Price Setting: How to Set The Optimal Pricing For Your Product

Part 2 of 3 of My Deep Dive on Pricing Strategy and Execution

Our 🔒Strategic Product Execution series helps product leaders efficiently create and convert strategy into action and outcomes, one post at a time.

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• The Key Elements of Product Strategy

• How to Conduct Product Portfolio Profitability Analysis

• Linking Product Strategy to Roadmap through Themes & Initiatives

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Welcome to our Deep Dive on Price Strategy, Setting and Execution!

In our 3 part Deep Dive, we cover:

• The Key Elements of Pricing: Strategy, Setting, Execution → previous post

• How to Set The Optimal Pricing For Your Product → this post

• How to Implement and Execute Product Pricing → next post!

Let’s dig in to the world of Price Setting.

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What is Price Setting?

Price setting is a specific phase within the broader pricing strategy process where a company establishes the actual monetary value that will be assigned to a product or service. Simply put, it’s the actual calculations you perform to establish your range of optimal prices you’d like to promote to your customer.

Of course, price setting is a crucial step within the overall pricing strategy, and it involves analysing various factors to arrive at a figure that aligns with the company's objectives, market conditions, and customer expectations.

Many may the mistake of jumping straight into calculating prices without thinking through their customer segmentation, market and competitive landscape and review of their product portfolio’s revenue and cost structures. This unfortunately leads to bad pricing decisions that may have adverse consequences: lost revenue via churn, degradation of market positioning, among others.

If you haven’t already read Part 1 of this series, please read my previous post before continuing on.

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Price Setting Components: Models, Metrics, Messaging

In our approach, we break down Price Setting into three key pillars:

• Pricing Models: the set of decisions of the type of pricing you wish to charge, how often, under what conditions, and using which metric;

• Metrics: the calculation and tracking of key product metrics used as an input or the basis for your pricing model;

• Messaging: the creation of key messages to communicate pricing to the customer that maximises their adoption, and decisions on which channels to utilise and when.

Price Setting: All about choosing the right Models, Metrics and Messaging.

These steps have been distinctly separated from the strategic step, so that you can clearly focus on the method of deciding and setting your prices, which often requires different stakeholders or support teams to give you quantitative data to begin calculate and set your price ranges.

Teams may include:

• Finance: to provide cost inputs and revenue estimates where possible

• Data: to enable data orchestration that enables the tracking and monitoring of specific data events that are inputs to your chosen pricing metric and models

• Marketing or Product Marketing: to provide input and feedback on the types of channels and messaging approaches available to communicate pricing

• Commercial / Sales or Customer Success: to provide input and feedback per customer segment and market on the perceived product value and perception of your current pricing

Start to engage with stakeholders early on in the Price Setting process, if not walking through the pricing strategy analysis you performed in Step 1. The earlier you consult them, the more aligned and bought into the pricing analysis they will be, and the more willing they will be to adopt and implement pricing across their responsible areas.

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Choosing Your Pricing Model