The game of pricing is like baking a cake. You need to put together multiple ingredients and then carefully manipulate the temperature and baking time to get the perfect chocolate fondant. You will never become the gourmet chef without trying, but learning the basics in the very beginning is a must.

Introducing a new product to the market can be tricky. You can compete against merely anything from a similar product to the customer’s decision to simply not buy anything. Sometimes the price is so high that it discourages clients to even reply. Or the price is so low that clients are too afraid to buy it.

How to find your way through this maze? Let me give you some hints I have learned over the years of launching new products. Seven steps that I find to be the most important.

Select reference points — in my opinion setting and communicating the right reference points (products against which you want to be compared) for your product are the gateway to higher pricing. For example, you want to market your premium snack as an experience and compare it’s pricing to a ticket to the cinema for $15. You do not want to compare it with an average food item (which may cost $2-3), because the wrong contrast will make your product seem expensive.

Beware of wrong measurement units — if you are selling services set your price per project and focus on showing the potential monetary value of the investment. While an English class with speech rehearsal for 200 USD per hour may seem expensive, if you treat it as the only means to delivering an important sales pitch in English and raising 1 million investment — the amount seems ridiculously small. I generally see that pricing per hour brings confusion and frustration to both sides of the deal.

Choose your competitors — do not compete with price unless you have a fundamentally more effective technology or organization. If both companies are alike your more expensive competitor will sooner or later end up having a larger marketing budget and healthier books. You will make less margin and bleed out. I would rather position the product as a unique solution one cannot compare to an existing one. A good example of an added value product is Sundose — a personalized supplement. Due to substantial benefits in the quality and delivery model of the product — its price, slightly higher then traditional supplements, is secondary to the consumer.

Give multiple options — you may want to offer three versions of your product and adjust the pricing in a way that will persuade the customer to choose the one most valuable for you. Dan Ariely has explained it in an experiment for his book “Predictably irrational”. The experiment is described in short in the first point of a summary available here.

Increase over time — increase pricing as your product develops. I often see that people who offer services do not increase their prices over time. A strategy I have successfully implemented has been to intentionally increase price with every second client up to a satisfactory level. The first two clients paid 1/5 of my intended price, another two 1/4 and so on. In that way I have split the risk with my clients and increased the price along with my confidence and skills.

Don’t underprice — we are often afraid of being too expensive. I would rather be afraid of being too cheap. Perceived value — once set in the market — is difficult to rise. Leave yourself some space for price promotions and special offers. Don’t lower your prices too fast. Instead invest in your perceived value by using influencer marketing and choosing premium distribution channels. Once an investor told me — it seems suspicious when you sell a few times cheaper than your competitors. You are leaving money on the table and your product looses credibility. People do not believe it can be done at that price.

Experiment — pricing is a never ending game of comparison. Use A/B testing to see what is the price that gives you the optimum conversion rate. What you want to achieve is the highest overall revenue by multiplying the number of transactions by average price. Example: 10 x 10USD (100 USD) vs 100 x 6 USD (600USD). Remember to keep the price per lead on the same level for the purpose of the test.

I have listed seven factors that can make you price cake hearty and delicious. It will take you a lot of time to make the components right. On the way you will find other factors I have missed.

Make price workshops and comparative monitoring your habit. Listen to your clients and adjust to their needs. There is no finish line for pricing. Build a habit of measuring and adopting your pricing every month (depending on the category) and, trust me, you will end up in the top 10% of your industry.

Enjoy you price fondant, bon appetit!

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