The most common order in which a company prices goes something like this: come up with a brilliant product idea, create the product, then put a price on it.
However, pricing should be considered throughout the entire product development process, as well as throughout the life of the product.
Ideally, a company should have a business plan in place before creating any products. This plan should include revenue projections: this of course is units sold multiplied by the price per unit. In other words, you need to know the price of your product in order to generate these forecasts. So, your product should have a price even as early as the business plan stage.
But let’s look back even earlier: pricing is also important before the development of a business plan, to decide which products deserve an investment. If we build it, will customers buy it? How many? We can’t know specifics of course, but we do need an estimate.
Another crucial role pricing plays is in defining your product portfolio strategy, which requires a solid understanding of the market segments you’re going to target. In this instance you should be asking questions like, what different versions of the product should we build based on our market segments, and their willingness to pay? Should we build a platform; sell complementary products?
Once a product is in the market, you should still review its pricing performance regularly. Have your competitors changed their pricing? Have the markets changed? What about technology – are there any new opportunities we should take? Businesses must stay vigilant in their pricing.
Far too many companies set their prices only after they’ve created a product. But pricing is a significant concept that touches each part of your business – it is powerful. Yet so many businesses undervalue it.
My advice? Take pricing seriously.
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