Every product marketer will emphasize how crucial pricing is while launching a product. But organizations often struggle at determining the exact price point – how much should a product’s price be? Charge too much and it won’t sell. Charge too little and you forgo revenues and profits.

 

Charging a product at a higher price is still an easily fixable problem – just dropping the price will increase uptake. The bigger challenge is when a product is priced less than its value. In addition to losses in revenues, the product’s market value drops significantly too. Companies have realized time and again how difficult it is to raise costs once products hit the shelves. According to industry reports, a staggering 80-90% of all poorly chosen product prices are lower than their estimated value.

One of the first makers of portable barcode readers faced this challenge by pricing their product at a proportionally higher price to the older, stationary readers. By using an existing product as a reference point, the company unfortunately undervalued a potentially revolutionary product. This portable reader was responsible not just for improving existing processes, but also enabled organizations to redesign their supply chains by controlling real-time inventory, improving logistics planning and just-in-time deliveries, thus eliminating the need for large inventories. Before long, buyers, recognizing a bargain deal, flocked to buy the portable readers which erased approximately 1 billion USD of potential profits for the company – a pricing nightmare that every organization wants to avoid.

To navigate these pitfalls, most companies tend to implement one of the below strategies for new product pricing:

Skimming Pricing
In this scenario, a company sets an initial high price for their product or service. The goal is to “skim” the market for customers who’ll spend more instead of focusing on increasing market share. This pricing method works better for companies willing to place money on product promotion and brand development to be successful.

Penetration Pricing
This strategy involves setting a low initial price for your product. The ultimate goal is to quickly gain a large portion of market share. This method is ideal for products that have mass appeal and which can achieve economies of scale with more production.

However, both these methods don’t take an important factor into account – customer behavior. With the advance of social media and the proliferation of devices, platforms and applications, customers are more informed about product and price comparisons than ever before. Companies should realize that customer views on prices, features and benefits play a huge role in their willingness to pay for a product. Therefore, marketing practices and company strategies need to be altered to accommodate customer behavior. To truly understand customer willingness to pay and thereby improve sales and profits, behavioral analytics needs to be brought into play.

Behavioral analytics interprets current customer choice patterns to determine future behavior. With trade-off methodologies implemented to decipher how customers react to certain price points, insight can be gained into future product pricing decisions. Essential changes in product features and benefits can also be made, so the product is more valuable, and customers are willing to pay a premium price. Organizations however should be careful in choosing the right behavioral analytics platform – one that doesn’t provide quality actionable insights for implementation or remedy is not a good bet.

So, how can OSG help you come up with the optimal product price point?

At OSG, we want to ensure that you enhance customer satisfaction and simultaneously price your products at the ideal value to boost sales and generate profit. ASEMAP will be an important tool on this journey. ASEMAP is powered by OSG Dynamo™, our proprietary behavioral analytics platform and combined with Adaptive Choice Based Conjoint (CBC) analysis to identify customers’ willingness to pay. ASEMAP™ allows you to identify which features are most important to customers and by how much. With CBC, customers can choose their preferred price point bundled with the best product features according to them. In addition, OSG Dynamo™ also provides users with a Pricing Simulator to compare price sensitivities. You can easily conduct an ad hoc analysis to change pricing schemes and determine how different prices will impact product uptake.

OSG recently enabled a medical device manufacturer to optimize the price of their catheters and drive profitability. With ASEMAP™, price points, brands and rebates were analyzed to determine customer preferences for different price points. By combining this analysis with secondary research, the manufacturer was enabled to determine volume and market share impact for each price point. By comparing all parameters for the client brand vs. competing brands with ASEMAP™ we were able to justify approximately 25% price increase for catheters to improve sales and profitability. With OSG Dynamo™, you can edge out competition and generate the ideal price your product deserves.

For more information on OSG Dynamo™ click here.

 

OSG Steps to Success

OSG is a “catalyst” that helps our clients be the best at decoding their customers’ decisions. Our clients have seen a minimum 20% improvement in customer engagement by implementing smart insights delivered using our behavioral analytics products.