Setting Profitable Prices: A Step-by-Step Guide to Pricing Strategy--Without Hiring a Consultant, + Website

Chapter 14

Pricing New Products/Services, Part 1

When Your Brand Is Unknown

In-a-Rush Tip

You can skip this chapter if you’re re-pricing an established product.

Save it for when you next have to price a new product or service. It contains a lot of research that can help, but that will slow you down if you need a price this afternoon!

The Problems in Pricing Something New

Pricing a completely new product or service adds many layers of complexity onto an already difficult pricing decision. For example:

• You’re competing against known brands (for more on how, see Chapter 15!).
• Buyers don’t know your quality.
• Buyers don’t have any “feelings” toward your brand.
• Buyers are (most likely) reasonably happy with the brand they’ve already bought.
• You’ll be tempted to undercut your lowest-priced competitor as a reason for buyers to try your brand.

When buyers don’t know anything about your brand, they use your price as a strong indication of quality.

Price Equals Quality Buyer Perception

A large number of research studies show that buyers see a relationship between the price of something and its quality.

It is especially true in studies where price is the only difference that can be easily perceived by the consumer.

Attribution theory, originally developed by Heider (1958), states that people infer causation for behaviors. Applying this to a new-product pricing, buyers are likely to attribute ...