Price is always an interesting topic, but even more on high technology and the world of software. In the business of consumer products, if there is a package of Green Giant frozen peas is a price of $ 3.99 is not likely to see some other package of the same size of a pea a price of $ 14.99. But in high technology, things are different.
The pace of innovation in the high tech world leads to pricing across the map. It is not unusual for a new competitor to get a higher price than current market leader set – if your product is based on the market in exchange for progress on the functionality of the product due to new technology. This is unheard of in most markets. Then you have the PC business, which has led to rapid technological progress over a long period of time less than the prices on an ongoing basis – with great benefit for consumers, but tightening the margin (and indeed many competitors) out of market. Things move fast in high technology.
Sometimes it is a high initial price to the benefits of the harvest, while you have a distinct advantage, sometimes aggressive discounts based on their lower cost structure due to the less costly technology. In any case, it can often have price movements to be dramatic, and have a profound effect on the market segment of high technology in the long term.
What is the best way to price products with high technology? Is it better to add the fixed costs and assign them to a planned series of units to make sure you are recovering your investment?Or is it better to take their variable production costs and use a standard multiplier derived from the story? Maybe you just set their prices based on the prices of its competitors. Or let your customers tell you what you’re willing to pay. While these approaches have merit and a place in the pricing policy, none of them should be riding factor in its pricing strategy.
So what is the most important factor to consider in pricing? The most important thing to focus on pricing is VALUE. What is the value of your product to your customer as an economic benefit, functional or emotional? And how does the customer value the benefits of your product in relation to your competitors?
So let’s talk about the nature of value. The value is the underlying need or want that drives a customer to buy a high-tech product. If the benefit the product provides nearly meet that want or need at an acceptable price, you have a sale! The most important consideration in setting prices based on values is to segment your market properly before the pricing decision. Segmentation, by definition, is the process of separating the total market in “cubes” or segments of potential customers who have similar values, and therefore will react similarly to a specific offer. What this means is that once you have divided its market into appropriate market segments, you can charge different prices individual segments based on the perceived value of the product provides.An example of this approach to segmentation, the marketing of products from security software to corporate IT departments.
Through its market investigation has concluded that potential customers with the highest pain threshold for the particular security problem being addressed are the banks. By adding only some specific features of banking, to build a “fence” around this market segment, you may be able to charge a price for a specific bank version of your product that far exceeds what they could pay other segments. If you extend this model to multiple segments, and do it properly, this approach will lead to much higher revenues than if it is a single price for the entire market. The process of creating value for each market segment, the total price and the communication of that market value is the essence of pricing based on value.
Finally it is also important to remember that the pricing actions should not be done in a vacuum.The price is one of the 4Ps of marketing, and four are all interrelated. You can not properly price of a product without at the same time taking into account the characteristics and benefits of the product and how they will be promoted and distributed. The price of a software product distributed on the internet is almost certainly need to be in a range less than one distributed through a direct sales force or VAR channel sophisticated. And if they will not have much of a promotion budget, chances are you will have to be a price leader to have any chance of success. If your product is at a deficit of perceived value, its price relative to market leader will probably have to be aggressive. I’m sure you get the picture.
The price is a complex issue that many books have been written about. This article is intended as an introduction to pricing in the high tech world, and makes you think. I hope it’s useful. So when you’re new product that appears below, you will look a little more before just pulling a price out of the air.
Morettini Phil is the Author and President of PJM Consulting, a management consulting and software high-tech companies. PJM Consulting runs special projects, strategic and can provide interim senior management in the Directorate General (CEO, COO, and Division Manager), Product Marketing, M & A, Distribution Channels and Business Development.