Product Pricing

“Take the price out of the equation” seems odd at first, but I’ll make you agree that it makes complete sense. See, a product’s price doesn’t make it good. It has no relation to that. It rather makes it viable or feasible.

The Problem

Price, consciously or unconsciously, ins’t considered in its absolute. It’s considered against the value that the product brings to this specific customer. That is, price is balanced against value, which is balanced against the product’s features relation to the customer needs.

It answers the question: “paying X for this product, in how much time does it pay itself out?”.

Sometimes even free things don’t pay themselves out, because there’s no such thing as a free lunch! You get it for free. Then you have to learn how to use it, that takes time, your time. Then you have to teach and make others use it, taking yours and their time.

And, actually, in the end a product’s price is used for judgement against it! From “was it worth paying X for this?” to “this thing isn’t worth half of what I paid for it”.

The Step

So, how should you actually view a product’s “price” as? How should you read “product X costs Y”?

“Price” is the amount of work (time, perhaps) that you are willing to spend (or give up) for a specific thing. Price is a quantitative response to “how much will this going to cost me”? If one would otherwise build this product by themselves, how much would it cost them? Not only in monetary terms, but the so called “opportunity cost”.

What will I stop doing if I take this up and build it myself? What will I give up, what will I need to postpone, to build this myself? And if I choose to do so, how will this help me to develop the other (main) thing that I do?

A product’s price can be broken down into these basic components:

• What it actually is made of, its matter composition: metal, plastic, soft wood, hard wood

• Its function: opening cans, internet access, entertainment, mobility

• Its direct benefit to the user: access to food, access to information, leisure, efficiency, opportunity

• Its underlying hidden promise: how much of the buyer’s expectation will be fulfilled

The End

90% of the time, the old adage “you get what you paid for” is true.

Take the median, that’s where the market tells you the better yield lies.

If you take the cheapest option, you’ll probably receive a crippled product. And the corollary for that is pretty simple: if it’be worth more, it’d be sold by that much more.

If you take the most expensive option, you’ll probably get an “ok” product will a fuck load of name attached to it. For you now also pay for the brand name attached to it, and whatever inherent value it brings with it (reliability? recognition? take a pick).