Pricing as a Product Manager

Introduction

Pricing is not just a number; it’s a complex strategy that directly impacts the success of your product and business. As a product manager, understanding how to set the right price for each product in each market is a critical skill that connects business strategy to execution.

In today’s blog, I’ll take you through some of the most notable aspects of pricing to help you figure out how you might optimize your approach for maximum impact.

Connect Business Strategy to Pricing Execution

Your pricing strategy should be a direct reflection of your overall business strategy. Begin by aligning your pricing structure with your corporate goals and values. Whether you’re aiming for market penetration, premium positioning, or customer loyalty, ensure that your pricing approach supports these objectives. Understanding this alignment is crucial for coherent and effective pricing decisions.

Evaluate the Competitive and Market Environment

The competitive and market environment significantly influences your pricing strategy. Assess the landscape, including competitor pricing, market demand, and customer expectations. This evaluation helps you understand where your product stands and how it’s perceived, informing your pricing decisions. Additionally, consider supply constraints and other external factors that might impact your pricing strategy.

Quantify Willingness to Pay

One of the most challenging aspects of pricing is quantifying the market’s willingness to pay, especially in relation to market differentiation. Conduct market research to gauge what customers are willing to pay for the value your product provides. Leverage value-based pricing strategies to maximize profitability while ensuring that your price reflects the perceived value of your product. A great deal of this overlaps with whether or not your product has a clear market-fit and whether or not your potential customers are ready to accept your value proposition — timing is key.

Create Price Segmentation Strategies

Not all customers are the same, and your pricing should reflect that. Develop segmentation strategies based on product, customer, and transaction information. This might involve differentiating pricing by customer characteristics, product type, or purchase context. Effective segmentation allows you to capture the maximum value from different market segments and tailor your approach to meet diverse needs.

This can also be influenced by how you’ve built your product. For example, products that are modular in nature are more primed to co-exist effectively with price segmentation.

Develop Portfolio Pricing and Bundling Strategies

For product managers handling multiple products, portfolio pricing and bundling strategies can simplify buying decisions and enhance value perception. Learn how to use portfolios and packaging to not only simplify the buying process but also to cross-sell and up-sell, boosting overall revenue and customer satisfaction.

A neat concept to apply this is to consider Costco and why they put their rotisserie chicken in the back. Costco’s rotisserie chicken is a popular pick, so naturally it must make the company a good deal of money? Nope! In fact, Costco generally loses money on each chicken sold. But, the company’s positioning of the chicken at the back of their store means that customers typically must pass through all of their other products — meaning that each customer must pass by a myriad of other offerings and deals that Costco is looking to profit on. Chances are, if someone goes to Costco “just for the chicken,” that same someone is likely to buy other items along the way to said chicken.

How this applies to portfolio pricing and bundling is that you should evaluate if certain aspects of your product portfolio can be your rotisserie chicken.

Implement, Track, and Measure Pricing Strategies

Setting a price is just the beginning. Implement your pricing strategies with clear communication and support systems. Then, track and measure their performance. Analyze how price changes impact profitability through break-even analysis and other financial models. Adjust your strategies based on performance data and market feedback to continually optimize your pricing.

Reduce Discount Requests

Frequent discount requests from the salesforce can undermine your pricing strategy. Build confidence in your prices by ensuring they’re backed by solid data and clear value propositions. Train your sales team to understand and communicate the value of your products, reducing the need for discounts and preserving your pricing integrity.

Incorporate Influencer Information into Pricing Strategy

In today’s interconnected world, influencers and thought leaders can significantly impact market perceptions and willingness to pay. Incorporate competitive and key influencer information into your pricing strategy to stay ahead of market trends and adjust your pricing in a way that resonates with your audience. Who are you more likely to buy from? The company trying to sell you their product themselves or the company who many other credible sources support?

Establish Ownership of Pricing Strategy

Determine who within the organization should own the pricing strategy. Whether it’s the product management team, a dedicated pricing team, or a cross-functional group, establish clear roles and responsibilities. This ensures that pricing decisions are made thoughtfully, systematically, and in alignment with broader business objectives.

Conclusion

Pricing as a product manager is a delicate balance of art and science. It requires a deep understanding of your market, customers, and competitive landscape, coupled with a strategic approach to segmentation and value perception. By aligning your pricing with your business strategy, evaluating market conditions, quantifying willingness to pay, and continuously tracking and adjusting your approach, you can develop a pricing strategy that not only supports your business goals but also resonates with your market. Remember, effective pricing is a process of constant learning and adaptation. Embrace the journey, and you’ll be well on your way to earning the money your product deserves and minimizing the money you leave behind on the table.