Have I got my pricing right?

Dear Aunty B,

We are a start up and have a great new product that we’ve been road testing for the last few months and are ready to hit the market. My question is about pricing.

How do I know we have got the pricing right? We want to charge more than our competitions because we have added extra components. However, I have received advice that we should try and be more competitive and come in under our competitors. Any thoughts?

Simon,
Melbourne

Dear Simon,

It depends on what sector you are in, what you are selling, the economic environment and the hot price point for your customers.

First: your sector. If you are in luxury goods then who gives a toss how much you pay? If you have some new bling, that has some exciting design or functionality, then it is an emotional/impulsive purchase.

If you sell commodity products, price is far more important and you need to be well within the realm of other players.

Second: the economic environment. Know what is hurting your customers and how they are travelling. Read the news. Get updates on your customers industries. Understand the financial pressure not just on your customer but on your customer’s customer.

Third: The hot price point for your customer. Think G spot. It exists! But how do you find it? You ask. Know your customers very well. If you don’t ask veterans in the industry: what is the sweet spot above which they will not pay?

Also think about ways you can market price. For example, $50 for 50 days… three for $300 sort of stuff.

Lastly, can I say in my experience, start up entrepreneurs that are successful do charge on average more than other competitors. This is because they are coming to the market with something new and exciting and they have excellent service.

Also, entrepreneurial companies, while watching every dollar, will pay on average or a little more fom something great… and for terrific service.

So if you are confident about your product, know the marketplace well, your customers are not suffering financial pressures and the environment looks bright, go for the higher price. But make sure you can justify it!

Can I also make another point? What are your costs? Whenever I price a new product, I take into account my costs of producing, marketing/selling it – and I mean all costs – and then I make sure that I not only cover costs but have a big margin on that (which also covers underestimating your costs – an entrepreneur Achilles heel).

Good luck!
Your Aunty B

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