The right price
Upstarts and local businesses price themselves out of the business
Pricing
Upstarts and local businesses price themselves out of the business
To compete with the competitors and gain more customers, business launch their products with low prices. According to McKinsey 80 to 90 percent of wrong prices are too low.
Kodak had invented the digital imaging technology. It failed to price it right, which caused its gradual move to bankruptcy. Sun Country Airlines competed with low-cost North West Airlines, by offering cheaper tickets. It shut down.
As per MIT Sloan Management Review:
New entrants frequently set prices that are too low to capture a fair share of the value they’ve created. They also have a difficult time segmenting the market; that is, setting prices for different customer groups according to what they value and will pay for.
Smart pricing is about three perspectives: those of the company, the competitors, and the customer. Too much emphasis on the competitor or the cost or both do not help. Instead of asking the customers how much they are willing to pay, one can ascertain how sensitive they are to the different prices.
Ask four questions:
At what price would you consider this product to represent good value?
At what price would you say this item is getting expensive, but you would consider buying it?
At what price would you consider this product to be too expensive to consider buying it?
At what price would you consider this product to be priced so cheaply that you would worry about quality?
When the exact number of people consider the product too expensive and too cheap, that’s the price one should adopt.
Worth your time: Something cannot be good and cheap Link