Product Pricing Strategy
Step A: Fletch’s Business Goals Defined
1. New Product Introduction
2. Market Penetration
3. Increase Prospect Conversion
4. Larger Market share
3. Reach a New Customer Segment
5. Increase Revenue Per Customer
6. Increase Profitability
Step B: Market Pricing Analysis.
iClicker is mid-level pricing
$14.99 — 6 months
$23.99 – Annual
$47.99 – Four-Year
Tophat Monocle is the high price provider
$26 – One Term
$38 – Annual
$75 – Four-Year
Fletch is the low cost provider.
Fletch has a highly differentiated attendance product which warrants premium pricing. After establishing greater presence in the industry, our marketing strategy is to highlight our superior product and customer service as we increase to TopHat Monocle level pricing. For the moment, we are leveraging low pricing to capture market share. Our pricing has ranged from $5/user/yr to $30/user/yr.
Step 3: Analyze Target Audience.
The most important question: What is the greatest value my customer perceives in my product?
- How does my product or service ease the pain associated with tasks my customer must complete?
- How much money does product make customer?
- How much money does product save customer?
- How does product help customer comply with regulation?
Your pricing model and promotional campaigns must align with why your customer would buy your product. For example, if you have a best-of-breed product that uniquely fulfills a customer’s urgent needs, value-based premium pricing may be the best strategy. Creating low-cost promotions and giveaways will confuse your customers, undercut your value, and shrink your profit margin.
Step 4: Profile Competitive Landscape. Whether you are a low-cost provider or a differentiated vendor, the pricing model and price point of your competitors is a significant pricing strategy influencer.
- Identify at least three direct competitors. Study the structure of their pricing. For example, do they have component pricing and allow for heavy discounts? Do they bundle with other products or solutions? Or, do they employ value-based pricing where clients pay a percentage of the total perceived ROI.
- Consider the substitutes a customer may use to solve the task or problem that your product or service addresses. Find out how much these indirect competitors cost the customer. And remember, sometimes your indirect competitor is the word “no”. Consider of self-solutions, or no resolution, as well as other indirect vendor alternatives.
Step 5: Select a Pricing Strategy
- Penetration pricing: Price is artificially low to break into the market
- Economy pricing: Everyday low price with the focus on low manufacturing/delivery cost
- Premium pricing: High price for high value
- Price skimming: Go into the market with a high price, but once your competitors follow, lower your cost and implement other pricing strategies
- Promotional pricing: Discounts over a period of time, one-time deals
- Versioning: Offer different tiers for your services or products: good, better, best
- Sandwich pricing: High, medium and low priced item with the intent to drive customers to the medium priced item
- Subscription Model