Product pricing is hard, very, very hard.

I don’t believe it is an exaggeration to say that your pricing strategy can make or break your product. If there is ever a single number that reflects your product brand and positioning, then it is the price.

In his book Jobs to be Done: Theory to Practice, Anthony W. Ulwick suggests that companies can create products and services that are (1) better and more expensive, (2) better and less expensive, (3) worse and less expensive, and (4) worse and more expensive.

Your pricing strategy could depend on the following scenarios:

1.  You have a new product that gets the job done significantly better than the competition, at a higher price. Examples of this include the Dyson vacuum cleaner and Airblade hand dryer, the original Apple iPhone and Nest thermostat. These products were all more expensive, but did a significantly better job, than their competition. So, if your target market is underserved, and you have a significantly better product, then you should consider charging more than your competition. This is a highly profitable way to enter a market.

2.  You have a new product that gets the job done significantly better than the competition, but at a lower price. Examples of this include Uber and Netflix. Ulwick defines significantly better as 20% better than the competition, and significantly cheaper as 20% cheaper. This strategy is appealing if you want to capture significant market share.

3.  You have a new product that gets the job done worse than the competition, at a lower price. Google Docs and Sheets are great examples of this, when compared to Microsoft Word and Excel. This strategy works for customers who are already using competitive products, but they are price conscious. It serves those who have a need for your solution but who can’t afford the competitive alternatives. This approach can be a way to get into a market, and to then build on this to offer better solutions at a higher price.

4.  You have a new product that gets the job done worse than the competition, but at a higher price. This usually happens when the customer has restricted access to a product or service. Food and drinks at a stadium or ATM machines in remote locations are good examples of this. This approach is very rarely a good strategy.

5.  You have a new product that gets the job done slightly better than the competition, at a slightly higher or lower price. Unfortunately, this is where many product sit. They don’t compete on quality or price and hence they rarely gain any market share.