Action Plan Online 2010, Part 5 of 12

The Price is…Wrong

Pricing your new product or service is one of the most important elements to introducing it to the market. Get it wrong, and it may never get off the ground. Laura Sullivan, a program manager with Calgary Technologies Inc., offers three tips to help you keep from pricing yourself out of (or too far into) the market.

Problem #1: Shallowly Skimming

A “skimming” strategy – charging more for a new, novel product that offers a lot of value – can be a quick way to make a large profit. Amazon’s Kindle is a good example, but as competitors come on the market, it has lowered its price. For this strategy to work for you, you must make sure your product warrants the higher price. “You have to make the comparison to your competition and your relative value,” Sullivan says. “If there is a similar product that costs less, you need to ensure a premium price is warranted.”

Problem #2: Penetrating Too Deeply

The opposite approach to skimming is the penetration strategy: pricing your product low to try to get as many customers as possible. But don’t price yourself out of a reasonable profit just for more market share. “If you find that uptake is much more than you expected, you may be pricing too low,” Sullivan says. “You want to try to make enough money to fund R&D….If the uptake is fast, there’s a chance you are leaving profit on the table and may want to change your strategy and try for a higher price.” Sheer volume of customers, while alluring, doesn’t always mean higher profits. Nokia has far more of the mobile phone market than Apple, for example, but the entire lineup of all of its mobile phones generates a similar profit as the iPhone alone.

Problem #3: Trying To Be Everything To Everyone

You may have the opportunity to position your product to different market segments. Think of the way Microsoft sells Windows – they have a product for students, home use and business. It is essentially the same product, but may have different price points, service terms, etc. You can do that too, but Sullivan counters many try to do it too soon. “We think it’s really essential that you pick a single segment, go after it and do a really good job and expand from there,” she says. “Many companies try to go after many segments and try to make them fit. They may be able to sustain their business, but can’t grow unless they focus.”

RELATED LINKS
Action Plan 2010 in Print, Part 5 of 12: Prepare to Launch

Whether your aim is to increase market share or to create something groundbreaking that will forever change your industry, launching a new product is a tricky business that can trip up even the most well-established companies.
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May’s Action Plan Podcast: Robin Winsor, President and CEO of Cybera, on launching unique products
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1 Have a comprehensive advertising strategy in place pre-launch 2 Make sure the product/service is market ready 3 Know exactly what the market conditions are and price accordingly 4 Don’t think of a new product as a separate entity: think of it as an expansion of your existing brand 5 Don’t sacrifice existing customers or services for the new venture