You’ve dreamed up an amazing product or service idea and gone through an extensive development phase to fine-tune the details. Now it’s time for the all-important question: how much should you charge? It’s not as simple as deciding how much profit you want to make. To give your business the greatest potential, you need to conduct a pricing analysis.
New to pricing analysis? We’ll walk you through it.
What Is a Pricing Analysis?
Simply put, a pricing analysis
is a research process to determine the ideal pricing for your product. It’s all about finding the “sweet spot”: a price that your consumers are willing to pay and that isn’t so low that it paints the picture of poor quality, yet isn’t so high that your target consumers can’t afford it or aren’t willing to pay for it.
Pricing Analysis vs. Competitive Pricing Analysis: Is There a Difference?
You may have heard the terms “pricing analysis” as well as “competitive pricing analysis.” What’s the difference?
These aren’t interchangeable terms. A competitive pricing analysis is specifically an analysis of your competitors’ prices and how you should price your product to be as competitive as possible. On the other hand, “pricing analysis” describes a more general analysis that takes competitors’ prices into consideration but also looks at factors like your consumers and what they’re willing to pay. Another way to think of this is that a competitive pricing analysis is often part of a pricing analysis.
What Should a Pricing Analysis Involve?
Identifying the ideal price for your product is a complex science. There are several factors you need to consider, such as your costs in making the product and operating your business, your competitors’ prices, your target consumers and what they can afford, the prices your target consumers are willing to pay, and more.
How exactly do you take all those pricing factors into account and find the sweet spot in pricing your product? Follow these steps to conduct a thorough pricing analysis and set up your new product or business for success.
Step 1: Assess Your Competitors’ Prices
It’s important to look at your product not only in isolation but in the scheme of the market as a whole. Let’s say your product is a software tool for productivity. Gather a list of the top productivity tools that already exist and each of their prices. Then, compare your product to each of them and identify the pros and cons. Find out where your product fits into the market. For example, you should charge more than products that are lower-quality than yours but charge less than products with more features.
When possible, it’s also important to look at each competitor’s sales performance and how they are priced. You might find that higher-priced products perform better because your target market wants to invest in quality.
Step 2: Identify and Analyze Your Target Consumers
Every segment of the market has different budgetary restraints and pricing opinions, so it’s important to make sure you’re analyzing pricing based on your target market. If you haven’t done this already as part of your marketing research
, define your target consumers. They might include people in a certain location, parents of young kids, couples without kids, small business owners, or other groups.
From there, study this target audience with regards to pricing and finances. Depending on the data available, find out their median income level and the typical range of disposable income they have. If possible, learn about their buying habits too, like what competitors they are currently buying, how much they typically spend on products in your category (i.e., productivity tools or software tools in general), and so on.
Step 3: Consider Legal or Ethical Price Limitations
Some industries are more regulated than others, especially products that are crucial for life-saving or quality of life, like medical products. In some countries, states, and regions, there may be legal limitations on how much you can charge or how much of a markup your pricing can include, so do your research into the areas where you plan to do business.
Take ethical limitations into account too. If your product is something that’s necessary for survival, for example, you want to be cautious not to overcharge. The same is true if you are targeting low-income markets. Not only is it good business ethics to avoid those missteps, but it allows you to avoid a potential firestorm of negative publicity.
Step 4: Ask the Consumers
The first three steps help you establish a foundation, but this step is the real meat of your pricing analysis: surveying your consumers. Conduct a thorough pricing analysis survey to find out what consumers expect to pay, what they would be willing to pay, and so on. An AI-driven survey tool like GroupSolver is especially helpful because it allows for open-ended answers so consumers can give you their full, authentic opinions. Instead of saying they won’t accept your proposed pricing, they can tell you why.
As you’re developing your survey, include questions like these:
Ask how much they typically spend or would expect to spend on a product like yours.
Explain the product in detail, including its features and attributes, and ask what they would expect to pay for it.
Ask how they would rate the value of your product compared to a competitor and why.
Present a price and ask how likely they would be to buy the product at that price.
Present a price and ask if it changes their perception of the product, and if so, how does it change their perception.
Ask which factors they would prioritize when making a purchase like yours, such as price, quality, ease of use, reliability, accessibility, aesthetics, and so on.
Ask if they have used products like yours in the past, and if not, ask why.
With answers to these questions and more in hand, along with your research into your competitors, your target market, and your legal or ethical limitations, you can identify the ideal price that gives you the highest potential for profit.
Read our full guide on how to conduct a pricing survey.
Launching Your Pricing Analysis
The step-by-step guide above can help you carry out a comprehensive, thorough pricing analysis to get a reliable price point for any product. Once you reach the consumer survey step, let our experts help. Request a GroupSolver demo
today to learn more about how our survey tool can make your research more impactful.
