New Product: Pricing Model
Calene M. Feavaai
Table of Contents
Pricing Models 4
You have only one chance to get new product pricing right. If you set your prices too high you could lose valuable market opportunities. If you set your prices too low then you are at risk of leaving money at the table. Setting prices for new products does not need to be a guessing game. You can start by conducting sound market research information combined with a robust pricing strategy and this will hit the mark every time. And, while setting prices for new products is very ...view middle of the document...
A new start up products pricing model, revenue model and business model are three main elements of your overall strategy and business plan that is a must to work together. You have to make certain that these three functions are implemented correctly because they are essential to attaining your ultimate financial road to success and the success of the life cycle of your product. Your pricing model must cater to the customers you target and be appropriate for whatever market you have in mind for your particular product. According to Cayenne Consulting “All startups eventually confront the challenge of optimally pricing their product or service. Do you give it away, like Twitter, and hope to find a way to monetize later? Do you price at a multiple of your cost like a wholesale consumer product? Or should you simply charge whatever price premium the market will bear”. These decisions can have sound remarkable effects to the success of your brand, it can mark your price point, brand your image and ultimately market your position and your long term survival in the market. There are a lot of different product pricing models used by different organizations, for instance, Pragmatic Marketing has a list of 7 common pricing strategies that they have tested and have found it successful for product pricing:
* Per Unit which is also known as the 'per seat' model in software. This is the way most people buy their material objects: home, car, software licenses, etc.
* Concurrent Users Cost is determined by the number of users that can access the service, application, etc. at the same time. The concurrent user model is common with server based applications such as databases.
* Per Usage, in the per usage model, the cost is proportional to the extent of usage. The most common example is long distance calls and home utilities such as electricity and gas. Depending on the product, an initializing or installation fee might be tied in.
* Per Unit of Infrastructure, The product, such as a database, is licensed per the number of CPUs on the machine that runs the application.
* Revenue Share The customer pays a percentage of the additional revenue achieved when utilizing the product. The revenue share model works best when the vendor manages the collection of the revenue.
* Costs Savings The customer pays a percentage of the savings achieved when utilizing the product. This can cause customer antagonism because the need to open books and share financial information will be seen as an intrusion.
* Site License The customer pays a flat fee. Site Licenses are used mostly when usage is wide-spread in large companies. A site license saves customers the trouble of managing licenses when the number of users fluctuates.
Daniel Shefer of Pragmatic marketing believed in testing the validity of the pricing model against all sales scenarios, that the best fit should be within its target market. He believed that the pricing...