AngelytiX Consulting, Los Angeles, CA

Business Coaching and Consulting for Entrepreneurs  


How to Price your Product

Posted on February 6, 2018 at 12:00 AM

Pricing is extremely important – it can define your success in many aspects. From heavily influencing the first impression it gives the consumer, to being one of the main drivers of your bottom line profits, pricing is surely one of the biggest decisions you will make.

AngelytiX has a formal way of working through both the quantitative and qualitative aspects of pricing which we see as the three factor exercise that covers:

1. "Cost-plus Pricing"

The cost of the product plus the required margin you need to cover overhead and profit. This would be called "Cost-plus Pricing", and unless making a loss to buy market share (which should be part of the discussion), it is usually the minimum price.

2. "Competitive Pricing"

The closest prices (in a positioning map explained below) of competing products. This is called "Competitive Pricing". You can be lower or higher, but there must be strategic reasoning behind it.

To develop a position map first define the characteristics that matter for your product(s)/service(s) to help identify who your competitors are. For example, in the beverage industry, key defining characteristics could include the type of product (alcohol, fruit juice, water derivatives, energy products, sports products, etc), size of beverage, premium/standard/quality perception of product, etc. You want to outline the different characteristics, and identify how your product exactly fits into this market. You also want to determine the purpose or frequency of purchasing (as this may impact consumer's monthly budget and thus the ability to purchase).

You will then want to make sure you are not in an illogical place in the market - i.e both lower quality and higher price than another main player in the market. Compare your product to others and determine if it is positioned within the marketplace where it should be. Adjust as necessary based on logic as well as any important strategic decisions.

Once you have a good understanding of positioning, you are ready to have a better sense of where you should be competitively priced.

3. "Value Added Pricing"

The value you are providing your customer quantified in some logical way. This would be called "Value Added Pricing".

For example, a new drug may measure its value add by adding how much it would cost to undergo any alternative surgery needed without the drug. As another example, consider a pick-up dry cleaning service: here the service would save people time in dropping off and picking up their own dry cleaning. Therefore, one way to price this would be to understand what this value of time is for the services target market.

Once you understand all three of the above, you are ready to consider all pricing considerations from each different angle. Neither on their own are correct. Each should be considered together to really be able to understand the impact on the pricing decision. Use your team to have the strategic discussion around the best price, taking into account the quantitative and qualitative concerns above.

This is a process that AngelytiX regularly undertakes in partnership with our clients. Contact us if you would like to discuss this process and have a better understanding of your positioning and pricing strategies.



Lawrence Brown

Managing Consultant | AngelytiX Consulting

Categories: Business Coaching, Financial Management, Data Analytics

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