One of the most challenging things for a business is to select a price for a new product.
If you’re a new business, you have to choose prices for your initial products or services. If you’re an existing business you have to choose prices for new products and services. Even in the latter case, as a business with experience, pricing something new isn’t easy.
The main fear is that if you choose the wrong price you’re either going to be missing out on money or you’re not going to be selling as much as you could have. You’re either pricing too low or too high.
Sometimes it’s this fear that leads to inaction. An entrepreneur may delay this decision and thus delay the launch of their new business. They find other things to work on. They avoid the decision and miss out on valuable time and information.
Even existing businesses can fall into this procrastination trap. They become so afraid of being judged for making the wrong pricing decision that they avoid it and focus on what already exists. They remain in their comfort zone.
What To Do With A Little Competition
Nearly every company that is starting from scratch has some form of competition. The same is true for just about every new product or service that a company is rolling out. Very few things are entirely brand new. Even the iPhone was far from being the first smartphone and really it was little more than a common cellphone at the time.
This should lead to relatively easy pricing at the initial phase. Just look at what the competition has for prices and start there. Price it the same as they are and at least you’re in the ballpark.
Now, that’s just a starting point. You can compare your new product and service to the competition and adjust the price up or down based on your strategy. But at least by looking at the competition you’re getting a great starting point.
If McDonald’s is charging $2 for a regular hamburger and you’re opening a hamburger restaurant across the street, consider starting at the $2 price. If you feel that your hamburger offers way more than McDonald’s, increase the price. If customers truly feel the value is there they will pay more for your burger.
What To Do With No Competition
Sometimes you may feel that there is little or even no competition for the product or service that you’re releasing. You might be in a relatively new market. You might truly have something remarkable that hasn’t been released to the public yet.
In this situation you can look at it from an internal standpoint. You can start by thinking, what do we need to price it at to make money, and use that to determine the initial price. There is more that can go into that decision. You can maybe feel that you’ll take a loss initially as you build your efficiencies and bring the cost of the product down. That’s fairly common.
Some companies will also offer an initial price for the first customers. This price is intentionally lower to attract people and build a buzz. Then the price will go up later. Be upfront and honest about this with customers and the price increase won’t be a crazy surprise in the future.
You could also do a little testing with new customers or with existing customers if you’re releasing a new product. See what their reaction is to certain prices and that can provide the data for the initial price.
The Key Takeaway
Make the decision.
Even if you’re wildly wrong on the initial price you can adjust. Customers are usually understanding when companies adjust their prices on new products. They see the value they get as they use the product. If the price needs to be higher in order for you to make profit, customers know that. They want the product you’re selling and don’t want you to go out of business.
Obviously that is only true to a point. If McDonald’s was charging $10 for a regular burger people would probably stop buying it. But McDonald’s has certainly increased their prices of a burger over the years. And they’ve adjusted prices of lots of things. Both up and down. Even a company like that doesn’t have the exact right pricing answers for new things.
Don’t worry too much about your price being too high or too low at the start. Gather as much data as you can, but make the decision as soon as you can. That will provide the real data that you can use to adjust the price where it makes the most sense.