Entrepreneur, Marketer & Designer. CEO at WebLift. Co-founder at Black Helmet. Author, Web Analytics for Dummies. www.pedrosostre.com

Oct 11, 2016

3 Factors to Consider When Deciding a Pricing Strategy

Recently, I received this question in Quora:

What should be price strategy of PC accessories brand entering India, when it is better than top selling brand X. Expensive, equal or cheaper to X?

Strategy questions like this are very nuanced. Without more information, it’s impossible to provide a concrete answer, however, I can present some analysis and questions that may help determine the best solution for your specific pricing strategy scenario.

While competitor offering is important, there are several factors to consider when developing the pricing strategy for a new brand:

Industry Standards and Trends
Target Consumer Psychology
(and, of course) Competitor Offering

Industry Standards and Trends

Electronics retailers are known to have notoriously low margins. This may present an opportunity in that a strong retail price coupled with a low wholesale price could give retailers a compelling reason to choose your products over the established brand.

Are you pricing your products for consumers or retailers?

This comes down to knowing your distribution channels and how important that are (or aren’t) to your overall sales. If the number one way that consumers discover your brand is through retailers, your pricing strategy needs to consider retailer margins and wholesale pricing first. Come up with an offer that works for them and they will be the partners you need to champion your product over your competitor.

If, on the other hand, you sell directly to consumers, then the final consumer price should be your primary focus.

Competitor Offering

The Quora query also stated, “During our product survey, most of the respondents found it better than the current top selling brand (say X) in its category; both in terms of quality and design.” Assuming the survey is accurate (a whole other discussion for another time), why choose to compare the products based on quality and design? Are those the factors that contribute to people’s motivation in buying that product?

There are many examples where one brand is considered to have better quality and design, but still can’t win the brand war. I own an iPhone and plan on purchasing the new iPhone7 (once it’s back in stock). This is despite the fact that I’ve seen better battery life, better camera quality, more memory, and more interesting designs (both in the software and hardware) from other brands. The point is that my choice to buy an iPhone goes beyond quality and design.

Why are consumers purchasing the top selling brand?

Try to understand why people purchase a specific brand before you determine how your price will compare. If the competing brand has a lot of intrinsic loyalty, an aggressively low initial price might help to persuade customers to abandon their preferred brand. However, if quality is the primary motivator, a low price may backfire as higher prices can give the impression of higher quality.

Target Consumer Psychology

Having never been to India, this is based on research reports and data. You should seek someone with local expertise to corroborate the conclusions.

According to 2014 Nielsen article, How Indian Consumers Navigate The Car Buying Journey, Even after word of mouth recommendations and online research, over a third of consumers, are willing to reconsider product-based factors such as Brand and Model. While this survey was specific to car buying, it speaks to the potential lack of brand loyalty of the Indian consumer and it bodes well for a unrecognized, but high quality, new brand.

Another interesting metric from this report is that only 13% of respondents went outside of their budget range. This leads to my next question.

Which segment of the market do you want to dominate?

Every market has segments. In the U. S. Automotive Industry, the top selling brand is Ford — however — not all brands care to compete with Ford. There’s also the Premium Car market which is dominated by Mercedes-Benz. Maybe you want to compete with them? Or maybe there’s an opportunity to use your pricing strategy to create a new segment?

There’s no one size fits all answer, but I hope this helps when it’s time to develop your pricing strategy! Let me know your thoughts in the comments :)