Conventional wisdom holds that the best time to launch new products is in the early stages of an economic recovery, when demand picks up and customers become less price-sensitive.

While this may be true for some, our experience shows that most companies actually miss a significant opportunity to maximize revenue and profits due to dysfunctional pricing strategies with roots that can be traced to the years before the recovery.

During the recent recession, we frequently saw entire markets consumed by ad-hoc discounting by companies trying to defend their piece of a shrinking pie. In the process, these companies sent a clear signal to customers that price was entirely negotiable and they would give value away if pushed hard enough.

To make the sale, many companies also began bundling additional products and services into their core offering to "sweeten the deal." But by giving away services, these firms drove up their costs and taught customers that their services were not highly valuable.

These shortsighted pricing approaches may have helped maintain sales, but they also taught customers to focus on price and ignore value.

Numerous traps can sidetrack well-intentioned new-product pricing strategies. Our research indicates that there is less than a 50% chance that new products will hit their volume and profit goals. Avoiding these traps will be critical for firms that are depending on successful new product launches to drive earnings and growth in the resurging economy.

Based on our extensive fieldwork, we see three broad categories of "pricing traps" that companies must avoid to insure successful and sustainable product introductions.

Trap No. 1: Pricing Benefits Instead of Value

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ABOUT THE AUTHOR

John E. Hogan is vice-president and director of research in the Boston office of Strategic Pricing Group. He can be reached at jhogan@spgconsulting.com. To register to receive SPG Insights, visit www.strategicpricinggroup.com.