✴️ What is Product Pricing Strategy?

 

As a PM have you worked on an initiative where you need to work on the pricing strategy. In case of existing product, we might get some benchmark or reference how to set up proper pricing. If it is new product, it becomes a challenging task to define the proper pricing. What is the best way to work on this type of initiative? Here is my suggestion.

1. What is the goal of the company - The first thing which a PM needs to understand is what is the goals/objective of the organization. There might be several types of objectives - Non-profit making, Profit making, increase user engagements, Increase User base. Based upon the understanding, a PM needs to drill down to come up with a right pricing strategy.
2. What is the product - It is very important to know about the product in details. What are the capabilities of the product? What is the use case and different kinds of actors involved in it? When end to end understanding is achieved, the right pricing decision is possible. 
3. Who is the customer - Customer segmentation is very important for right pricing strategy. Have you ever seen a note on the back of a book - "This book can be sold in some specific countries". Company is selling books in low prices for some countries, at the same time same book is sold in high prices for other countries. What is the reason? As per the customer segmentation, the company identifies the willingness to pay of the customer for a specific product. Based on that pricing decision is done. Even in the same country, based on different group or state, same product is sold in different prices. Sometimes, few specifications are removed for lower prices, but that is the decision a PM decides along with other stakeholders.
4.  What is the problem - Every product is designed to solve some problem. If there is no problem, the product loses its purpose, or the customer won't be using that. When the problem is severe, customer pays a hefty amount for the product. When the problem is small and impact is less, customer might not be ready to pay huge amount. The problem statement is another deciding factor of pricing.
5.  What is the brand - What is the brand value of the company? What is the goodwill? Companies charge high margin value above cost price based on their brand value. Same product can be sold in higher prices if the company believes that customer will pay high for their brand value. Apple is the biggest example of this kind of pricing.
6. Understanding the market - Understanding the market is also important thing. Who are the competitors? What are the existing products? What are the alternative products or substitutes? What is the supplier power (from where company is sourcing the raw material)? Is there any government rule or legal requirement for keeping the price low? How Macro and Micro economic factors are impacting? All these things might look small, but they have very large role to decide the pricing.
7. Cost of the product implementation - Obviously the cost of implementation is a deciding factor of pricing. Sometimes companies sell product lower than the cost price to increase user base. But at some point, the break-even needs to achieve and for the profitability, the product needs to be sold higher than cost price. Also, distribution cost, overhead cost, marketing cost etc. needs to be considered while setting up the cost price.

 Here is an interesting link about pricing strategies which will help you to understand different types of pricing strategies.

Pricing strategy guide: 7 types, examples, & how to choose (paddle.com)