By Jessica Thiefels
If you’ve developed a new product, you’re probably anxious to get it onto the market and watch the sales roll in. However, an essential step in your product journey is to make sure it’s appropriately priced, which requires much more than simply slapping a price tag on your product and hoping for the best.
If you price a product too low, it might seem cheap to consumers, and you’ll miss out on a healthy profit. If you price it too high, you won’t get sales either. Before you go to market, use the following steps to develop a pricing strategy for your new product.
1. Identify Your Target Audience
Your target audience is the demographic most likely to purchase your product. If you’re selling customized wedding invitations, your target audience is likely engaged couples, or perhaps wedding planners. While this is simple enough, and you probably already understand your target customers, you also want to consider their economic background when pricing new products. You don’t want to price yourself out of their budget.
If you haven’t already, create personas to better understand the people who will buy your product. Use this guide from A Better Lemonade Stand to develop this and then build the personas into your competitive research (more on that next) so you can get a comprehensive view of the landscape and where your product fits within it.
2. Conduct Market and Competitor Research
To do a simple competitor and market analysis, research similar available products and note their price. Look into your competitors to analyze their pricing structures, using a spreadsheet to compare their prices, along with similarities to your product and target audience.
To dive deeper, refer to Big Commerce’s competitive analysis guide. Remember, as the guide explains, “your ultimate goal at this stage should be to cast a wide net and get a comprehensive view of the competitive landscape.” Use this as an opportunity to collect details that will inform your final price decision.
3. Consider Your Hard Costs
In order to turn a profit and ensure your products are sustainable to create and sell, you need to take into account all of the hard costs associated with each unit. When determining your cost, the guide, 7 Steps for Building an Ecommerce Website, suggests considering the following factors:
- The cost of materials per item
- E-commerce and web hosting fees
- Shipping costs
- Fees from credit card processing or your payment processor
You’ll also want to factor in your time as well as any marketing costs. For larger expenses, (such as your time, marketing, and hosting fees), divide the total cost by the total number of products in your first run, so that you can easily denote a hard cost for each unit.
4. Factor in Your Business Goals
With your new products in mind, what are the overall objectives for your business? This can help you nail down your final pricing strategy. Here are a few examples:
- Do you hope the new products increase profitability? Or improve the existing cash flow?
- Are you a new business aiming for market penetration?
- Are you using existing resources and looking to fill a customer need?
- Are you hoping to reach or cater to a new demographic?
Identifying how your new products help you get closer to your primary business goals to get a broader perspective and determine pricing appropriately. For example, it may be wise to price and market your product as an upsell to a current product if you’re filling an existing customer need.
5. Execute Your Pricing Strategy
There are many ways to execute your pricing strategy when the hard work is done. To understand the common pricing methods, Quickbooks explains a few popular strategies and the business models where they’ll work best:
- Pricing at a premium: Setting a price higher than your competitor, works well for businesses offering unique, high-value products.
- Penetration pricing: Initial low pricing to attract customers, and help new businesses break into a competitive market.
- Economy pricing: Everyday low prices, works for businesses with low production costs, looking to attract budget-conscious consumers.
- Price skimming: Start with higher pricing, once competitors come on the market (or raise their prices to match yours), you lower your rates.
- Psychology pricing: Target price-conscious customers on an emotional level, rather than logical. For example, pricing something at $199 to give the illusions that it’s under $200.
- Bundle pricing: Bulk discount, if you buy more products the price is lower. A helpful technique for businesses looking to move unsold products (with their new ones), or that offer complementary products.
Effectively Price Your New Products
Creating and marketing a new product can be a daunting process, setting prices should not add to your worries as a business owner. With the right amount of research and strategy, you can effectively price your new products to make a healthy profit and set up a successful foundation for your business.
Jessica Thiefels is founder and CEO of Jessica Thiefels Consulting, an organic content marketing agency. She’s been writing for more than 10 years and has been featured in top publications like Forbes, Entrepreneur and Fast Company. She also regularly contributes to Virgin, Business Insider, Glassdoor, Score.org and more. Follow her on Twitter @JThiefels and connect on LinkedIn.