From Vision to Value: How to Confidently Price Your New Tech Products to Accelerate Growth.

You've developed a ground-breaking tech product that you believe offers tremendous value to your market. After investing months or even years into its development, the initial feedback from potential clients is overwhelmingly positive—they see its potential to solve significant problems.

Your team of top-notch product designers and engineers has built something exceptional. But when it comes to pricing, you feel uncertain. As the business leader, it's up to you to set the pricing model, even if it's not your area of expertise.

By the end of this article, you'll understand the challenges of pricing and what to look out for, and learn how to design a strategy that maximizes both profits and growth.

The Common Approach

Many leaders assume they can handle pricing themselves. After all, you know your market and your product. But pricing is more complex than it seems. Get it wrong, and you could severely underestimate the price customers are willing to pay, leaving money on the table and underselling your product.

Maybe you've tried one of these methods:

·?????? Looking at Competitors: You check what competitors are charging and set your price somewhere in the middle.

·?????? Going with Your Gut: You rely on instinct instead of a clear strategy, assuming a "gut feel" approach will suffice.

·?????? Following Trends: You adopt a SaaS-style subscription model just because your investors suggest it.

·?????? Defaulting to Standard Metrics: You pick a basic metric like "monthly price per user" without considering if it's the best fit for your product.

·?????? Using a Flat Price: You set one price for all customers, ignoring different levels of willingness to pay.

·?????? Implementing Basic Discounts: You introduce discounts to encourage higher contract values, only to find it erodes your margins because your sales team overuses them.

·?????? Starting Too Low: You initially set low prices, thinking you can raise them later, only to find it's much harder than anticipated.

The Impact of Poor Pricing Models

Uncertainty in pricing often leads to reactive decisions—like lowering prices to secure new business. This can spiral into a race to the bottom, where price becomes the primary competitive factor.

In a global study of 1,700 firms, Bain & Co* found that 85% of companies admitted they could significantly improve their pricing. An academic study** noted that “engaging in poor pricing practices leads to a decline in new product performance, eliminating the advantages of the ?product innovation altogether.”

If your team isn't confident in your pricing model, you'll likely make more bad decisions, such as short-term discounting and promotions to win business. This also makes you more vulnerable to being undercut by competitors.

Pricing is Your Biggest Lever for Profit Growth

Many leaders fail to fully appreciate the hard link between pricing and profitability. Offering a 10% discount to close a deal might seem minor, but if you operate with a 40% gross profit margin, that 10% discount drops your margin to 30%—a 25% reduction in profitability. The impact of price cuts on your bottom line is always more significant than on your top line.

Lower prices often become the norm within your business, leading to:

·?????? Eroding Product Value: Lowering industry price levels and potentially sparking a race to the bottom.

·?????? Decreasing Enterprise Value: Reduced net profits due to suboptimal pricing lower your business’s value, a significant issue if you aim to exit on a profit multiple.

McKinsey calculated that a 1% price increase could boost your bottom line by 8-10%, assuming all other things being equal. The challenge is achieving this without alienating your customers.

Why Most People Get Pricing Wrong

Most people make the mistake of starting with the end question: "What should we charge?" Instead, you should build a pricing strategy from the ground up. A more structured approach to pricing involves:

1. Price Positioning: Understand how much your customers value your product and where it fits in the competitive landscape.

2. Product & Packaging: Design your product offering to enhance pricing and maximize sales at better prices.

3. Pricing Metrics: Don’t assume "per user" pricing is always best. Companies that set prices based on a metric that aligns with customer value grow faster (e.g., usage-based pricing).

4. Pricing Model: Develop a robust, defensible pricing model that considers every aspect of the customer journey.

5. Pricing Psychology: Use behavioural pricing techniques like price anchoring or tiered pricing to improve price communication and enhance sales.

6. Pricing Management: Ensure successful execution of your pricing model with a clear plan and the necessary tools to confidently communicate and sell your prices.

?Real-Life Client Examples

A company developing a revolutionary AI application in the medical sector initially set a limited pricing model that didn’t even cover their costs due to a lack of pricing expertise. After a structured pricing review, they secured $ six-figure deals within a month.

Similarly, a software company providing an incentive and loyalty marketing platform struggled with growth due to an overly simplistic pricing model. By refining their approach with more options tailored to specific market segments, they were able to increase average prices for new business by over 50%.

When you take the time to create a best practice pricing model that is unique to your business, it will make a huge difference to the value of your product and the long term success of your business.

Confidence Comes from Certainty

Imagine walking into any sales situation with complete confidence, knowing you have the best pricing strategy. This confidence comes from being prepared for every potential issue and objection. When you reach this level, pricing becomes a strength—helping you stand out from competitors and avoiding the pitfalls of a poorly conceived model.

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Notes:

*Bain & Co: Is your pricing killing your profits?

https://www.bain.com/insights/is-pricing-killing-your-profits/

**Best Practices for New Product Pricing: Impact on Market Performance and Price Level under Different Conditions. Journal of Product Innovation Management, April 2013.

https://onlinelibrary.wiley.com/doi/abs/10.1111/jpim.12008