In my experience, there are five ways to price a product or service:
Premium pricing – top of the market
Bargain pricing – bottom of the market
Prime + 2 pricing – prebuilt-in margin
Total cost of ownership pricing – the cost plus overhead
Competitive pricing – based on competitors and customer needs
Determining which of these to use depends on a variety of variables including the company’s business model, industry standards and what competitors are doing—to name a few. However, when we were determining the pricing model for ChoiceStream’s advanced targeting optimization technology, we carefully weighed the pros and cons of each of the above pricing options and came to the following conclusions.
Premium Pricing: Higher than your costs? No – As a startup, ChoiceStream has not yet reached scale, so our current costs do not reflect what the market will bear for pricing. This is important because our product is very sensitive to scale due to the fact that many of our costs are fixed. Additionally, our competitors, who have been in market longer, are offering scale-based prices, which we must match.
Bargain Pricing: Lower than competitors? Not necessarily – As a startup you may want to beat your competitors on price, but must be careful... Read more