The Power of Pricing: What to Avoid When Launching Your Product

Business.com / Finances / Last Modified: February 22, 2017

In an instant your price tells customers what you think your offering is worth and how it stacks up against the competition.

Your pricing power is greatest when you bring a new offering to market. Since customers have no experience with your product or service, you have a one-time opportunity to tell them what it’s worth.

Price is one of your most powerful communications with customers.  In a heartbeat, your price tells customers what you think your offering is worth and how it stacks up against the competition.  It is one of the primary determinants of your value positioning.  Good pricing decisions can result in higher revenue per sale, and encourages higher unit sales, tie-in sales and repeat sales, all while lowering your costs.  

In sum, your pricing decisions are instrumental for both top line and bottom line performance.

Because price decisions are so important at launch, pricing errors are potentially disastrous. Businesses should begin thinking of pricing strategy early in the development process, and develop the offering design and pricing strategy simultaneously. Here are five common pricing mistakes that businesses can make when offering new products or services.

Related Article: Why Your Product Will Fail

Pricing Too High or Too Low

This is an obvious mistake, and also the most devastating for a new product. If your business is—after months or even years of development—finally bringing a new product or service offering to the market, it may be hard to step back and determine just how much it’s worth.

Pricing too high can lead to lost sales, and pricing too low destroys the profits that are necessary for investing in marketing and development. Customers see a product’s value based on what they believe it’s worth, rather than the actual cost behind it.

The solution here is to choose a price that aligns with your customer base’s perception of value. If you’re unsure what kind of baseline pricing you should be using for your product, you should consult with an expert in pricing strategy, and perhaps conduct focus groups and market surveys to get a better idea of what customers are willing to pay.

Relying on Marketplace Pricing

As mentioned above, businesses should rely more on direct customer feedback through surveys and research rather than the pricing dictated by the current marketplace. By matching your price to the “market price," you are proactively commoditizing your offering and may be stuck charging whatever price the established market has determined.  

Since most new offerings usually bring new functionality or features to the market, the value of that innovation may be lost. TechCrunch notes that marketplace pricing “is a resting place for companies that have given up, and where profits end up being razor thin”—not exactly the spot where a new offering wants to be.

The website goes on to recommend that companies find a more segmented area of the market to target rather than aiming for the overcrowded middle. It’s easier to refine one’s product offerings when the focus is on valuable customers rather than the many ambiguous ones.

Lack of Segmentation

Speaking of segmentation, one thing that businesses can fail to do when determining pricing for new offerings is not taking into account the fact that markets and demands are different everywhere.

If a company chooses a price for their product based on a single market, they’re potentially alienating other areas that could be receptive to different tiers of pricing, products, marketing and more. “Your price realization strategy should include options that tailor your product, packaging, delivery options, marketing message and your pricing structure to specific customer segments,” says the article at TechCrunch.

Once a business has determined the core base for its product or service, the best option is to segment it down to a few different markets, then research what needs to be done to cater to these areas. This can help businesses open their offerings to more markets than just a one.

Related Article: 10 Interview Questions to Ask When Hiring a Product Manager

Not Looking at Demographics

While businesses might not be looking at the bigger picture when it comes to segmentation, they also might be ignoring the smaller picture: customer demographics. When it comes to pricing a product, it’s a huge benefit for a company if they can identify what customers they’re targeting first and foremost.

Entrepreneur lays out the issue with not determining a target market: “If you target customers who value your product the most and charge a high price, you'll be making more money per sale but limit the size of your market. If you target the mass market with a lower-priced product, you'll be making less per transaction but selling a lot more units.”

Instead, go back to the segmentation tip noted above. If a business can price its product based on a few specific demographics with a few different price ranges, they’ll be more likely to succeed.

Not Communicating With Customers

This is one of those mistakes that any company can make, but can be a death knell when launching a new product or service. Let’s say that your business has got this wonderful product that you’re certain can make lives easier.

Your vision will not be compromised! Except—customers aren’t really buying it. Or they’ve bought it, but they’re not quite satisfied with their purchase.

The key here is to check market research and perform customer surveys while the product is out in order to further refine your offerings. If you can get a sense of what the customers do and don’t like about your product, then you’ll be in a better position to adjust your product and pricing based on what they prefer—and keeping customers happy can build both loyalty and good word-of-mouth recommendations.

Related Article: Building Buzz With Online Events

Avoid Making Pricing Mistakes

Although the logical goal of a business is to become successful based on its offering, the wind can quickly be taken out of those sails if pricing is chosen poorly.

However, if a business takes its time and really determines the value of the product based on market segmentation and customer demand, they can potentially avoid establishing a price that’s way off from what would be most successful.

Being sure to follow up with customers and consistently listening to their feedback can also go a long way in adjusting prices. Rather than simply picking a price at random and taking a vague guess at a customer base, it pays to be thorough and definitive when it comes to pricing strategies.

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