What Price Success?

Add It Up

6 tips for pricing a new product or service.

John Mullins, an associate professor of marketing at the University of Denver, offers these tips for choosing a price that will get the cash register humming:

  • The principal determinant of price is the value your intended customer perceives for what you offer. If the customer thinks your product delivers benefits worth $15, you can't sell it for $25.
  • Customer value depends on how your product or service is superior to the product the customer is already buying. Thus, your competition, whether direct or indirect, is key.
  • Expect competition. Virtually every product and service on the market has some competition. Assume your target customers' needs are already being met. Try to identify and pursue market segments for which your competitive differences are likely to be of value to the customer.

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  • There are only two ways to build sustainable competitive advantage: Your product or service must be either better or cheaper. Better is often sustainable, if your differences are demonstrable; cheaper is typically not, unless your cost structure is sharply lower than that of your competitors.
  • Don't set your price too low if you want to grow. The best source of cash for growth is attractive gross profit margins on the products or services you sell.
  • Price can be altered. You can always lower your price if you've priced your product or service too high. Raising that price, after setting it too low, is more difficult. When in doubt, choose the higher price.

Contact Sources

California State University, Fresno, (559) 278-2326, timothys@csufresno.edu

Claudio Rayes Inc., (336) 884-0000, fax: (336) 884-0099

Xodiac Technologies, (888) 8-I-CATCH, http://www.icatchsystems.com

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This article was originally published in the March 1999 print edition of Entrepreneur with the headline: What Price Success?.

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