Pricing Your Product

In order to make an expensive product appear affordable, a company may use a decoy. It is easier to sell greenfield customers than to win one away from a competitor because of the endowment effect, which causes people to overvalue things they already have. Enterprise companies should be aware of this.

The company Natera recently released a non-invasive prenatal test that detects Down syndrome and other conditions in a mother's blood. Although Natera's test is better than its competitors', the company charges more. A wider addressable market can be achieved by charging different prices for iPhones with different storage sizes.

Often, startups have a new product for which there are no competitors to benchmark against, says Michael Dearing, who ran pricing at eBay for many years. Technology companies don't have a finite supply of a product.

The price of a product is one of the most important decisions a company can make. LinkedIn's decision to bundle some seldom-used features as premium accounts generated an almost $250 million revenue stream. Startups often set their prices low to attract customers and never raise them again.

Currently, Evernote's Premium accounts cost $5 a month. Libin is testing if that's cheap or expensive relative to perceived value. By marketing better, you can increase perceived value.

It is important to recognize that your customers perceive the value of your product differently. You can create packages that appeal to different customers by identifying where they feel emotionally compelled to pay. But beware: you'll need to support the different options going forward or explain why customers need to switch.

Your product may not be perceived as higher value if it replaces something that costs $200. Remember that your customers are analytical, but prone to leaps of logic.

There is a template of pricing in the main link.

If you understand what goes through a customer's mind when she first sees your product, you can set a price based on that. This phenomenon played out at Weebly, which offers tools for building websites. As a result, Evernote co-founder Dmitriy Rusenko Libin stopped offering discounts on premium Evernote accounts. Companies like Nike and Apple do no... See more