How to Price Innovation
A common question from our clients and keynote audience members is: “How do we price brand new products and services??What do we do about pricing if we have no idea?what?something is worth?”?This simple question is challenging to answer.?The short, honest answer is, “it depends.” A complete answer would take a book. What follows is the incomplete, intermediate version.
The Surprising Place to Start
How should a smart, strategic leader set pricing for the revolutionary products and services for which no pricing or value trail has been blazed? Guess. Yep, you read it right. Guess.
Not like flip a coin or roll dice kind of guess. Nothing so random as that. Smart, educated guessing based on your overall business strategy coupled with complements, alternatives, value created for customers, etc.
Start with the knowledge that the price will certainly fall between $0 and $infinity and start narrowing from there based on what you know about how your product or service will add value for customers:
Think about every advantage of your solution, how a customer might value it, what is the bare minimum they would pay to solve it and what is the absolute maximum they would pay to solve it?
Keep on Questioning
Critical questions to ask to narrow initial market pricing include: What else they might buy to address those same needs, and how much do those alternatives cost? Consider complementary and competitive solutions that might inform your price narrowing efforts.
领英推荐
A few other strategic questions to consider before setting your initial go-to-market price after narrowing your educated guess based on value:
What’s Next?
Ok, so you’ve done the work to generate an initial guess and narrowed it based on customer-driven value-based inquiry. You’ve considered complementary, competitive, and alternative offerings to further narrow your pricing. You’ve asked yourself a set of strategic questions about your business to make sure you’re not overlooking something. Now what?
Fire Bullets, Then Cannonballs
Remember that you are guessing. You will guess wrong. It’s practically impossible to perfectly predict exactly how the market will respond and correctly value a brand-new offering that has never existed before.?You will be wrong.?Take a deep breath and let yourself off the hook for trying to figure out the perfectly right price. The key is to be wrong in the lowest-cost, risk-mitigated way.
In?Great by Choice, Jim Collins shares the concept of firing bullets before cannonballs. Take small shots to calibrate line of sight so you can conserve gunpowder for cannonballs,?only once your line of sight is calibrated.
In pricing innovation, this means being smart about how to launch, test, and iterate. Validate your initial market pricing by testing it in the market in low-risk ways. Make early unvalidated moves in low-risk areas so that your validated pricing can be rolled out to higher-stakes opportunities. Repeat. Gather feedback (including sales and profitability results). Improve pricing. Repeat. If this sounds imprecise, it is.
My apologies to those who were hoping for a formula. It’s far grayer. However, I invite you to see that as an opportunity rather than a challenge. And if you would like our help to address your pricing strategy for new products and services, please?contact us.
Sales + Marketing
3 年You always help me think outside the box — thanks!
Freelance Content Writer ? Gobbledygook Transformer ? Essayist
3 年Happy 10th anniversary!
? PUBLISHER ? GHOSTWRITING ? INFLUENCER DESIGN ? FUTURE-PROOF MARKETING ? PERSONAL BRANDING
3 年Interesting Casey?thanks for sharing