Determine Your Pricing Objective to Drive Product Success
Over the past few weeks, the FEI tribe has been learning the advantages and disadvantages of various survey methods. This week, Marka and the tribe discuss the first in a series of topics on intelligent pricing strategy. Remember, fire = print.
The FEI marketing meeting was abuzz over product guru Lucy’s recent invention of “matches.”
“They’re so convenient!” Marka cried.
“They look great and they’re easy to distribute!” Zoot said.
Numo brought the party to a halt: “How much do we charge for them?”
“That’s a good question,” Marka agreed.
“Whenever we develop a new product or introduce one into a new distribution channel or geographical area, we must set an initial price. Our product’s price is integral for determining its demand levels, profit margins and total revenue,” Numo lectured. “Our pricing policy should begin with selecting a pricing objective. Later, we can determine our product’s potential demand at various price points, estimate production costs, analyze competitor’s prices and select a pricing method. All of this can ultimately help us strategically arrive at a final price that accomplishes our objectives.”
“So what is our pricing objective?” Marka asked.
“Rapid adoption,” Org offered.
“Long-term profits,” Lucy suggested.
“High profit margins,” Numo added predictably, while curling his bony fingers into a fist.
“Let’s see if I understand what’s been said,” Marka began, blowing a few stray strands of golden hair away from her face. “Rapid adoption sounds like it would involve a low pricing strategy to encourage consumer trial...”
“Not necessarily,” Zoot interjected. “Sometimes, consumers equate low prices with uninteresting or low-value products and avoid them.”
“Interesting,” Marka agreed. “I understand how low prices might actually turn off people. Numo, would you agree higher prices should lead to better long-term profits and higher profit margins?”
“Not always,” Numo quickly responded. “If we enter the match market at too high a price, Flintstone and Pyro may be encouraged to enter as well. If we price matches low enough, they may concede this market to us.”