GigaOM

It’s a difficult question, with no one good answer. The bottom line is “what the market will bear.”

What does your market research tell you? Do the differences between your competitor suggest a pricing strategy? It may be hard to base it on their’s, but it may be easier than doing the real work yourself.

If the product is in a beta stage, you can do some surveys and research yourself. Find a bunch of beta testers in your target market (ideally a wide range) and have them test your product, and answer questions about pricing, usability, etc.

If your product is ready to roll, you can place a small ad with a low price in the back of a trade magazine and gauge the response. If you resize the ad and change the price over the next few issues you can gain a fairly accurate model based on ad size/location and price (don’t change the ad, otherwise you have too many variables – but do change the size and location since you may not have experience with typical response in that magazine).

If it’s a physical product, it’s fairly easy to give a starting price – your margin, assuming a direct sale (no middlemen) should be between 40-60%. Go up if you expect retailers to take a big chunk, go down if you expect most sales to be direct or low overhead. You might price it higher if your customers gain a huge benefit from it, and lower if it’s practically trivial for a competitor to duplicate.

Keep in mind that you don’t have to set your price in stone. Pick a price, and then move up or down as needed. Down is easy with coupons, specials, sales, etc. Up is not difficult, although it may seem to be. A lot of companies overprice their product at the start (ie, choose the ideal high-profit price) and then have an “introductory deal” to gauge interest. Then it’s easy to move up (the deal expires, sold out, etc) and easy to move down (demand was so great, we’re keeping the price!)

-Adam}

Joel Spolsky gets into this (and other related subjects) at http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html}