Price the Product, Not the Device

Many pricing errors are made because companies conduct their analysis on the core device while they are actually selling a complete product. The value of the product to the customer is determined by much more than just the core technology.

A company will only be compensated for the true value of its offerings if it first determines what the complete product is worth to a specific market segment and then sets prices accordingly.

Value Gaps Created by the Complete Product:

Each significant difference between your product and a competitor's creates a "value gap" that can justify a price differential. These differences often have nothing to do with the core device.

• Distribution Channel: The convenience of buying through a preferred distributor has a high value for some customers, who will pay a premium for it.
• Service and Support: The ability to provide adequate maintenance, training, or specialized documentation adds significant value.
• Brand and Reputation: The trust and confidence associated with a strong brand is a valuable product feature.
• Options and Bundling: A generic device can be sold to many different segments by using options. The base price may be low, but the options allow the company to raise the price to correspond to the high value a specific segment receives.

The best-run firms establish large price differentials based on these large value differentials. This is impossible when a company is only analyzing the cost of the device. This is a practical application of the idea that Great Devices are Invented in the Lab, Great Products in Marketing.