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1. #PRICING STRATEGY FOR PRODUCTS FULL#
2. #PRICING STRATEGY FOR PRODUCTS SOFTWARE#
3. #PRICING STRATEGY FOR PRODUCTS PLUS#
4. #PRICING STRATEGY FOR PRODUCTS SERIES#

Also called strategic pricing, this method involves looking at the prices set by other businesses in the same sector, and then adopting those numbers, plus or minus a few percent according to how your product looks that day. Obviously the market doesn’t dole out suspensions for copying prices, but the processes of swiping an essay and competitor based pricing are pretty similar. Competitive-based pricing: Essentially, ineffective plagiarismĬompetitive-based pricing is a lot like plagiarism - you decide not to do your homework, so you copy that of those who have already done some work (or that you’re assuming have done some work).

#PRICING STRATEGY FOR PRODUCTS SOFTWARE#

Regardless of ease, no software or SaaS company should use cost plus pricing, because the value you’re providing is traditionally much more than your costs of doing business.Ģ. Overall though, cost plus pricing isn’t ideal for most businesses, unless you truly cannot spend some extra time on the most important aspect of your business, which sometimes happens when you’re bogged down by fulfilling orders or just getting off the ground. Yet unfortunately, it’s horribly inefficient, because it creates a company culture of isolationism and doesn’t take a single ounce of customer perspective to determine different prices. This method involves very little market research, and also doesn't take into consideration consumer demands and competitor strategies.įortunately, cost-plus pricing is really simple, requires few resources and hedges against incomplete knowledge by covering the entirety of a product’s costs. In practice, a lot of companies calculate their cost of production, determine their desired profit margin by pulling a number out of thin air, slap the two numbers together and then stick it on a couple thousand widgets. You make something, sell it for more than you spent making it (because you’ve added value by providing the product), and buy something nice with the difference. Cost-plus pricing: The oldest and simplest (mostly) method of setting pricesĬost plus pricing is the simplest method of determining price, and embodies the basic idea behind doing business. To recap for those of you who don’t want to read the other posts, let’s review each methodology and give you the top level findings to utilize immediately.ġ.

We also learned that value based pricing, although it has its quirks, provides valuable data to shrink the dartboard when done correctly. We learned that cost plus and competitive pricing can be useful, but they’re fairly weak overall, particularly in the SaaS or software space. So far, we’ve already learned about cost plus pricing, competitor based pricing, and value based pricing in depth. Data and these methodologies eliminate that space, guiding your dart to the ideal price point.

The metaphor we’ve been using (some of you like it, some of you don’t) is a dartboard where you’re trying to hit a bullseye with the perfect price, but there’s all that extra space “distracting” your dart.

#PRICING STRATEGY FOR PRODUCTS FULL#

There is no silver bullet, but with data you’ll have a nice barrel full of lead. Remember what we’ve been saying throughout our existence: pricing is a process that utilizes data to eliminate as much doubt as possible for key stakeholders to make a profit maximizing decision. We elaborated on this assertion in a previous pricing strategy post, but realize that a 1% improvement in price optimization results in an average boost of 11.1% in profits. We’re beginning every one of these posts with the same statement: “Pricing is the most important aspect of your business.” No other lever has a higher impact on improving profits. Check out the first post on cost plus pricing, second post on competitor based pricing, or third post on value based pricing.

#PRICING STRATEGY FOR PRODUCTS SERIES#

Please note: This post is the fourth post in a four part series on the main pricing methodologies, highlighting the pros and cons of each.