nature is to price it for your customers benefit, not your own.

Second, are you hoping this product is going to save your company? If your company has reached this point, I don’t feel that a new product is all that is needed to keep your business afloat but it sure could help. In this scenario, I suggest you carefully consider your options. If you price it low enough, can you make it up in volume? If so, it is much better than the alternative – no sales and bankruptcy court? There are other things that should be going on behind the scenes to help make a move like this successful such as scaled back expenses and using free mediums such as Twitter, Facebook and MySpace to actively promote the launch.

Third, is it something totally new that your test groups proved to be something everyone would have to have? If these were the results, you are on the right track! The good news is that everyone will have to have it! But, be sure that you price it so that everyone can afford it. Depending on what the product or service is, it is very important to consider each demographic it will be offered to carefully. Is it something that would fall into the “disposable income” category? If it is, remember that each income demographic has its own sweet price point. That means, if you price the product outside of it, they won’t buy – regardless of how much money they have on hand or how badly your study groups say they will want it.

And finally, is it something that you can offer for free? Depending on the product or service, it is important to consider offering it… for free! This doesn’t apply to everything but think about this – if Twitter charged for membership or per every Tweet (oh GOODNESS), the chances of its success would have been very minimal and it would have likely failed. Apple doesn’t charge for its iPhone software updates (except for iPod subscribers) because they understand customers have a continuing cost for owning one and they value the importance the phone has on its business model. Apple saw the bigger picture, do you?

When pricing new products or services – consider the results from your R&D, what the competition is doing and for how much, and who your customers will be. If you can find the right mix and do it for the right reasons, the chances of success are greatly improved. Just remember to avoid panic product launches, plan ahead, and do your research.


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