After you’ve developed a stellar product concept, how do you figure out how much your consumers are willing to pay for it? Pricing is a tough cookie to crack when it comes to product development. But getting it right can have a very positive impact on generating customer demand and satisfaction. As a result, we’ve outlined the four steps that should get you closer to finding the right price.
1. Make Sure the Concept Is Ready
First and foremost, it’s probably a good idea to make sure your concept is actually ready for a price tag. While you can (and should) conduct pricing research in some form or another throughout the entire product development process, when it comes down to actually determining the right price, the concept should likely be some minimum viable product. For example, a prepared product concept to be tested should include
- Product imagery (including packaging if applicable)
- Clear features and benefit descriptions
- Additional information like colors, quantity, etc., that help consumers assess the value of the product
2. Incorporate Price and Positioning Strategies
Once the concept is ready, it’s time to think strategically. Traditional pricing strategies are important to factor in and likely depend on business objectives. If the objective is to increase brand loyalty or steal away from the competition, penetration pricing may be advisable. If the objective is to change brand perceptions to become a higher end brand, then a premium pricing strategy may be a better option. Of course there’s more to it than that. It’s also important to map out a pricing analysis strategy based on what type of good the product is and if it’s a new product or new version of an existing product. For example, a product that is a new software solution will require a different approach to pricing, like subscription based pricing. Having a good understanding of how these factors play into pricing will help guide what methodology is best when actually determining a price.
3. Determine the Right Methodology
There are many different methodologies when it comes to determining a price. Below we’ve outlined the most commonly used methodologies and when to use them:
4. Utilize the Right Respondents
Last, but certainly not least, is conducting the pricing research with the right respondents. This step can be done in conjunction with step three, just as long as it’s done before beginning the research process. Determining who to target in the actual research phase is pivotal to making sure the price determined is actually meaningful. Sometimes it’s most beneficial to target multiple audiences to assess whether there are different expectations of price dependent on the target market. For example, a pricing test for a personal security device showed men were willing to pay more than women to protect those they cared about. Or in the executive summary below, results showed that those who already used a fitness app were willing to pay more for a smart scale than those who didn’t.
Once these steps are complete, it makes executing on the actual research and determining a price that much easier. To see an example of how we used this process with the Van Westendorp methodology, check out the executive summary below.