Expert's Panel

A collection of timely and important topics posed to our panel of experts.

How do you establish the price the market will pay when determining product pricing?

 (ep1069)
1. It depends, to a great degree, upon your situation. Are there competitors? Do you own the market? Are you just breaking into the market? Is there a competing technology at the door? Underlying the determination is a lot of research. Looking at both qualitative and quantitative research and adjusting the results with intuition.
2. Let me share with you a case study that we did. For a long-time in the photolithography business it was owned by Perkin Elmer. They had a thing called a scanner—this was before steppers became popular. The scanners were quite expensive. Steppers were starting to come in because geometries were going lower and lower. GE owned a product which you could spin on the top of photoresist and it would allow you to cut geometries half the size of anything else. It would also extend the life of the scanners you already owned like a year or two. A stepper cost $1,000,000 and the scanner cost $200,000. GE had based the pricing level on this extended life of the scanner. It was priced at like $300 a quart and if you did the math, you were saving a ton of money by paying them that much and keeping your scanners for another year or two. What do you think happened? So much of pricing is intuitive and emotional. When researching, the hard data is important, but it is the soft, or qualitative, data that makes the difference in how you price things. It is the perception, not the reality, of something's value that determines the right price. The chemical worked perfectly as GE said it would. But people looked at this chemical and said it is not worth $300 quart and I'm not going to pay it. So they got rid of their scanners and went to steppers sooner.
3. A rule of thumb that I've always followed and it seems to work. If you are not getting any push-back from the customer on price you are priced too low for the perception. Increase it until you get push-back. There should be some level of noise or grumbling in the system.
4. If your product is, or is perceived as, a commodity and you have a number of main stream competitors then the market generally sets one price for all of you. However, your job in marketing is not to accept this. Look hard for differentiation that already exists or some you can create and then exploit this. If it truly has perceived value, it can command a price premium.