Pricing primer for Product Managers

How to think through pricing your product

Image by Miguel Á. Padriñán
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Where to Start

Explore Value-based Pricing

The concept of Consumer Surplus

Consumer Surplus= Perceived Value of a product - Actual Price Paid

When Value-Based Pricing doesn’t work

Cost+ Pricing

Sell Price = Costs + X% Mark-up over Costs

We love to hate Cost + pricing

Say it costs you $5 of material & labor to build 1 unit of product. You build it in a factory where you pay an yearly rent of $ guesstimate that you can build and sell 5000 units every year.So  your total cost for each unit will be   $5 in Material & Labor 
+ $2(=$10000/5000) in rent allocated to each unit produced.
= $7/unitNow say you want to make a 50% profit margin your Sell Price works out to be $7+$3.50 = $10.50.

But Cost+ Pricing isn’t always bad — in fact it can be the right thing to do

Pricing Strategies to Position your Product

Premium Pricing:

Price Skimming:

Penetration Pricing :

Economy Pricing :

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