How to set optimal prices for a launch
10/05/2022 - Price optimization
Defining the optimal price for a new product or service launch to the market is key to e-commerce’s profitability and growth. How suitable this launch price is will depend on how customers receive this new product. It will also depend on whether the company can recover any investment made to enter it onto the market, and whether it begins to generate profits. Therefore, you must define the most appropriate pricing strategy for the short, medium, and long term.
At the start, before setting the optimal launch price, you must analyse and calculate your production costs and know your buyer persona, their characteristics and needs. You will be able to define your new prices from this information. To do this, you can build on some of the most effective pricing strategies for new product launches:
Most successful pricing strategies
Pricing based on competitors
You can use your competitors’ prices as a reference point to set your prices. This applies particularly to similar products or substitutes for products already on the market that are well-known to customers. Once you have carried out an in depth study of competitors’ prices, you can go for:
- The same prices as other e-commerce businesses.
- Higher prices to create the perception that your items are of higher quality.
- Lower prices to attract users’ attention.
Penetration pricing
As its name suggests, this strategy aims at directly immersing products and services into the market at dramatically low prices. The main risk is that, in the long run, these prices must be increased to avoid generating losses, which can upset consumers. It is especially effective when demand is very elastic, i.e., highly price-sensitive, or in situations where the company needs to recover their investment quickly.
Skim pricing or price skimming
Unlike in a penetration pricing strategy, skimmed prices are high prices that will attract users with higher purchasing power. They are mainly used to launch new products with a high perceived value. The best example is new high-end smartphones. After their launch, prices will gradually be lowered to reach other target markets that are also interested.
Depending on how these prices perform, you can change the strategy after new product launches and also incorporate various factors. For example, psychological pricing, which appeals to certain cognitive biases, or dynamic pricing, which adapts to changes in supply and demand.
Benefits of a pricing tool to set optimal prices
Once you have defined your strategy and the criteria prices will be based on, a pricing tool will be essential to calculate the optimal launch price for new items. This advanced software relies on choosing multiple variables and rules to calculate the most appropriate price, such as profit margin, weather, or competition. Using Big Data, it also collects and analyses information about matching complementary products or brands, to recommend the right starting price with accurate sales forecasts. This optimises business performance and decision-making that would otherwise be less agile and require a greater investment in time and resources.
When defining your e-commerce’s current prices, tools like Reactev allow you to design an overall pricing policy which will maximise your objectives and pique your customers’ attention.
Category: Price optimization
