As a first point let’s explain the Parcus Group approach to pricing (well not only pricing but to many other aspects of product design).
We call it triangulation – using information from 3 sources in order to get to a best decision:
Source 1: Your own internal costs
You must understand your own business and product costs very well… if info is not there, build your own models from the ground up.
This will also be very useful to you as a product manager in the long run as you will need to report on costs and profitability.
Source 2: Your competition
Get out and find out what your competitors are charging for a product… but make sure you compare apples for apples ie. if the features are different ensure you make a note of that…
Source 3: Your customers
At this point you need to speak with your customers to understand their needs and perspective. For example you can use Kano method at this step to identify what are the features of a product, customers really value.
So these are the sources. Now to the triangulation part:
- Once you have a good idea of what the customers value in terms of product features, you need to compare those with the competition. You would ask customers to tell you how your feature A stacks up against competitor X feature A and so on.
- From here you will end up with a matrix that will tell you where you are better or not, relative to the competition and how much of a premium or discount you can charge.
- With this information you are equipped to go back to Sources 1 and 2. With first, you need to use the costs as a base – obviously (or most likely) you do not want to sell under cost – so that is your base.
- Finally, against the source 2, you are comparing your cost base, your premium or discount relative to competition you calculated in the point 2 above and your target price to work out is it realistic based on your product features feedback from customers.
Hopefully this made some sense…this would apply to pricing of any telecom product for example…
If you would like to learn more it maybe worth exploring our