Pricing the product

Product managers are usually require to evaluate costs of multiple options/solutions while building their product. Or they need to decide cost of their product offerings. Either ways below mentioned strategies help to understand the pricing concepts that help with day to day execution.

Strategies to Pricing the product

Cost-Plus Pricing:

1. Identify the type of product: Online or Physical
2. Identify the cost of the product: Base price and all the indirect price like marketing, customer acquisition, etc
3. Once you have a rough idea of the product pricing then price is above the cost price so that you can generate some profit out of it.
4. Final goal should be: Generate profit from the selling the product or acquire a customer who will buy another product if you sell them this one for free.

Value based pricing:

Identify what value is the product providing to the customer. If it is of high value then high price can be added. For ex: If a meditation app helps someone to avoid a doctor in the long run then you can price it as $7/month or $60/year.

Competitive pricing:

Pricing the product similar to the competitor. If a competitor lowers than price then you should also consider it.

1. However don’t lower it below your cost price to avoid incurring losses.
2. Don’t lower it very much as customers will doubt the product quality.

Experimental pricing:

Start with lower price and go higher if the demand is higher. Even while starting with lower price cover your base costs to incur the profit.

1. If the demand is not high then don’t be afraid to lower your prices.
2. Find the soft spot where customers are willing to pay for your product without you incurring any losses.
   

Pricing models

Free, Ad-Supported:

You can launch your app for free. Or put content on websites for free.

1. You cover the operating costs by running ads on it.

Pros

1. You don’t need to worry about integrating with payment systems as you are not selling anything on the site/app.
   

Cons:

1. Your business pretty much is in hands of ad providers(direct or indirect)
2. High valued Customers might not like your site due to ads. 
3. If by mistake inappropriate ads are shown on your site then your app/website loses reputation.
   

Freemium:

1. Basic version is free.
2. Advanced features can be unlocked upon payment.
3. If there are a lot of basic version users then your operating costs are going to be higher.
4. You should strive for conversion from free to paid users.
   

Tiered:

1. Multiple tiers for different volumes and features. For ex:
1. $1000/month for upto 10k transactions
2. $10k/month for upto 1.5M transactions

Subscription:

1. Charge the user monthly/yearly.
2. Many online services do this like Netflix charges per month. Amazon charges monthly and yearly.

Free trial: 

Provides users with free trial to attract them into becoming paid customers.

Razor-Blade model: 

Sell a component for a lower price and ensure customers buy add-ons at market or higher price thereby covering the costs.