Breadcrumb

Best pricing strategy for new products

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedAug 20222 min read

Knowing what is the best pricing strategy for a new product is an important part of the development process. Regardless of the product itself, the new product pricing strategy you create for it will go a long way to determining if it has a successful launch and subsequent return on investment.

Ultimately, the price you choose must be attractive to customers while returning a healthy profit margin. It should also be a consideration right from the beginning of the product’s conception and development, as that can help you determine how much your company can afford to invest in the project.

Here we will discuss the best pricing strategies for new products, but first let’s look at exactly what it means to have a pricing strategy.

What is a Pricing Strategy?

There are a lot of factors to consider when devising pricing strategies for new products. It is all about finding the balance between maximising sales while maximising the mark-up.

Some products make a very small mark-up but will sell in such numbers that the overall return is huge. Other products will have a huge mark-up which means only a few sales are really needed to start turning a profit. Other products may be marketed at high income consumers and thus want a seemingly prohibitively high pricing strategy in order to appear more luxurious.

A pricing strategy encompasses all of the methods and criteria that you use to determine how much to charge for a product or service. Production costs are an obvious factor, as is the marketing aspect. You will also want to conduct market research and gather consumer insights to see how similar or related products are already priced.

Benefits of a Pricing Strategy

There are functionally beneficial aspects to having a pricing strategy as it keeps your business organised and on top of new product development and marketing. However, there are three interesting post-launch benefits which are worth a special mention. These pricing strategy benefits are:

maintain price comparison value
manage customer expectations
control perceived value

Maintain Price Comparison Value

Modern consumers can compare prices with a couple of clicks on a mouse, so using your pricing strategy to ensure you compare well to rival products is crucial.

Manage Customer Expectations

Your pricing strategy can also help manage the customer’s expectations of your product. For example, a cheap and cheerful product that has a much higher price than its quality demands will create dissatisfied customers.

Control Perceived Value

Pairing a good pricing strategy with clever marketing will enable you to control the perceived value of your product. This is at its most obvious with luxury items that are not that much higher in quality than similar but lower priced items.

Pricing Strategies For New Products

Two strategies that are the opposite of each other are price skimming and penetration pricing. Price skimming involves setting your launch price high and then slowly lowering it over time. This initially attracts high income shoppers and trendsetters. On the other hand, penetration pricing involves setting the launch price low to gain traction before gradually increasing the price over time.

Premium pricing involves establishing your product for high income consumers only, as previously mentioned with luxury items. Competitive pricing involves tracking your competitors and always maintaining your prices below theirs.

There are also more intricate pricing strategies, such as tiered pricing for various levels of service. There is also loss leader pricing which involves pricing a particular product at a discounted price in order to attract more customers who you can then promote your other products to. Then there is value pricing, which requires having a deep understanding of your product’s true value to the consumer, though this can fluctuate with the economic landscape.

We Can Help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.