Better Pricing
The 4 Biggest Mistake in Product Pricing
How to spot them and how to avoid them.
What this article covers:
- An overview of the four biggest mistakes you can make in pricing
- A framework that will help you think about pricing more strategically
Pricing can often feel like something of a dark art. There are many indicators to look at, yet no best way to go about it. Further, it seems that often those who defy conventional wisdom win — while, of course, many who do defy conventional wisdom actually end up shutting shop.
At the same time, figuring out your pricing is incredibly important to your whole organization. It determines the operations you can build, the margins you can realize, your product’s perception, and much more. Pricing is incredibly important, yet very hard to nail down properly.
How can we think about it in a better way?
The Four Biggest Pricing Mistakes
In value creation and value capture, there are some cardinal sins that you will need to avoid at all costs. These will ensure that your pricing strategy will drive you down the wrong path and eventually result in disaster.
1 — Pricing Too High / Too Low
The obvious one is pricing entirely out of the relevant range. Now that sounds easy but is a bit more nuanced than it sounds. The obvious:
- Pricing Too High: Exceeding the willingness-to-pay of big parts of your target market and being unable to generate revenues large enough to sustain operations and grow profitably.
- Pricing Too Low: Underpricing the value you deliver so significantly, your unit margins are negative, and you lose money by selling and scaling.
The not so obvious parts are the input variables into the context, as of course, “too high” and “too low” depend on many other factors.
- Target Market: Depending on your target market, the same product can be way too expensive, just right, or priced too low. It matters whom you are trying to sell to in that target markets differ in size, value perception, and difficulty to address.
