How do you determine your new product's price when it is about to launch?

Question

In what ways do you determine product price when you are about to launch your new product?

Examples:

• Matching competition?
• Less than competition?
• More than competition?
• Making a price based on calculating a plan to recover your own costs?
• ...

Answer 1

Try and come up with a price that relates to the value your software or service adds to the customer.

Answer 2

Look at your immediate competitors with similar feature sets and make it 10% cheaper

Answer 3

It is a good idea to allow comparable versions at different prices that target particular people in your market.

Remember that some people are looking for (and can afford) a $1,000 product, and they are not going to buy yours if it only costs them $50. But likewise, someone who is looking for a $50 product is not going to spend $1,000 on your product.

This is part of why every major software company has different levels of support and software packages. 'Enterprise' versus 'standard', etc. Nice to have a few nice features in the higher priced package, but they should both be good packages that show your company's value well.

Most of these ideas can be found here: Camel and Rubber Duckies by Joel Spolsky

Answer 4

It's quite complicated... Look at OSS, it's completely free and there are people making tons of money off it.
You have to take into account both short-term and long-term investments. Are you trying to gain more money or more fame from that piece of software?

Answer 5

It's probably worth reading Joel on Camels and Rubber Duckies to give yourself some pointers. It's more about what not to do when pricing but I think you'll find it helpful.

Answer 6

Let me tell you a story. My father worked in the aircraft industry, first as a metallurgist, then as an expert in non-metallic materials. Because they were building aircraft components out of fibreglass, kevlar, carbon fibre, and the like, they were interested in how to test these materials to make sure there were no voids or other problems in the lay-up. The standard method of testing was to take a core sample, and then patch the hole afterwards, which meant a small weak spot and visible blemish.

Then one day a guy came along with a device that could non-destructively test fibreglas lay-ups. He wanted $1900 for it. My father figured out it probably only cost about $15 to build, and asked why it was $1900. He said that their normal market was yacht builders, and the floor foreman at a yacht builder would see this and know immediately that he needed one, and the floor foreman usually had discretionary power to spend up to $2000 without getting approval from higher ups, and those higher ups might not realize just how revolutionary and important this device was. By setting the price where he did, he was able to maximize his profit, and get a quick sale to the people who needed it most.

My point is that setting prices is often very market dependent, and the more you know about it the better you can set your price.

Answer 7

Those are all valid ways to price your product. It's kind of a combination of your business plan and how your product fits into the market.

You need to figure out what the market is willing to pay, but not ignore your costs at the same time. If the market is not willing to pay enough to make a profit - then you don't have a product at all.

You might intentionally underprice your product to achieve rapid market penetration. Or you might price it high to "skim" the market and rocoup your costs, then lower it to increase volume.

You can make an entire career out of this sort of thing. The simplest answer might be to just look at what the competition is doing, and price your product based on where you want to fit in.

Answer 8

The bulk of price determination comes from marketing and finding answers to pertinent questions:

Competition: prices? features? incentives?

Market: demographics? complementary products? supplementary products? available funds? network effects?

HOWEVER, I believe you need to take strategy into account. If marketing is the map, strategy is where you are going.

You may try the first-to-market, lowest-cost-provider, sit-and-wait (or second-to-market), premier provider, joint-partnership, or any of several strategies. All will affect your final price, and things will change after you have launched so you will need to update your price frequently.

SIDE-NOTE:

I can say that you should not price a product based on recovering your costs. I think you are more likely to overprice or under-price if you follow that tactic because you are focused on yourself rather than the value perceptions of your potential customers.

You should use the technique of determining cost recovery to see if you should bother with selling your product. If you determine a price for your product that requires you to sell an unrealistically huge number of units a year to recover your costs, then you should probably scrap the idea as a product.

Keep it as an idea, or a side project if you like. Who knows? The market may change and support your idea as a product, but until then you are better off throwing your time and money at something else that will provide a better return than just putting your money in a bank.

Answer 9

As a side comment, I think that if you've gotten to 'about to launch' and you don't already have a price point in mind, then you probably have bigger problems than what price to charge. How did you figure out if you could afford to develop the product if you didn't have some guess as to how much it would sell for and how many you might sell? If you don't have clues as to those questions (you aren't going to have sure answers, but you should have clues), you may well have built a product that NO ONE will buy.

Good luck!