Finding the right price balance between customer value and company earnings is key for product managers. If the price is too high, users get angry, and adoption drops. But a price too low leaves profits on the table. So, how can managers carefully set prices to give users solid benefits while still hitting revenue management goals? This article explores top product pricing strategies and steps to guide pricing decisions across customer segments as markets change. The goal is to uncover how to strike the perfect balance between value and revenue with your pricing.
Defining Goals: Value vs Revenue
At its core, product pricing strategies involve tradeoffs between two key objectives:
- Delivering high customer value
- Generating sufficient revenue
While these aims often align, conflicts can emerge. If the price is too low, you lose out on revenue upside. But if it is too high, fewer users will join. Carefully managing revenue requires properly balancing prices to maximise both value and profit. This starts by setting pricing targets for each product line and customer profile.
Key Steps for Crafting Optimal Prices
The process for scientifically developing strong product pricing strategies:
- Research buyers and markets: Learn what pricing delivers value per segment and analyse competitor prices
- Model price situations: Build models showing possible results for different prices using analytics
- Set initial price range: Based on learnings, pick prices balancing adoption and revenue
- Test with small groups: Try prices with subsets before the full launch
- Adjust continually: Keep tweaking prices based on sales data, feedback and competition
Using this value-centric but data-backed approach helps sustain favourable pricing as markets change.
Conclusion
The central challenge in product pricing strategies is striking the right balance between value delivery and revenue capture. While a suite of pricing models and tactics exist, often, the best solution involves fluidly adjusting prices across market segments. Mastering this balancing act brings commercial success.
Frequently Asked Questions
1. How do you know what the optimal price is?
There is no universally optimal price. Finding the optimal balance requires thoroughly analysing buyer willingness to pay, perceived value, competitive benchmarking, production/operational costs, and revenue goals. Often, testing across customer segments is needed to find the optimal balance.
2. Is it better to offer discounts or lower baseline pricing?
Discounts can temporarily lift sales but suggest base prices are high. Lower regular pricing probably improves value perception and long-term uptake. Use discounts carefully.
3. Should pricing vary for different customer profiles or purchase occasions?
Differential pricing allows for capturing more value from high-end customer subgroups willing to pay more under certain conditions while also appealing to more price-sensitive segments.
4. How frequently should prices be evaluated and changed?
Although frequent price changes can be disruptive, occasional tuning is needed to adapt to shifting conditions. For fast-changing products, review and set pricing at least quarterly, monthly or even weekly.
5. Is competitive undercutting a sound pricing strategy?
Discounts should be granted only if they can be sustained profitably long-term, which is rare. Competitive pricing signals that your product offers less value. Discounts should be based on lower costs or temporary promotions only.
