tech-company, sales, product, sellIs it better to make a cost-based price or a value-based price for tech low-cost innovations? Taking into account we are developing an idea where there are low or none competition. I heard that for tech products (applications with some other external stuff to make it work) the best thing is to set a value-based price.
FYI there’s another - unfortunate - category: market-based pricing, which you can observe when a commodity’s price is set by factors you’ve essentially no control on. It’s not a nice or fun situation to be in, because your profitability is strictly related to how low your costs can be.
Cost-based pricing is what most businesses do: work out your marginal cost, slap a margin you’re comfortable with, and have your sales sell at that price. With good marketing you can end up with a stronger brand than your competitor and can get away with higher prices. It works.
Value-based pricing is the most profitable but it assumes you’ve highly skilled sales staff. Training an engineer (it’ll usually be one) to be a sales is hard enough; training one to get clients to put a number on whatever is causing them pain, and anchoring your product’s price against that is… Let’s just say it’s feasible but definitely not simple, and it takes a very special type of pedigree. (It can also be lengthier, and that can eat into your profit margins.)
It is actually really hard to determine a price, especially if you do not have (many) competitors who set it for you.
If you are the first one on the market, the one thing you should (or would love to) know is “how much your customers are really to pay for the service ?” ?
To do this, get in touch with professionals, get to know their business, how much money they would save (or make) using your solution. Per example “Nest Learning Thermostat” is sold roughly 250$ on Amazon. Why will people buy a thermostat at this price ? Because the promise is that you would save this amount of money on your bills…
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