High Initial Prices Can Inhibit Market Adoption

Setting an initial price for a new technology product that is too high, even if the market is willing to pay it, can be a strategic mistake. It can significantly slow down market adoption and create a window of opportunity for competitors.

When customers see a very high initial price (e.g., ten times a previous generation's price), they may conclude that the price will remain high for a long time. This perception becomes deeply etched in their minds.

The Consequences:

• Delayed Design Decisions: Customers, believing the component will be too expensive for their end product, will delay their decision to design it in. They will wait for the price to come down or look for alternatives.
• Opening for Competitors: This delay gives late-entrant competitors a chance to enter the market with a lower-priced alternative and capture designs that should have belonged to the market leader.

The goal of initial pricing is not just to maximize short-term profit but to drive market adoption and achieve a commanding position. A price that is perceived as unfairly high can inhibit this goal, even if it leads to high initial margins. This is a key lesson in why Pricing is an Art, Not a Science.