So you’ve developed the latest must-have PCR machine, or the fastest data recorder in the world, but now you need to decide on a price to sell it for. It should be easy. Just look at the existing technology in the area and pitch your product at about that price. The customers already have budgets at that level and, hey, with your great new features they’ll certainly jump at your new offering. Sound too easy? It isn’t. Firstly, following the herd is rarely a stand-out marketing strategy. And secondly, what if you don’t have a herd to follow. Maybe your new product is in a class of its own and doesn’t have clear competition to price against. Think of the first HPLC or ECG machine. How do you come up with a pricing strategy for a new class of product?
There are other issues to consider, too. Sell your product too cheaply and you’ll never recover all that time and money you invested, let alone be able to pay for your sales and marketing expenses. Make it too expensive and no-one will buy it. Whew, and it all seemed so simple at the beginning. Maybe the best thing would be to use a simple cost-plus strategy i.e. take the manufacturing price and multiply it by two, three, five or ten? Wrong, pulling a price from thin air without considering the issues below could be very dangerous.
It's time to take a big breath and start digging a little deeper before deciding on the sticker price for your new widget. So what should you consider? All of the products we see at Red Box Direct are sold into scientific research, and for this market there are a number relevant areas that you need to analyse to help you decide on the perfect pitch price for your new product.
But before we dive into the details, let’s discuss the biggest issue in pricing scientific instrumentation for the academic research market. As businesses we certainly sell into the B2B market, but selling to academic researchers is very different from any other B2B sale. Why? It’s because we can’t sell to scientists using the traditional currency of monetary benefit. When we sell some equipment to a factory owner or some software to a law firm, we can explain the benefit to them in terms of the money they will save or make by using our product. It’s simple “Our product costs X but, sir, you will save 5X by using it. So please give me your purchase order…”. So the exchange is a currency for currency one i.e. you give me 1X and I promise you 5X.
Sadly, the currency of the academic researcher isn’t a monetary currency at all. What they care about are their experiments, discoveries, publications and status. Essentially, it comes down to results, and this is the tricky part. We have to learn how to exchange apples for oranges or in this case money for results.
If you remember nothing else from this post then remember this. The only currency that academic researchers care about is the currency of scientific results. So as companies trying to help them (and make a profit along the way), we must always keep the concept of results as the currency of science in the front of our minds.
Back to the details. What other issues should we consider? Let’s get started:
1. The Competition (or lack of it!)
If you have competition for your product then that can be a great help. The market definitely exists and customers have demonstrated a willingness to pay, at least at a certain price point. If you are not the first entrant to a market then you have work to do and understanding your value proposition is the first step. If your product is a me-too without feature enhancements then you have only one direction to go and that is down.
Basically the only value proposition available to you is having a lower price. However, if you have feature or service advantages then you need to decide if these advantages present a strong enough value proposition to your users to make them eager to pay a higher price than the established going rate. Pitching at a higher price can actually be a sales advantage. It gives a salesperson the opportunity to explain why their new-fangled gadget is worth more. Many marketers also believe (with good reason) that, when building a beach-head into a new market, your target audience are the innovators and early-adopters, and that these customers are often proud to have to spend more than others to get early access to new technologies.
2. Your Selling Costs
Ideally, the sale price for your product should result in enough money to pay for manufacture, sales costs (advertising, shows, sales salaries and distributor discounts), recoup R&D investment, and make some profit too. If you have gambled your R&D cash poorly then you may need to exclude recouping that from the equation i.e. what is spent, is spent and you will need to look to the future and see if your product is viable in terms of covering the manufacture and sales cost plus a little profit. Calculating your selling costs will give you your minimum viable selling price.
3. Available Customer Funding
Now it’s time for the crystal ball. How much cash do our customers have available to spend on our wonderful new invention? Lots, we hope… But we shouldn’t rely on hope in trying to make a momentous decision like what price to sell our new “thingy” for. Customer funding is one area where the academic research market differs from many other B2B sales situations. Typically products in this market are purchased with funding obtained via grants. These are grants that come directly, or indirectly, from governments or grants from various foundations and endowments. This knowledge can be very helpful. Grants typically have cut-offs at various amounts. Going above a cut-off either excludes you from getting funding from that source or means that you have to go through a tougher application and review process before obtaining the cash. So you need to find the cut-offs relevant to your product. Don’t make it hard for your customers to get money to buy your product unless you really have to. So if you want to sell for around 50K USD$ and many grant cut-offs are at the 50K mark then I would suggest considering a $47K or $48K price point.
Next, taking your analysis of the above three issues you can start to hone in on your target price. Your selling costs will dictate your minimum viable sale price and your customers funding will dictate the upper ceiling. Now for the hard part. Remember, I never said this was easy! You just need to look at your competitors pricing and mix that with your marketing strategy and then you can pick a sale price that should work for you.
And then the hard work of selling actually begins!
December 9th, 2020
Photo credits: Pixabay.com