How Much $ Can We Make

October 22, 2006

Pricing a product or service is always an art and not a science. It is highly dependent on many factors including:

1. Who is your direct competition and how do they price their product/service?

2. How much better is your product/service then existing offerings? Both real and perceived?

3. What is your overall strategy? Do you want to be a “Luxury” product or a “commodity”…. Pricing helps establish your perceived value. Can your product stand up to the test of higher price due to higher quality?

4. What are your costs to deliver your product/service? Costs should be based upon reasonable market share. Can you be the low cost producer and does that provide any pricing advantage either from a margin or marketplace pricing point of view?

5. Ultimately, how unique is your product/service and how significant is customer demand for this product/service?

Let’s examine a few examples:

I am sure you have all heard of Tickle Me Elmo… it’s latest edition has a MRSP of $39.99…. I urge you to find it for that price in the marketplace. Huge demand for this “unique” product has pushed the price over $100 on some auction sites.

What about Bentley Automobiles…. Is it really worth $175,000? Is it that much better then BMW or Mercedes? Clearly not the low cost producer, Bentley uses the best material (in theory) to deliver one of the best cars in the world…. So, low volume, higher cost of manufacture, ultimate luxury yields high price.

6. Finally, can price be a strategy… Look at the Suave line of products as an example. I submit that low price should never be a strategy. It is easily duplicated and affords no long-term point of differentiation. Even Suave markets their products as providing other benefits beyond price. Playing the price game is a slippery slope which should be avoided.

Comments? Examples?


Bizvice:  Strategy, Marketing & Entrepreneurship


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