Expanding Horizons: Introducing New Products and Pricing Challenges

Introduction

Launching a new product isn't just about creating something that looks good or functions well; it's also crucial to figure out the right pricing. While setting up our new product, I was overwhelmed by the various pricing terms and strategies. The real test came when I was asked to devise a pricing strategy. That was my wake-up call to delve deep into the world of pricing models and strategies, exploring how to effectively set prices

Understanding Pricing Models

A pricing model is the strategy a company uses to set the price for its products or services. It's essential for making sure the price is right for both the business and the customer. Learning about different pricing models helps a company attract customers, support business growth, and ensure profitability.

Common Pricing Models Explained

1. Freemium Model

   Basic services are free, but advanced features cost extra. This model lets customers try and then buy, increasing their likelihood of upgrading as they get attached to the product.

   <aside> <img src="/icons/triangle-one-third_gray.svg" alt="/icons/triangle-one-third_gray.svg" width="40px" /> Reverse trials let users start with all paid features and then keep using basic features for free if they don’t upgrade. This helps more people try the product and keeps them interested, which might lead to them buying features later. Companies use tools to watch how people use the product and improve their plans.

   </aside>

   Reverse trial and when and when not to use

2. Cost-Based Pricing

   • Add up the production costs, tack on a margin, and set your price. It’s straightforward—spend 99 rupees to make something, sell it for 100 rupees, and enjoy that 1 rupee profit.

3. Value-Based Pricing

   • Prices are set based on how much customers believe the product is worth. Brands like Apple thrive here, charging premium prices because of the trust and value customers place in their brand.

4. Growth-Based Pricing

   • Popular in the tech industry, this model adjusts prices based on customer usage or business growth, making it flexible and scalable.

How Companies Sell Their Products

Understanding different sales strategies helped me see how companies ensure their pricing is competitive and effective:

1. Licensing
   • Companies charge a fee for the right to use their product or software for a certain period, with renewal options. For instance, Adobe Creative Cloud requires a subscription to access its software.
2. Competitive Pricing
   • Setting prices slightly lower than competitors to attract more customers. For example, if competing coffee shops charge $3 for a latte, setting your price at $2.75 might draw more coffee lovers to you.
3. Subscription-Based
   • Customers pay a recurring fee to access services. Netflix, for example, uses this model to provide continuous access to its streaming content.
4. Open Source with Paid Features
   • The core software is free, but money is made from advanced features or additional services. WordPress operates like this, offering a free platform with the option to buy premium themes and plugins.
5. In-App Ads
   • Apps generate revenue through ads, and users can often pay extra to remove them. Many mobile games use this strategy to offer free gameplay while displaying ads.
6. Flat Subscription/One-Time Payment
   • Users pay once for lifetime access or a long-term subscription. Microsoft Office once allowed users to purchase its software with a one-time payment.
7. Per User/Per Seat Pricing
   • Pricing based on how many people are using the service. Salesforce, for instance, charges businesses per user.
8. Traffic-Based Pricing
   • Prices depend on how much the service is used, like web hosting services that charge based on traffic.