This is what we need to focus on – our customer’s Demand – and guess what is missing from the graph below
Here are my thoughts on the issue today:
The goal of this series of blogs is to get you think out of the box about pricing and to get away from cost based pricing.
My point about traditional economic pricing theory is that, unlike classic supply and demand theory, in hi-tech we do see a demand curve, however there is no supply curve and we should actually aim to be on as many points on the demand curve as possible.
This discussion is not designed to be a theoretical academic discussion about pricing but to be a practical way for you as Product Managers to think about Pricing.
- Companies want to maximize their profit and in order to do that they need to optimize the price point on the demand curve.
- A company’s goal is to be on the demand curve for every single point on the curve above a certain price point.
- Hi-tech companies are not (in most cases) producing commodity Products.
Few Notes on Pricing:
Hi-tech companies all too often take the easy way out of the Pricing Dilemma by resorting to cost base pricing. That would not be so bad except in most cases they actually underprice their product!
If a company does not understand the market then it is unlikely to understand the Demand curve. Marketing Principle Number 1 – know a day in a life of your customer.
In almost every market there are companies who can and are willing to pay more for your product than others; however they will not be paying more if they can pay less for the same product and the same quality.
Your challenge as a Product Manager is to optimize your product portfolio so to offer to each customer the maximum value for their needs.
Value for the customer is perceived value in the eyes of the customer not in your eyes. Marketing Principle Number 2–perception is greater than the truth.