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How to price a product that doesn’t exist on the market yet?

Currently working for an early-stage Virtual Reality startup in SF. My team and I constantly struggle with pricing because the virtual reality space is so new there isn't much of a basis for us to measure from. So my question is, How do you price a Virtual Reality product when the entire industry is just coming to the consumer market? How Do You Predict Demand (And Set Prices) For Products Never Sold Before?


28 Replies

Joe Albano, PhD
4
0
Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
Here are a few questions to ask yourself to get started:
  • What problem does it solve or benefit does it create?
  • How is that problem currently addressed or benefit created?
  • Does your product do it faster, easier?
  • What other benefits does your approach have over existing approaches?
  • Does your market value novelty and/or coolness?
  • How are current solutions (even if they are completely different technology or approaches) priced?
Remember, the original point of value comparison for automobiles was horses ...
Rob Gropper
4
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
look for proxies in and around your target market... assuming you have identified your target market and your ideal customer - it would help if you can tell us who that is. For products or services that are completely new the best way is to find out what and why your customers (prospects) currently pay for products that are similar. Don't forget the "why" - that's even more important than the "what". So, taking a complete stab in the dark, let's say your #1 target market is gamers and your ideal customer is 18-35 YO females who play game xyz more than xx hrs / wk (and, yes, you should get that focused). Find out what they currently spend for gaming products and why - consoles, games, controllers, etc. - i'm not a gamer. "our product is priced at about what most gamers currently spend on ____ in a year and here's why we are better....". Forecasting demand is another issue. If there is currently no market then you have to educate the market and that gets costly and time consuming. To address both issues you need to "get out of the building" as Steve Blank likes to say (go to steveblank.com if you are not already familiar) and go talk to prospective customers.
JonMichael Bukosky
0
0
Managing Partner at Ultimate Media Ventures
Sometimes its as simple as not overthinking the business model. What I would do is find a business partner/client right out of he gate and release a working product and or content prototype into the market. If you create something amazing and addresses the partners/clients needs you can then set the bar with future prospects. The VR space is becoming incredibly crowded especially here in Hollywood, so find that first opportunity and get it out into the wild!!
Alexander Shartsis
2
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Alexander Shartsis Entrepreneur
CEO Perfect Price
Natalie, Congrats on getting this far. Initial price is always challenging, but there are a couple of tried-and-true methods. I used them when coming up with prices at TripIt (for TripIt Pro, one of the first saas offerings in travel) and at Drawbrid.ge, the first mobile DSP. Key question is whether you're pricing for consumers, a wholesale channel (retailers like bestbuy/amazon/etc) or b2b (say, your VR product is a headset for use in auto repair shops or something). The process is different for each, but has some common traits. In order of complexity: 1. Look at other products that your target customers buy in a similar way that you want them to buy yours. For example, for TripIt Pro we looked at Amex cards, airline clubs, expense software. 2. Ask potential customers, but know that they will lie. There are two phases to this: At first, you ask: What would this product be worth to you? Later, as you hone in on a price, you put prices in front of consumers and try to pre-sell them. This is most effective with b2b (ie wholesale) sales-- can you get bestbuy to preorder? Or if you're selling software can you get an OEM to pre-order? 3. Conjoint analysis. In this you put versions of your product, or your product in its native enviromnet (ie your lens in a variety of VR goggles, if that's what you're selling) and offer them all at different, coherent price points to understand willingess to pay for each component. It ends up looking like a very long survey. This is a very expensive ($10ks +) and time consuming (never less than 3 months) way of doing 2 with much more accuracy. Usually not recommended for startups, but when you go buy a Nissan or Toyota know that they invested $100ks in this method to understand what willingness to pay for each feature. A firm that does this is Emperitas, if you're curious to learn more, and Sawtooth builds software (but you will need someone trained in it to run it). However you set your initial price, if you have control over pricing *you need to test it. *At TripIt, the price we came up with ended up being suboptimal; we debuted at $119/yr or $10/mo and eventually settled on $59/yr after months of testing (and in case you are wondering-nobody complained about it). At Perfect Price, our clients are testing pricing strategies all the time. There are lots of apocryphal stories here - like how Amazon priced Kindle Fire based on the clearance price of WebOS Palm devices which showed huge demand at $199-but in the end those are some of the most commonly used methods. Without knowing more about your product, it's hard to offer more specific advice, but hopefully this is a good starting point. Also-there is much more to price than one price. You may want to have a good, better, best product line ("goldilocks") where the most expensive thing (think: Porsche Cayenne Turbo S) makes the 2nd most expensive one look more affordable and drives conversions there, while a lower end version is a big profitable step up from the base model. A lot depends on what you're selling. Hope that's helpful.
David Austin
0
0
David Austin Entrepreneur
Entrepreneur
Not enough startups ask this question ... and it's the most important question. Benchmark ... yeah, if nothing like it exists then you're probably not looking hard enough. What problem does it solve and how much do people willing to spend to fix that problem in other ways. Look at your competition and realize your competition isn't just similar products, but everything (unless your target customer has unlimited source of funds). Also do surveys ... survey monkey, or ask strangers in person at the mall or wherever. Note that any opinions from friends (including your co-founders) or neighbors however are purely to show consideration for you personally and offer encouragement, but have no value in determining price points. A/B testing is also very valuable.
Richard Sachen
1
0
Richard Sachen Entrepreneur
CEO/Founder Sunspeed Enterprises
There are a lot of good ideas in the posts above. Figure out your target market and target customer then go out and get feedback on the price. Ask potential customers, offer some pricing and see what the response is. Selling VR for surgical training will have high pricing and standards than for gamers. Also, determine you company's market position - Are you the VR equivalent of Tesla, Ford, or the infamous low cost, low quality Hugo?
I'll approach this from a different aspect, the aspect of determining your lowest price. For several anticipated volumes, figure out your variable costs to produce the product, your fixed costs, your customer acquisition costs, and a reasonable payback period for your development costs. Then make sure you don't price below that cost. If you find that the market won't pay enough to cover those costs, you'll need to reduce your costs, improve the product to get a higher price, find a higher margin market, or realize you didn't have as good an idea as you though you did.
Pricing is an art, not a science. It generally works best to start high and move down rather than the other way around, but as long as you make money on your sales and don't price so high as to have no sales, you'll be able to learn from any missteps.
Dimitry Rotstein
1
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
Almost everything I wanted to say has already been said, so I'll just reinforce the main points:

