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Advanced Product Interview Question Breakdown: How to Price Your Product?

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Advanced Product Interview Question Breakdown: How to Price Your Product?

The purpose of pricing is to make you seek to maximize profit, which is the difference between revenue and cost, ie: profit = revenue – cost . Ideally, we’d use some supply and demand graphs to illustrate how sales fluctuate based on pricing, or an accurate picture of the most profitable time periods.

And in the real world, we don’t have any data. However, it doesn’t matter if there is no data, because the pricing problem is always to seek profit maximization, but the process is different.

Generally people will use the following methods to set commodity prices.

A common pricing method

Cost-plus-profit pricing: Verify the cost of Malaysia Phone Number your product and raise the price a little. Generally speaking, costs are divided into fixed costs and marginal costs, so it is difficult to calculate the unit cost of each product. In addition, many online service products have no direct cost, and the cost does not determine whether the price is reasonable. However, the cost of your product can provide a minimum price (assuming you want to be profitable) and can help you understand what your competitors are pricing.

Value Pricing: Some products have a clear and immediate value to the user. In this case, you can evaluate how much money or time the product will save (or gain) for the user.

Competitive pricing method: The price of many products is based on the price of competing products. This approach is not entirely reasonable (because users may still choose your competitor), and partly because of laziness (because PMs don’t know how else to price the product). Setting prices lower than your competitors is not necessarily a good thing.

Users may perceive your product

Malaysia phone number

As being of lower quality, and you may start a price war.

However, if your product positioning is premium and you decide to set your prices slightly higher, competitive pricing can still be a starting point for pricing.

Experimental pricing: Sometimes companies use experimental pricing to set different prices for products and then adjust prices based on sales. For example, release a beta version, and then recruit a small group of users to take lessons. But one downside of this approach is that unstable prices can make users uncomfortable.

For mature and stable companies, cost-plus pricing, value pricing, and competitive pricing may be used to locate the best price points, and then fine-tuned through experimental pricing.

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