One of the questions that I get asked is how do I determine price point for marketing a product. For something that there is already an established market for, say a book on a certain topic, the answer is straight forward. You price it with whatever else is selling close to that price in the market. You try to add value by presenting an engaging product or service that will be justified at whatever reasonable price that you put on it.
In the case of non-fiction books, the market sweet spot is arond $12-20 for something that helps a person financially or personally. For specific niche books, such as gambling, one can go higher because the potential return is higher if the person who buys your book or product uses it and it works. The extra $2-5 in the long run will be recovered quickly. It makes economic and profitable sense to charge a little more. The online booksellers will also discount accordingly if the book takes off.
For new products that hit the market the answer is a little hazier. First, the initial development costs have to be recovered somehow. It could be that the cost of materials that you are using is pretty steep. A good example is the introduction of new video game console systems. Whenever a new system is introduced, until the new chips and guts of the system can be made relatively cheaply, the new system generally gets sold at a loss. Take a look at the Playstation and Xbox systems when they first came out. Over a few years, as Sony and Microsoft find more competitive (and quality) manufacturers, the can lower their price.
The market sweet spot for gaming systems use to be $300-350 but has dropped because of money being tight to $175-250.
The bigger companies can afford to take losses initially on their developmental bleeding edge systems because they have income streams from other products. In Microsoft’s case they have their money coming in from the operating system sales and productivity tools. Sony has their media library and other entertainment hardware to sell.
You, as an individual or start-up person have to take into account the artificial or real need for your product in the price as well. If you are marketing a raygun that makes people live forever, you can charge a very high price because a lot of people would pay anything for immortality. If you are trying to market a can opener that sings the theme song from the Olympics, you will have limited success and seasonal issues since something like that would only sell once every two years (for Winter or Summer Olympics). You can’t also mark-up a can opener too much because people can get a similar silent product cheaper at their local dollar, thrifts or supermarkets.
Once a price point is established, you have to be flexible enough to lower it or raise it if your operating costs change or demand goes up. Look at oil. Gasoline prices rose or fell based on demand – real or perceived. The gas stations that kept their prices higher had less business.
Whether it is gas, can openers, immortality rays, video game consoles or books on Rett Syndrome, nobody gets something for free and it pays to price things appropriately.
Kim Greenblatt, in his blog, profitable, talks about market price point and profitability.
Tags: books, Business, losing money, market sweet spot, marketing, playstation, price point, pricing, profitable, xbox
Nice writing style. Looking forward to reading more from you.
Chris Moran
[...] Market Price Point and Profitability By admin A good example is the introduction of new video game console systems. Whenever a new system is introduced, until the new chips and guts of the system can be made relatively cheaply, the new system generally gets sold at a loss. … profitable – http://www.kimgreenblatt.com/wordpress [...]
I always read your blog in high spirits. Thanks
[...] touched on this before but the huge brouhaha about Securerom protection that has surfaced again, the question of [...]