How do you price your product?

So how do you determine what price to sell your product at? While many think that pricing should not be a skill that Product Managers should worry about, I beg to differ here. As the most knowledgeable person in the organization about the product and domain intersection, it is only natural that the product manager owns the pricing strategy for their products, or, at the least, be the largest contributor to the price setting and price list definition for their product. So, price discovery and price setting is an essential skill-set for the product manager.

A few things to note about B2B pricing

I do not want to make this piece a lecture on pricing. There is a lot of price discovery mechanisms and models and product consultants that can help you with advise here. However, fundamentally, all this advise and models boils down to one thing - the value proposition – what is the perceived value of the product based on the perceived benefits and cost avoidance that accrues when the customer uses it. While this statement is self-explanatory, pricing a product using perceived value is not easy, and a lot of unknowns creep into the equation as we delve deeper into the cost avoidance.

However, as a first step, you have to create a computational sheet that lays down use cases and usage of the product, and based on different organizational and environmental variables and resource needs, the computation should be able to give a general idea about the perceived value and cost avoidance under different operational circumstances.

Once the above is completed, the exact price point has to be determined within price ranges that are often set by competing market offerings. The market, especially an established market would already have done this price discovery. However, for new or nascent markets, the price discovery has to be done based on other primary and secondary alternatives product consideration.

It has to be noted here, that the final list price, especially for B2B products, that are often high touch, is more of a signaling vehicle for the product. While the consumer list price is practically the final price for the product, for a B2B product, the final price is almost always determined through additional deal negotiations. If you are able to set a non-negotiable price on your B2B product price list, you are very lucky.

Another thing to note here is that, the cost of the product or service never entered into the discussion so far. However, the cost is a very important consideration for the health of the business, in the current environment for B2B and B2C products. If the product cannot be profitably sold – at a price point that covers all variable costs of the business, then the future of the business is questionable. This is especially true for high touch, high customization demanding markets. So, please evaluate this aspect carefully before entering this market.

Bon voyage!