Latest Pricing Insights

Pricing Managers, Marketing Managers, and Sales teams often find it more difficult to get pricing right when launching a product in a new market, as opposed to pricing the same product in an existing market. In theory existing-market pricing should go through the same steps as new-market pricing and look at value drivers and willingness-to-pay, but in many situations existing markets mean there is a reference point to base the price on. Such a reference point is lacking if pricing for a new market.

Here are 7 ways for getting the price right when launching in new markets.

Value-Based Pricing strategy and implementation is frequently described along 5 C's:

• Comprehend the things the customers value: Begin differentiating from competitors by understanding customers’ needs better than the competitors do. When mastered it is much easier to differentiate and communicate value
• Create value for the customer: Define and design a differentiated offering that addresses the customers’ requirements more effectively than competitors’ solutions can.
• Capture value through effective pricing: Create prices and price structures that accurately depict the value of a product by using knowledge of the product, and its value to the customer.
• Communicate the value: Put together powerful, persuasive value propositions that distinctly communicate value to the customer. Make them recognize that you have taken the time to understand their needs, and create the value that they require
• Convince customers that your value is worth paying for: Confidence is vital in order to convince the customer that the price is right. When the customer inevitably says that the offering is too expensive, instead of immediately giving them a discount, salespeople should be confident and reply, “Well look, when you think about the value that we deliver I would actually go as far as to say not only aren’t we expensive, we’re probably not charging quite enough.”

Research on willingness-to-pay can help with several of those areas.

Willingness-to-Pay evolves over time

Most products and services experience a development in willingness-to-pay (WtP) over time.

Take the Guesswork out of Pricing

Do you have the right price for existing products or services? Do you know what the price should be for a new product yet to be launched? Are your customers willing to pay more for a given set of benefits? If you measure willingness-to-pay scientifically you will be able to answer all of those questions. Yet, still 88% of all companies admit that their pricing process is at least in part based on guesswork, without knowing what customers value and how much they are willing to pay for an overall product, or for a given set of features.

Value-based pricing requires data and insights. Without understanding what customers value, or are willing to pay, it very easily ends up being just a more sophisticated version of guesswork. Leading companies applying value-based pricing fully understand this. But there is still a trap when it comes to the willingness-to-pay data collected: because market research used to be expensive there could be a tendency to either skip some markets or generalising results from one key market to all other markets.

Perishable goods exist in many forms and situations. There is of course food products that have an expiry date after which they should not be sold. But also event or sports tickets, airline tickets and many other types of businesses. They all have in common that after a certain date the product or service cannot be sold any longer.

Are your prices based on costs? Or a process of adding X% on last year's price? Or do you price based on what the nearest competitor is charging? Well, then of course you are in need of upgrading your overall pricing approach to value-based pricing, where prices are set based on the value you create. Often the value-based pricing strategy is supported by data and research about your customers willingness-to-pay. If you know what a customer is willing to pay, and what features she values, then value creation and value capture is much more accurate.

We all know the feeling: what matters to us when buying something is not necessarily the same as what our partners, friends, colleagues or even total strangers emphasize when looking for the same product. Customers and consumers are not all alike. What value we get from a product is unique to us. While this is old wisdom, we still see that many businesses still take the same price across all customers.

If someone is willing to pay more for a product or service, because she gets more value out of than the other person, then why not find a way to charge such a higher price? It is true that in some countries, price discrimination where you charge different prices to different customers for the exact same product is illegal. But charging different prices for products that are also differentiated according to the value they bring, is always legal. If a (slightly) different delivery of product results in increased value and therefore willingness-to-pay, then go for it. After all, it is better if some customers pay $50 and others $70, than all paying $50.

The approach to achieve higher and more accurate pricing against what individuals are willing to pay is focused on segmentation. Customer segmentation and sometimes product segmentation.

Take an example from the chart below. In this case a software company was selling a software package at $199 to all their clients. Through segmentation they were able to identify that they had several customer segments, for whom different features mattered: some would really only care about getting a good and low price (the "Price Segment" below) and others would focus on being able to customize the software extensively (the "Customizer" segment in the chart).

The chart shows two willingness-to-pay curves collected by using PriceBeam's research solution to ask questions about willingness-to-pay by segment. As you can see, the outcome was that the Price Segment customers have an optimal price point at $199. But the Customizer Segment customers are actually willing to pay a considerably higher price on average, fully $499. 

So what the software company did in this case, was to create two versions of the software. One targeting the Price Segment customers, with a certain set of base features and the all-important low(ish) price of $199. A different version had a number of customization features enabled and was then sold at $499. The outcome: where all sale before was at $199, now a part was still sold at $199 (but at a reduced feature set) and the rest sold at $499, resulting in a higher overall revenue and profitability.

PriceBeam's price research solution can deliver insights like the ones above in a very short time frame and will typically deliver ROIs in thousands of percent in just the first weeks/months. Get in touch or sign up for a free trial on our website.

On Monday the 26th, our co-founder Finn Helmo Hansen is conducting a webinar about how to use price research when establishing, implementing and maintaining a value-based pricing strategy. 

We are excited to announce that PriceBeam's pricing research is now available for 109 different countries around the world: