Often a new product has unique, innovative features that differentiate it from all the related products that preceded it. It may also be marketed to new customer segments that previously had been unable or unwilling to buy products that shared some, but not all, of the characteristics of the new product. In addition, it may be marketed through distribution channels that previously had not been used for similar products or may not have even existed. Finally, the new product may be manufactured using new production processes, the costs of which are not fully understood up front. Given all these complexities, setting a price that achieves the expected market penetration and allows a company to maximize its profitability is far more difficult than, for example, implementing an annual price increase for an existing product.
Consider the case of a large multinational corporation that introduced a red, extra-fine-point pen for $1.99. It conducted a widespread marketing of the product by using various distribution channels. However, because an alternative existed in the marketplace, which shared only some of the innovative features of the new pen and was priced at $0.95, the sale of the new product was disappointingly low and the corporation suffered huge losses. The corporation’s managers realized that while coming up with the new product’s price, they had not given proper focus to the underlying production and distribution costs, competitive alternative pricing, and incremental customer value, which resulted in an ineffective pricing decision and product failure.
As a manager, you need to make the right new product pricing decision by avoiding setting the price so high as to doom the product in the marketplace before it is even introduced. You also need to avoid setting the price so low as to give away profits that otherwise could have contributed to your company’s bottom line. Before setting the price for a new product or service, you need to:
Identify the unique challenges posed when pricing new products and the different ways of setting prices.
Assess the major factors that have an impact on new product pricing decisions.
Identify the fundamentals of conjoint analysis, a quantitative market research technique that can help you and other managers understand how customers value different aspects of any offering.
Apply conjoint analysis to the pricing of new products and services.
So, how confident are you that you can make well-informed pricing decisions that affect your products or services? The Accenture Academy course Determining New Product Pricing provides an overview of the complexities of new product pricing, specific areas on which you should focus when pricing a product, and insight into the powerful conjoint analysis technique. With this foundation, you can come up with the right price for your product or service.
Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.