When bringing a new product to the market you do not know what the demand is like, where do we set our stall. Do we go for market penetration and mass produce the product and settle for small margins, or go for break even to start until it hopefully take momentum . If we pitch too low it is difficult to get back up. Do we limit supply so we can get a premium for the product. If you have a commodity product , bread , milk, ham etc. there is price transparency I certainly think you must be in and around the market price. That unless of course you have a USP, (Unique selling Price) which you get push for a higher selling price.
There are other factors to be considered as well, is there future sales a great example is on printers where the sell the printer at a low price & make up for this on the ink cartridges. Razor blades would be another great example of this. Is your brand strong enough to demand high price, through emotional value maybe. Will there be first to get the product demand, a great example would be when Apple introduce a new product, they have customer querying to be first to have their products. They even get it wrong when the pitched the ipad too high & reduced it by $200 within two months. The first people in were very disgruntled that this led to vouchers being given out in compensation. This type of demand is generally seen as the exception
During my career when we were pricing a new range I always took a two pronged approach on commodity range. We always bought in large volumes, we would put an introductory price to the trade to try & get market penetration. On the retail side we set it at a premium as a new range. If we were first to the market with a new range a premium was set across the board as it was unique to us. We would advertise the unique selling points & generally put the range "up in lights" so everyone would be aware of the new range.
I also learned very quickly on who to ask when pitching a price. We had brought in a new range it had a very different colour to what we had & to what was in the market. By all accounts it looked like we might be on to something with this. To do market research we showed it to our experienced sales team on the counter of our flag ship branch.. I remember very distinctly one of the team looking at the new line and stating immediately that we would have to sell at 15% margin. This would have been particularly low for any range let alone a new one. I enquired how he could make his assumption based on the fact that I had not told him how much the product cost. His blank look said it all, this lead me down a whole new path on margin protection, I had to come up some very clever strategies to protect the margins across several product lines. As it turned out it was one of the best lines we brought in & we did get a premium price for it.
To finish on pricing there are also other parts of the equation to be looked at, price fixing, predatory pricing, deceptive pricing, & price discrimination. I think we all get caught out when buying things drinks at concerts etc. I remember getting caught out, I would stay in a hotel a few times a year in Galway as the company I worked for had a branch down there, the room was approx. €60 . I had to go down & stay overnight to implement a changeover on software, it was country wide roll out and required us to work through the night with a consultant. It was planned well in advance as you also had to book the consultants time well in advance. Little be known to us that & it was the Galway Race week. Because of the demand our room went from €60 per night to €195 per night. Lesson learned timing is everything.
Regards,
BIP/ SO'D
No comments:
Post a Comment