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MBA in 2 minutes | Lesson 9: How do you price your product

Updated: Jan 8, 2021

We will be solving practical challenges through MBA concepts. No theory only applications !

Today we talk of branding and marketing again. Product launch is a common practice in businesses. There one usually has a ready to launch product however the team is stuck on how to determine its price.

Today, we aim to clear that question.

Step 1: In such a scenario, there are 3 ways in which you could price your product

  • Cost based: Price= margin + cost

  • Competitive based: You benchmark the price w.r.t nearest competitor

  • Value based: You add a "differentiation" price to your cost + competitor's price. This "value" is usually determined by market surveys (you could use fancy stats lessons here)

Step 2:

In this lesson, I would argue that value based pricing is the strongest and most sustainable means to grow your revenue and market share by value .

Step 3:

Now if you have deep pockets then you could argue that I would launch the product at dirt cheap price to initially gain market share and then eventually raise prices-once I have a monopoly. This is similar to how Uber and Jio are playing in e-transport and telecom market respectively.

One on hand we are taking Uber to IPO but the firm shows negative cash flows. I mean let's talk on basics per Warren Buffet and Benjamin's value based investing- this is a huge red alert.

On the other hand- Jio has come out strong but one cannot take away the credit from Airtel for standing it's ground strong by pricing on value and retaining high ARPU (average revenue per user) customers. As per my thought, Airtel's strategy has been so sound that now Jio is withdrawing from extremely low recharges to fix it's ARPU. This is because Jio is aware that its the value and high ARPU that will make them a sustainable business.

Now, if you are intending to launch your product- value based pricing should always be the ideal strategy to signal the quality of your product until or unless you/your firm have deep pockets. In that case I guess are just enjoying disruption in the industry leading to a price war something what Joker from The Dark Knight enjoys doing ! (hope you watched the recent movie, its kickass)

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