The Dark Art of Product Pricing
Whenever I launch something new I always get stuck on how much I should charge. It’s an especially difficult question to answer because how much you charge has a profound impact on how much money you make — or even whether you make any money at all.
While performing research on product pricing, I ran across this fascinating anecdote. Thought I would share it here today.
A story about product pricing
In 1938, two young engineers were ready to launch their first product. They’d struggled with what to build. After considering amplifiers, radio equipment, air controllers, harmonicas and even muscle-building elec- trodes for housewives, they’d finally decided to create an oscilloscope. Not wanting customers to be put off by a version one product, they sensibly called it the Model 200A.
The next step? Decide the pricing.
They eventually settled on $54.40. Was that because it represented the cost of manufacturing, plus a decent markup? No. These engineers hadn’t taken that into account. In fact, they soon realized that the cost of building each oscilloscope was more than the price they were asking. Was it based on what the competition charged? No. They hadn’t bothered to discover that General Radio charged $400 for an equivalent model.
They chose $54.40 because it reminded them of the 1844 slogan used in the campaign to establish the northern border of the United States in the Pacific Northwest (“54” 40’ or Fight!”).
What a dumb-ass way to price a product.
But these two young engineers recovered from their stumble. The Model 200A went on to become the longest-selling basic electronic design of all time, still selling 33 years later. The company they founded became an institution.
Their names?
Dave Hewlett and Bill Packard.
If Hewlett and Packard, two Stanford graduates with the rosiest of futures ahead of them, can flounder so badly when faced with the problem of how to price their products, what hope do the rest of us have?
Paul: It makes me feel marginally better knowing that two guys much smarter than I struggled with an identical issue and made an even n00bier decision than me.
Free tutorial on product pricing
Rather than break down the thought process that I use to determine a new product’s price, I thought I would share an ebook that I’ve found to be immensely useful.
CLICK HERE FOR A FREE EBOOK ON PRODUCT PRICING
The ebook is completely free, and at 81 pages, a pretty quick read. I am in no way affiliated with the author. Just sharing a resource that has brought me a ton of value, which I hope can help you as well.
While the ebook should provide some clarity, as this post’s title attests, I do believe pricing is an art. Pricing can be so hard that sometimes you just need go with your gut, pluck a number, throw it out there and see what happens.
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What techniques have you used to price your products? Have you had any pricing disasters?
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