Hello Everyone!
In previously written post, we studied about product. Marketing is all about managing several P`s.
Product is one. Place is another. Prices, Paradigm, Promotion, People – all are equally important. These P’s define the right strategy. In this article, we shall discuss about pricing strategy.
I had IT background once upon a time and would prefer to write a code instead. Almost all IT codes define some variables which may be dependent OR independent. They also create functions to play with the variables in user defined manner. I will also define variables and functions to find out a code which will show us the right pricing strategy.
The code used here is only my personal creation. If you find any code better than mine, you can go with it. I have tried my best to include all variables required but still cannot guarantee everything.
I have taken help of modular programming. So, won’t really bore you with lengthy formula. Let us break it in parts.
Let us define some variables.
Define day_start = The exact date on which you started developing your product.
Define day_end = The exact date on which you ended product development.
Define total_days = difference between the two.
ð Total_days = day_end – day_start.
Define mean_time = the mean time (in seconds) you took to finish development in a day.
<Comment> If mean_time = 1, it means you took 1 second daily on average.
Define timer = product of mean_time and total_days.
ð Timer = mean_time * total_days.
Define cost = total cost you paid to develop the product.
Define hardwork = product of timer and cost.
ð Hardwork = timer * cost.
Define value = final value given to your customer.
<Comment> Value is how much pleasure customer gets on purchasing the product. It also covers customer satisfaction. Rate your value on scale 1 to 100 where 1 means does not deliver at all and 100 means more than 100% delivery. Get this variable evaluated from a third party evaluator.
Define price = price (in Cents) you are selling your product.
Create function Monetize(takes value as input)
<Comment> It converts value of the output to money equivalent
Define Worth = Worth of your customer.
<Comment> This variable covers who your customer is and what he purchased. Rate your target customer level.
If worth * Value > hardwork
Returns Worth * Value – hardwork
Else all cases
Error prompts (“Not feasible product development. Rework on strategy.”)
Returns 0
End if
End Function
Price = 0.20 * Monetize (Value)
<Comment> Price should be 20% of value it offers. This way, you can be sure that your customers are lured into buying it.
Most of the variables here are not quantum measurable. Still, it gives a hint how should you price your product. Obviously, higher values will be priced high.
Consider the variables as properties not just variables.
The first part is hardwork estimation. It is the effort we did to achieve success. If we are simply recovering this hardwork back, then there is no profit. To avoid that scenario, error prompt is added in the code above. We can run the business only if we are sure that the value it offers is more than hardwork / efforts we did to make it possible. By putting a price 20% of this net monetization, we can be sure that customer finds some sense in buying. It is true that this limits your profit BUT by putting 20% of the profit, you are sure that your customers have some reasons to buy.
There is only 1 precaution you need to take: a cheaper product with same working is nowhere available.
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View Comments
The topic is well-detailed and technical. The only thing that I am familiar in pricing a product depends on three factors: labor cost, materials cost and other variables like taxes. It seems complicated but with your post, it is so useful.