Pricing Is NOT An Afterthought Pt. 1 - Leading Strategies For Pricing Early In The Product Development ProcessOriginal Whitepaper Content written by James Weaver
A leading luxury car maker performing an average of 100 additional safety tests than those performed on a non-luxury car. The company successfully sells the car in the market for $280,000. A well-known online retailer has one of the cheapest and most popular e-readers in the market at $79. What is the commonality between these two firms with wining products at different ends of the pricing spectrum? Both companies have given extensive thought to add value and pricing during the early stage of the product development process. The luxury car maker valued price and customer willingness-to-pay to determine a strong product concept that flows through subsequent phases. The high value proposition in turn helps to command a high price. On the other hand, an early pricing discussion on the e-reader helped the retailer create a robust product concept and a new product strategy-- low-priced products with a built-in feature to generate additional revenue streams by also being a live advertisement platform. Companies that incorporate pricing strategy early on are more likely to maximize the revenue potential and value of their products.3 Pitfalls That Lead To Pricing Problems Companies typically invest in pricing and value management strategies late in the product development lifecycle, in the period just before the product launch. This trend is drive by three (3) common issues: 1. Incremental Development Mindset: Many companies believe product development means adding a new feature to an existing product. Incremental development has its place when pricing products, but companies often default to cost-based pricing. Manufacturing cost and incremental customer value generated by the improvement cannot necessarily define the optimal price. 2. Lack Of Clear Value Positioning When companies think beyond incremental product development, they often feel as though new product pricing is risky and uncertain. How should you price something that has never been sold before? Companies often rely solely upon anecdotes, gut feel and emotion to set price rather than incorporating value analytics. 3. Limited Understanding Of Pricing Impact There is a general lack of understanding around the importance of the right price for new products. Companies are comfortable making significant changes to a product's price point after launch, once the market's reaction is determined. This inconsistency generates confusion among customers and across the industry as to the true value of an offering . For any business, price is the most powerful profit driver, and pricing mistakes can have long-lasting consequences. Next week (6.17.15): Pricing Is NOT An Afterthought Pt. 2 - Leading Practices In New Product Pricing SUBSCRIBE to The Pricing Authority Blog and NEVER miss a post!