How Should I Price My Product?

How Should I Price My Product?


Creating a pricing strategy is a thoughtful and deliberate process, always mindful of competitors and customers.  Companies typically conduct a thorough evaluation of competitive products to determine if they should price at, above, or below competitors. Dominant brands within the sector are usually the price leaders, meaning they are able to charge more, while the followers set their pricing at or below the leader.

How can I become a price leader?  

  • Create a new category. Enjoy first-in status – meaning you have no immediate competition and the ability to price accordingly.  Caution – potential buyers will ultimately decide if the benefits are worth the price. If you are on to something, you’ll have competition within six months, which may necessitate some price adjustments to thwart competitors.
  • Dethrone the dominant brand with a vastly superior must have product. Bring your “A” game. Caution – potential buyers will decide if the benefits are worth the price.

Can I be a price follower and be successful?

Absolutely.  The leader helps everyone. The leader develops the category for growth, which benefits all. If the leader takes a 3% price increase, everyone in the category can usually take the same increase without pushbacks.  Caution- do not discuss pricing with your competitors.  It could be perceived as price collusion, which is a federal offense.

Can I be the lowest price leader?

You can try, but the odds of financial success are against you. Remember Newton's third law, “For every action, there is an equal and opposite reaction.”  If you strategically lower your price, then your competitors lower theirs.  You then react with a lowered price and they do the same. It does not get any better. Picture a death spiral where everyone lowers prices under the fallacy that low prices drives increased volume and market share. Profits vanish. Look out! Crash!