Pricing Your New Product or Service
Pricing is no simple matter for a new product and service. Several factors must be taken into account, but in-app and social media network marketing there is little scope for a great deal of movement in price once the company has decided on its basic cost structure, pricing policy, and the position of the product and service on the market. The goal of this research is to analyze the costs and benefits of the various pricing options to provide a basis for making decisions on how the products and services should be priced.
- How likely are potential users to purchase/adopt the product and service?
- Would they prefer to pay a recurring dollar amount or be exposed to advertising?
- Does the consumer have any psychological attitudes to price? Direct monetization? Indirect monetization?
- What will be the consumers’ purchasing and repurchasing behavior?
- At what prices are consumers prepared to purchase/adopt your product and service, and can you make a profit at any stage?
- Is the price reasonable in light of the concept’s perceived benefits?
- What are potential customers paying for comparable products or services? How does the price relate to competitors’ prices?
- What will be the consumers’ reactions to the prices, the promotions?
- What price specials, discounts may be needed?
- What are the subsidies, the taxes, and the exchange rate?
- What are the predicted pessimistic, most likely, and optimistic sales units and revenue over the next months, years? What is the relationship between sales forecasts and prices?
- What are the basic company costs, the advertising allowances, and the company profit? Do they vary at different levels of outputs and sales?
A major decision is where to position the product and service in the price range for this type of product and service: at the top as high-quality, in the center as good-quality or at the bottom as ‘cheap’. In launching new products or services, two pricing policies are particularly important: market skimming, where the price is set high to recover development costs quickly, and market penetration, where the price is set so consumers will purchase/adopt quickly and the main market is penetrated before competitors can react.
The price aim is to have a product and service giving ‘value for money’ for the consumer, but at a price that will produce the desired sales revenue and profit for the company. There are two options for pricing: direct monetization with a recurring charge or implicit monetization using an advertising model. Direct monetization issues include the list price, discounts, allowances, payment period, and credit terms. The list price is based not only on the company costs plus the profit and the advertising budget, but also on external factors that affect price. Implicit monetization issues include the potential impact that ads can have on your overall use, the ability to integrate the ads without compromising the aesthetics of the product and/or site, cannibalization of use due to ads, selection of an advertising model or network, selection of advertisers, and partnership building.