This is one of the most common questions asked, particularly when configuring a new product.

The ‘right ‘ price will be the pricing model that delivers superior value to customers while delivering optimal returns to the seller.

Developing a pricing model involves a series of strategic and market driven choices. Packaging, high Vs Low, the channels used, marketing collateral deployed, shape of your business model, identification of your ideal customer, and a host of other factors that make up the ‘marketing mix’.

However, despite most of us knowing these things, typically price is set on a cost-plus basis, mixed with what others are charging for the same or similar/substitute product.

For an entirely new product, it is a guessing game that has potentially serious consequences. At one end you kill the product, at the other, you leave money on the table.

Dutch economist Peter van Westendorp introduced a method that ended up being named for him in 1976. It has been used sparingly since, but not as widely as it should be.

It is a simple and reasonably reliable method to determine the ‘right’ price for a product or service.

There are four questions that will set your price ‘guidelines’:

  • At what price would it be so cheap that you would question quality?
  • At what price would you consider the product to be a bargain?
  • At what price would you start to think the product is getting expensive, but you still might consider buying it?
  • At what price would you consider the product to be too expensive, and you would not buy it?

Analysis of the responses will give you the point at which you are attracting the most customers who make the trade-off between buying intention, price, and quality perceptions. Putting this on a simple two-dimensional chart makes explanation easy.

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