Pricing Basis

You would either have a product or a service which you would want to set a price for the customer. Primarily three basic things have to be kept in mind in order to decide upon the price for a product or service.

  • Cost
  • Competitor price for the same product/service
  • Perceived value to the customer

You may or may not consider all of the above while deciding the price of a product/service. Interestingly for each of these parameters the treatment is going to be slightly different between a product and a service. When it comes to a service,  the role that subjectivity of the customer with regards to the perceived value is much stronger than the other factors. How we judge the perceived value is again something that needs elaborate analysis.

In any case, when it comes to an already existing product or service, the process of deciding a price is much simpler because a benchmark is available in the form of the price set by the competitors but when it comes to a new product or service or an existing service/product for a completely different market, each of these considerations are important.

I would primarily be looking at a situation where a new product/service is introduced or an old product or service is introduced to a new market.

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