Ah, pricing. Always a thorny topic for product managers as it’s one of those more subjective areas of the job. I’d love to have some kind of oracular spreadsheet that foresees how much customers would be willing to pay for my new product. Ironically, I would pay good money for such a thing…
Andrew Dickenson writes in his article, “Take control of pricing“, that product managers allow themselves to become disconnected from pricing decisions. This reinforces my view that (alert: wild generalisation follows) product managers spend the majority of the time looking inside their own organisation rather than focusing on really getting to know their market and its problems.
The thing is that pricing is very tricky to do well without a good understanding of how valuable the problem you’re solving is for the customer. I often use the example of the glass of tap water: in normal day-to-day life, nobody would consider paying for the water; if the same person were dying of thirst in the Sahara, they’d probably value the water a great deal more.
Pricing is very tricky without understanding how valuable the problem you’re solving is for the customer
There’s always the danger that product managers price their product purely to cover their costs. ‘Cost to us’ does not equal ‘value to customer’. As always, the answers are out there in the market, not inside your organisation.
Further reading #
- Take control of pricing – Andrew Dickenson, Product Focus Soapbox
- Pricing – Chris Steele, Effectivus Product Management