Top 6 Questions to Ask When Pricing a New Product
Launching a new product should be more of an enlightening experiment and less of a nightmare. The difference between a flop and a smash hit can depend on factors ranging from marketing to pricing. In this article, we’ve asked Wiser content marketer, Angelica to share her advice on the pricing side of introducing a new product to market. She’ll get you up to speed on the strategies you can implement to hit your new product launch out of the park.
It can be tricky to go about pricing a product that the market has never seen before. There are many concerns that go through a merchant’s mind, such as: will consumers find this useful? Will they think it’s priced fairly? Here are a few suggestions to help price it correctly the first time and every time after that.
1. How are your other products priced?
The new product you’re adding needs to make sense with your current assortment and overall pricing strategy. Unless of course, the idea is to test a new direction that you’re thinking about taking your store and brand in. But in general, if you have built your brand around being stylish and affordable, then your product should be priced in-line with your existing inventory. That will help it appeal to the customer base you’ve built up and reach new potential audiences.
2. What are the substitutes for this new product?
This is often a good starting place for many merchants because it provides them with an idea of the prices shoppers are already willing to pay. If you’re introducing a high-end water bottle made with a new and sustainable material that keeps beverages cold for 20 hours, see how other insulated bottles are priced. The idea here is to do a bit of competitive monitoring to find your product’s place in the market.
Competitor data will be especially important as other merchants begin selling the item. Even if you have an exclusive relationship with the manufacturer, copy cats could pop up once your new product proves to be successful. Keeping up with the prices for the same and similar products as they become available should give you the information you need to keep prices competitive.
3. How much does the item cost to produce?
The cost of production should influence your minimum price you’re willing to sell the product for. It’s important to know the cost of your product because selling below that amount means you’re losing money. Your minimum price should always be at or above cost.
4. How elastic is the price?
In other words, how much does the price of your product vary? Products that can sustain demand at a variety of prices are considered elastic. On the other hand, products with small price differences are considered inelastic. Inelastic products are easier to price because their prices don’t fluctuate much. Elastic products, however, can have prices that vary greatly based on the supplier and market conditions.
Because the perfect price isn't stagnant, figuring out the “perfect price" for your new item can be difficult. It’s important to monitor how the market responds to your item at different prices. Although you can monitor your competitors’ prices manually, you can also choose to automate this process by working with a repricer.
Repricers come in the form of software that aggregates sales history, market and competitive intelligence, and minimum and maximum prices. They make it possible to make informed price changes in real-time. Repricers can help you efficiently price a new product by continuously updating the price to keep up with the market’s reaction to it.
5. Is your product seasonal?
Back to the example of the water bottle. Introducing it during the spring when sporty shoppers are likely to be looking for new gear for their upcoming trips could result in a higher price than if it was introduced in the middle of winter. But once seasons change, keeping the price the same probably isn’t a good call.
That’s where a repricer comes in again; it can reprice based on all the metrics that matter most, like traffic and conversions. If conversions drop when autumn rolls around, drop prices to bump conversions back up.
6. How much inventory do you have?
Based on how much inventory you have in stock, use pricing to prevent depleting your levels or having an overflowing warehouse. To avoid the former, increase prices when you’re low. In case of the latter, lower prices to make room for new merchandise.
By this point you might be wondering if there is a clear-cut way to price new products. I don’t mean to disappoint, but there really isn’t. There are so many factors at play and there’s no right way to do it. I would argue that not having a concrete method is actually a good thing: it leaves the strategy up to you and gives you the ability to customize it to fit your existing brand and pricing strategy.
What strategies have you used to price new products in your shop? Share your experience and techniques in the comments below.
About the Author
Angelica Valentine is the Content Marketing Manager at Wiser, the leading pricing intelligence suite. Wiser helps online retailers reprice their new and established products in real-time to optimize for revenue and profit.
Top Wiser features include:
- Easily develop an optimized pricing strategy that can keep up with the market
- Seamlessly integrate with PrestaShop carts
- Gain access to in-depth analytics to prove ROI