How do you set the price for new products?

How do you know whether you should price your new product at £1,500 or £3,000?

My manufacturing client did not know the answer to this question either. Their traditional approach to new product development and launch was:

• A customer has new requirements

• Design and build the new product

• Price based on cost of the product plus a profit expectation and below competitor price

• Promote it to all existing customers

Based on this approach, my client would have set the price for their new product at £1,500 and invested in developing a product that may or may not be successful.

Responding and reacting to customer requests, understanding your costs, knowing competitor pricing of a similar solution and making a profit are important factors to consider.

However, NOT understanding what problem you are solving for your customers, how much value this creates vs. competitive alternatives and who your target customers are will result in an unsuccessful launch.

I use a different approach that flips the process my client and many others use. The approach starts with understanding customer needs, determining what customers value and what they are willing to pay. Then the product is designed and built.  

We identified and understood the value to target customers and quantified the value to customers at £3,000.