How to Determine the Pricing Strategy for New Product

In this post, we’re going to look at how to determine the pricing strategy for new products. In fact, there are a few things to consider.

First, you’ll need to recognize the cost of the product. This includes the cost of materials, production, shipping, and any other associated costs. Once you have a clear understanding of the product’s cost, you can begin to think about your commercial objectives. What are you trying to achieve with this product? Are you looking to make a profit or simply break even?

Second, it’s important to identify your target customer. Who is this product for? What needs does it address? Once you have a good understanding of your target market, you can begin to think about what value this product brings them. What benefit do they get from using it? Answering these questions will help you determine what price point is appropriate for your new product.

There are several common pricing strategies that businesses use.

  • Cost-plus pricing is a simple markup on the product’s cost.
  • Competitive pricing means setting your price based on what similar products are selling for in the market.
  • Value-based pricing means setting your price based on how much value customers perceive the product has.
  • Price skimming is setting a higher price point at first to maximize profits before lowering it later on as demand decreases.

Choosing the right pricing strategy depends on many factors specific to your business and your product. Carefully consider all of these factors before deciding so that you can choose the best option for achieving your desired commercial objectives.

What are the associated costs of a product?

The associated costs of a product consist of several factors.

  • Development costs.
  • Regulatory approval costs.
  • Manufacturing costs.
  • Marketing and advertising expenses.

Take commercial objectives into account

When determining the pricing strategy for a new product you need to establish the commercial objectives for the product. What is the overall goal of the product? Is it to generate revenue, capture market share, or something else? Once the commercial objective is clear, you can begin to assess what pricing strategy will best align with that goal.

By taking commercial objectives into account, you can develop a pricing strategy that will help you achieve your commercial objectives while also appealing to your target market.

How to determine the target customer

There are a few key factors to consider when determining the target customer for your new product.

First, you’ll want to identify the needs and wants of your potential customers. What are they looking for in a product? What are their pain points? Once you have a good understanding of your target customer’s needs, you can start to segment them into different groups.

For example, you might segment them by demographics like age, gender, location, or income level. Or you might segment them by psychographics like lifestyle, personality type, or interests. Once you’ve identified your target customer segments, you can start to narrow down who your ideal target customer is.

This is the person who is most likely to purchase your product and who will get the most benefit from using it. When determining your ideal target customer, it’s important to consider not only who they are but also what they need and want from a product like yours. With this information in hand, you can start to develop a pricing strategy that will appeal to your target customers and help you reach your business goals.

Understanding the needs the product addresses

You need to keep the needs the product addresses in mind when trying to determine the right pricing strategy for a new product.

If the product is addressing a need that is not currently being met by any other products on the market, then it may be possible to charge a premium price for it. On the other hand, if there are already similar products available, then you will need to choose a pricing strategy that allows you to compete with those products.

Understanding the value of the product brings

The most important factor in determining the pricing strategy for a new product is understanding the value that the product brings to the customer. There are several ways to assess this, but at its core, it comes down to understanding what needs or problems the product solves for the customer, and how well it does so.

This can be further broken down into two key considerations:

  1. How does this product compare to existing solutions?
  2. How important is this problem/need to the customer?

In terms of the first consideration, if a new product is significantly better than existing solutions in terms of solving a particular problem or meeting a need, then it can command a higher price. On the other hand, if it is only marginally better (or worse), then it will likely need to be priced competitively with existing solutions.

The second consideration is related to how important the problem or need being solved is to the customer. If it is something that is essential or very valuable to them, they will be willing to pay more for a solution that meets their needs. However, if it is something that they can live without or that isn’t particularly valuable to them, they will be less willing (and able) to pay premium prices.

Ultimately, then, assessing the value that a new product brings to customers involves understanding both how well it solves their problems and how important those problems are to them. With this information in hand, companies can make informed decisions about pricing their new products accordingly.

Final thoughts

There are several factors to consider when determining a pricing strategy for a new product. You need to understand your costs, your competitors, and the value that your product brings.

For inspiration, you can read more about the pricing strategy of Nike or the pricing strategy of Starbucks.

About the Author
Hi there, I'm James, founder of Melbado. I have over 20 years of experience as a leader and entrepreneur. Recently, I turned to leadership coaching and writing to pass on my knowledge to the next generation. If you have any questions or comments, please contact me via our contact page.


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