If you have a talk with a product manager and you ask them what the most challenging part of their job’s product development definition is, more often than not you’ll get the answer “pricing”. As product managers we’d like to maximize the amount of money that the company gets each time it sells our product. However, we know that if we price it too high, nobody is going to be buying it. Just exactly how are we going to go about determining what the correct price for our product is?
Every time you pull into a gas station, there’s not just one gas pump you can use. In most cases there are three. One is the cheap pump, the next is the “silver” or slightly better / slightly more expensive one, and finally there is the “gold” or most expensive one. They all dispense gas, it’s just how much they charge and the characteristics of the gas that they give out that differs. Clearly we’re all already aware of price ranges.
Now the big question is just exactly where should you price your product: which price range should it be in. Let’s assume that for most products there are three price ranges: low, middle, and high. The really smart people who study such things tell us that we should be pricing our product in the high band, but not at the top. Instead, the middle of the high band is the correct place to be. For some of us this goes against our “get the most that you can get” philosophy of pricing.
Here’s how this works. I think that we can all agree that we don’t want our product to be priced in the low band. If we were to do this, then our potential customers who get multiple prices from multiple vendors would see us as offering an inferior product or service because we were offering it at a bargain price. Likewise, if we were to price our product in the middle range, then that would be ok, but it would also make our product look basically like everyone else’s. We’d run the risk of turning our product into a commodity.
So what’s the right thing to do? Price it in the middle of the top range. This is what it’s going to take to look good on your product manager resume. This will be high enough so that our product or service is seen as being a top offering in the market, but not so high that our potential customers will see us as being the most expensive supplier. If we were at top of this range, then our customers would be tempted to bid for competitive quotes, discover that there are other companies with products that are similar to ours, and we would have lost another customer.
Eliminating Customer Complaints About Prices
One of the challenges that product managers always run into when they are pricing their products is that their potential customers will come back to them and tell them that their pricing is too high. All too often we get this message as feedback from the company’s sales teams. As product managers, we’d really like to find a way to prevent this from happening.
It turns out that there is a way to prevent this from happening. What we need to do as product managers is to create a tiered pricing plan for our products and offerings. We’ll start with the premium offering where we offer our customers everything that we have for top dollar. The next offering that we need to have is the midrange offering where the customer ends up doing most of the work, but your company is there to offer hints and suggestions for how to use your product or service.
Your pricing can’t stop there. You also need to have information products that you offer to your customers for a price that shows them how to solve the problem that they are trying to resolve. This product should involve little or no service or support on your part. Finally, your last offering should be free content. This is the content that you create and give away. No, they won’t be able to solve their problem using this information but they will be able to get a better understanding of it. With this type of tiered product pricing, your customers will no longer be able to complain about your product pricing.
What All Of This Means For You
One of the biggest challenges in a product manager job description that product managers face is trying to determine what price they should be charging for their product. If they price their product too high, they’ll drive away potential customers and if they price it too low, then the quality of the product will be suspect. What’s the right way to go about doing this task?
It turns out that for every product there are three different bands of possible prices: low, medium, and high. As a product manager you don’t want to price your product in the low band because customers will start to doubt your product’s quality. You don’t want to price it in the medium band because you’ll just be part of the heard. You do want to price it in the high band, but not at the top – in the middle will do. This helps to avoid having the customer bid the project out because you are too expensive. In order to avoid having customers complain about your product costing too much, you’ll want to offer multiple tiers of products each with a different price point.
The good news is that you can set the right price for your product. You just have to be careful how you go about doing this. Make sure that you understand how the market values your product and then make sure that you maximize the value you get when you sell your product without scaring away potential customers. Don’t worry about doing this incorrectly – the market will always tell you if you got it right!
Question For You: How do you think that you can determine if you have set your product’s price too high?
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What We’ll Be Talking About Next Time
In the Twitter and Facebook era in which we are currently living, you might think that sending an email to your existing and potential customers is too old school. However, you’d be wrong. It turns out that email newsletters are one of the fastest growing areas of marketing communication. The reason that emails are such a big deal is that your target market will always read your email – even if it’s just the subject line before they delete it. The same thing can’t be said about today’s new-fangled social media tools.