Proper Pricing Strategies For New Markets

Posted on Jul 27 2015 - 7:01am by Andrew Lisa


No one envies pricing officers. Pricing is difficult job that is hard to get right and easy to get wrong – especially initially or when entering a new market. Pricing has a direct effect on branding, on profit and it can determine whether or not a product launch succeeds. It is never going to be easy, but here are some tips that can make the whole process easier.

When in Doubt, Aim High

If there is uncertainty during the pricing process, businesses generally have a tendency to err on the lower side of the accurate target. This can be a mistake that is difficult to remedy. There are two central problems with pricing artificially low.

First and foremost, you lose out on profit that you would have received if you had sold your product for what it was actually worth. Second, if there has to be an initial pricing error, it is immeasurably easier to adjust a price down than it is to raise it later on down the line. Once customers have gotten used to paying a certain price, increasing that price can nibble away at all the other branding progress the business made.

Base Your Price on Value, Not Market Standards

Common commodities like eggs, bread and milk are more expensive in convenience stores than they are in larger grocery stores – and everybody knows it. So why are convenience stores still in business? Because for many people, going to a grocery store means a farther drive, a longer trip or a bigger hassle with parking. The price of bread, eggs and milk is not universal – conveniences stores sell basic household items, but they also sell exactly what their name implies: convenience – and that costs extra.

The Three Cs

According to Forbes, everyone involved in pricing should think of the “three Cs”: cost, customer, competition. None of the three Cs by itself should dictate price, but every pricing officer should consider what it cost them to create the product, what their competitors are selling it for, and what their customers are willing to pay for the product. These three criteria can be used to work in coordination and triangulate to find the best price.

Consider How Your Product Affects Buyers

Price your product higher if it adds value to the company that is buying. The article “Advice on Pricing in New Markets” gives an example of a company that developed a portable bar code scanner, which replaced the fixed, static bar code scanner that had previously been in use.

Thinking it would only add some minor convenience, they priced the product only modestly higher than the previous model. The new, highly mobile scanner, however, revolutionized industry and saved businesses enormous sums of money by enabling them to restructure their entire supply chains. The business could have – and should have – priced the portable scanner much higher.

Pricing is a complicated, research-intensive guessing game that is easy to get wrong, especially in new markets or when launching a new product. Price too high, lose customers to the competition. Price too low and you risk both losing profit and a tough uphill climb to correct the price to its appropriate higher level. If you’re not sure you’ve hit the mark, go slightly higher, not lower. Consider how your product will affect the bottom line of the people who buy it, and remember, the value of your product is far more important than the price that other people are paying for it somewhere else.

About the Author

Andrew Lisa is a freelance writer living in Los Angeles. He writes about small business management and offers budget help and software reviews.