How Should Product Managers Price Their Products In A Down Economy?

by drjim on October 29, 2012

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What price is the right price?

What price is the right price?

How is your product priced? Are you playing a “price it and forget it” game? How about the “price it and then discount it down to whatever the customer will pay” game? You would think that product pricing would be a standard part of the product development definition, but all too often we skip over it because it seems too hard to do. No matter how your product is priced today, there is a good chance that it could be priced much better if only you knew how to do it. That’s what we need to have a talk about.

What New Technologies Mean To Your Product’s Pricing

Not that the world was ever all that simple of a place, but it has clearly become a lot more complicated these days (try putting that on your product manager resume!) Product managers are now facing a lot more channels that can be used to sell their products. When you combine this with more and more price point combinations that can be used across the new channels, and very quickly you have a product pricing situation that can get out of hand.

A lot of product managers rely on the old standby – Excel spreadsheets to keep track of what prices they are charging and where they are charging them. This is not going to work in the long haul. What’s needed is a system of price management that will allow you to take an automated and integrated approach to solving your pricing dilemmas.

In a perfect world you would be able to incorporate your customer’s price sensitivity into each stage of the product planning process – initial financial forecasting, promotions planning, allocation, replenishment, and finally management of markdowns at end of life. Clearly the old way of doing things won’t cut it anymore and product managers are going to have to start to use new software technologies in order to do better price management.

Why Is Price Management Such A Big Deal Now?

One of the questions that product managers are asking is “why has pricing become such a big deal all of a sudden?” The answer is pretty simple: your potential customers have become much more price-sensitive. They have new tools to use, such as smartphones, and they know how to use the Internet to find the best deal possible.

The old days where product managers could rely on using a single price for their product are long gone. You are now going to have to be able to segment your product from a pricing perspective. What this means is that you are going to need to have prices that are tailored to not only the channel that the product is being sold though, but also to the specific level that it has in your product hierarchy.

The good news is that product managers have more data on their potential customer than we have ever had before. This means that we are going to be able to analyze the price sensitivity within each group of potential customers and determine how we want to handle such things as promotions and markdowns for our products. Using price management we can make our products more successful than they have ever been before.

What Does All Of This Mean For You?

All too often product managers believe that it is part of their product manager job description to spend the majority of their time looking for ways to get more customers for their product. What they are missing is that by spending more time on managing their product’s price they can contribute just as much to the bottom line impact of their product as getting more customers would.

The arrival of new channels to sell products along with additional price points have made the old ways of tracking prices with spreadsheets obsolete. A more sophisticated price management system is called for. Taking the time to segment your customers not just by channel but also within levels of product hierarchy is what product managers need to do in order to maximize the benefits of pricing their products correctly.

Pricing is an activity that scares some product managers because it is all too often seen as being a black art that few are able to master. We need to overcome this fear and establish a clear price management system so that our products have the best chance of being a success in our marketplace.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: What is the best way to get customers who are price comparing your products to other products to select your product?

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What We’ll Be Talking About Next Time

Talk to any product manager and they can tell you, when a new product gets introduced, the product manager becomes a part of the sales team for at least awhile – that’s almost a part of the product development definition. What this really means is that you are going to get caught up in the process of talking to and helping to prepare estimate / RFP responses for prospective customers. Is this really the best way for you to be spending your time?

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