Product Pricing

One of the things that define the product the most is its price. Price is not just amount of dollars or euros that customer needs to exchange in order to get access to your product, but influences every aspect of your product and the business built around the product. For a product manager, the price is one of the primary tools to convey value of the product to customers and how your product compare with its competitors. For a sales manager, price level defines whether to build a complex or simple sales cycle. A business owner can decide to extract majority of value from the market early through price skimming or invest in market share through penetration pricing. And there are bunch of other elements influencing pricing strategy.

Way to often I see people defining the price of their products and services in terms of their costs. For example, they say "my production costs are X so I'll be selling my products for X+30%." The only connection between costs of producing the product and price of the product is that at too low price you're either selling at loss, not generating profits for your owners, or breaking the dumping laws! But once the price of your product surpasses the threshold of basic profitability, the price should disregard costs of production entirely and should be based only on the value you deliver (as perceived by your customers), business objectives, and market circumstances. If you can sell your product for 10x your production costs, you should sell it at that price! If you have any philosophical, moral, religious, or other reservations to do so, call me and I'll be glad to provide you with some counseling.

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