Setting a price : the friction point

Setting a price : the friction point

Setting a price for services or product has always been a challenge for entrepreneurs and a problematic in the technology market.  Setting a price is crucial, whatever the market, but setting the right price is a life or death sentence for a business.

In recent years, some companies have decided to monetize traffic and the information they generated (Google, Facebook) instead of selling their product/service but very few have succeeded in this field.

More and more technology companies are turning to a monetization model of their product/service. There is combination of a freemium (some freebies), completed by value added deals that you have to pay for.  Well, those approaches are great, but how much does my product/service worth?

I recently read an interesting report from Logi Analytics[1] who pointed out that the price comes in fourth place on the scale value for buyers of technological products.  Indeed, in fourth place on the scale value of those decision makers.  The features come first, hence the importance of clearly defining customer needs and answer it.  Technological orientations are in second position because it is important that they are compatible with the customer technological orientations.  The Software licensing model follows in third position.  The price comes in fourth place, followed by implementation speed.  I was a little surprise at first when I read this report but then, not really.  As I mentioned earlier in my blog, the Disciplined entrepreneurship approach indicates that we have to clearly defines needs in the first place, and then, how we’re going to answer them.

Once our product positively responds to the first three conditions of the buyers, how should we establish our price?  There are several approaches that should include production price, shipping cost, support, maintenance, marketing etc. I let you decide which one is the best to meet this need, but I know that mine should respect the friction point approach.

The friction point approach applies when we ask a customer to pay for a product. We must understand that the customer has to put his hand in his pocket and pull it out. As a manufacturer or a supplier, if we don’t ask enough, he will easily pull his hand out. If we ask too much, he will not be able to pull it out because there will be too much money in his hand to do so.  Our goal is to ask for the appropriate amount that when the customer will pull out his hand, there will be just a little bit of friction. He will be happy to pay a fair price for the product/service that we will provide to him and we will be happy to get the right price for our product/service.

[1] 2014 State of Embeded Analytics Report

Louis Turmel
Louis Turmel

Louis Turmel is a seasoned entrepreneur who has been working in the information technology and computing sectors for more than 25 years.

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