You're balancing market penetration and profitability. How do you find the perfect price point?
Striking the right balance between market penetration and profitability hinges on finding the optimal price point for your product. Consider these strategies to help guide your decision:
How do you determine the right price for your products? Share your approach.
You're balancing market penetration and profitability. How do you find the perfect price point?
Striking the right balance between market penetration and profitability hinges on finding the optimal price point for your product. Consider these strategies to help guide your decision:
How do you determine the right price for your products? Share your approach.
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1) Set - Use Value based pricing when defining the CVP 2) Refine - Run a conjoint study to find the sweet spot price vs competitors 3) Execute - Align the GTM & Execution plans with the set ambition 4) Monitor and adjust
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A perfect price point should be embedded during product/service development. A profitable market penetration cannot be done unless the market price is in similar level of customer's perceived value. Before product/service launch, a beta testing can be performed to understand perceived value among the customers.
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The price value is related to the service you are providing and the trust you have gained during your relationship with your customers.
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In my experience in B2B pricing, which I’ve developed over years in both multinational and higher education environments, balancing market penetration and profitability requires, among other skills, strategic vision and, above all, "very" analytical approaches. My approach usually combines: 1. Value-Based Pricing: Aligning price with the unique value our product / service offers, ensuring ROI-focused pricing that fits with B2B clients. 2. Segmented Pricing Models: Tailoring pricing (such as volume-based or subscription tiers) to specific customer segments to drive reach and revenue. This, I insist, DATA-DRIVEN strategy will deliver sustainable growth, optimizing profitability across B2B markets and segments.
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To find the perfect price point, start by calculating all production costs, including overhead expenses. Next, set a target profit margin that aligns with your business goals. Finally, consider brand perception and market positioning to ensure the price meets customer expectations and stands out against competitors
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First understand your market, your competition and more importantly what your customer wants or needs, what outcome they want to achieve. Second have a very good understanding of your product particularly what value it can bring to your customer beyond just the tangible part of it. Third, combining the 2 above points, you can then formulate a pricing strategy that will sell the product on merits other than just price. If your product is at a premium vs competition, there could be a very good reason for it. It might last longer, run faster, more economical to operate in the long run etc. You may create white papers, POCs, recruit advocates within the value chain and inside your customer organisation. A true 4P approach in summary.
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To set an optimal price point, focus on value-based pricing by identifying what drives the most value for your customers, such as cost savings, time efficiency, or increased revenue. This approach aligns pricing with the benefits customers receive, enhancing their willingness to pay. Additionally, conduct competitor analysis to understand market standards but avoid pricing solely based on competition unless your product is undifferentiated; unique offerings warrant a premium. Also, leveraging tools like the Van Westendorp Price Sensitivity Model and conjoint analysis can further clarify customer willingness to pay, enabling a balanced, data-driven strategy that maximizes profitability while reinforcing brand loyalty.
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Find the sweet spot where there is a huge target market within the scope of your product's radar. Try to hit upon a price that customers are awed with and bless you with the volumes that tilt the economies of scale in your favour. This leads to profitability and high market share through increased market penetration and customer adoption. I have successfully implemented this several times in my career. A product that looks unattractive and unprofitable at a given price can become hugely attractive, profitable at a much lower price when scale hits the roof!
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Profitability can always come later. Price point, to start with, should be such that penetration is the highest. You never know what value your product/service can give to your customers. Once your customers have a buy-in and experience your product/service, they will get retained and come back to pay again. Thinking of setting pricing with profitability under consideration, can be done at that time.
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Finding the ideal price point is all about balancing customer attraction with profitability. Start with market analysis to understand competitor pricing, customer willingness to pay, and where your product’s unique value fits within the market landscape. A proven method here is the Van Westendorp Price Sensitivity Meter, which gauges how different price points align with customer perceptions of value and affordability. This model can reveal a sweet spot where your pricing feels “just right.” Testing is crucial, too. Use A/B pricing or segmented pricing to assess responses. For example, launching a SaaS tool with tiered pricing lets you appeal to multiple segments while protecting profitability.
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