The product is a “category killer,” having no obvious competition, so he’s struggling with determining a sale price. At this stage, the price is a pivotal part of his business plan. Since his designs aren’t yet legally protected, using quantitative tests in the marketplace isn’t an option.
When setting prices without exposure to the marketplace, the best practices set out by John Hogan in his book “The Strategy and Tactics of Pricing” are the strongest approach.
Determining optimal prices is one of the most underrated and strategically important aspects of marketing. It dictates what marketing strategies and tactics are financially available, defines market segments and determines how to approach each. This requires a in-depth understanding of the users, the industry itself, the market segments and the way customers use the product.
Whether or not your product is a category killer, your customers survived without you before, so there is always an alternative. Hogan’s approach starts with this alternative and then works through the potential markets, determining the added value of your product.
It then covers strategies on managing complex pricing, value communication, and segmentation - all based around the added value of the product for each specific application. This pricing approach doesn’t leave money on the table - customers who derive more value willingly pay more. Creating campaigns is also much easier for these types of segments, because the value has been clearly defined and articulated for each market.
If you’re an entrepreneur with a new product, this method of pricing is extremely helpful throughout your business. If you’ve been using a cost-plus or directly competitive approach until now, this book will be an eye-opener.