1. Ask your potential customers how much they'd be willing to pay. Sounds crazy, but it works.

2. Take your competitors' prices (or even higher, don't be shy - you can always lower the prices if there are too few buyers). And yes, competitors exist ALWAYS:
https://www.linkedin.com/pulse/absolutely-every-startup-has-competition-heres-why-dimitry-rotstein?trk=hp-feed-article-title-publish

3. Estimate how much one client costs you (including marketing, support, how much it costs you to make the product per user, etc), multiply it by three, and that's your total price over the client's lifetime. If you can't sell for at least that much, you probably won't be profitable anyway.

4. If all else fails, set the price at $16, $128, $1024, or $8192 (pick the highest realistic one - you should be able to tell instantly which). If no one comes, divide it by half and repeat until they start paying (that's why these numbers are powers of 2).
Faisal Memon
0
0
Faisal Memon Entrepreneur
iOS Department Technical Lead at Citrix ShareFile Quick Edit
You are one step too far along. Consider the basic model first and then that infers the pricing strategy. Eg. VR solution as a white label to incorporate by 3rd parties - say one off 20k USD fee plus support/consultant fees. VR solution as a boxed game - say 50 USD / unit. VR solution as a social gameplay - free with adverts plus virtual goods or subscription for regular content/narrative updates 30 USD/month to free/month.

Basically customers have been trained to pay for entertainment, and typically are price resistant elsewhere.

Actually VR is quite an old discipline -- maybe you have an entirely new spin on it. So there should be good evidence in the market of adjacent products. Also look around your team. Is it balanced/complementary for skill sets and experience. That could be the deeper problem. Get a business dev type on board?




Marc Milgrom
3
1
Marc Milgrom Advisor
Business Manager at Bloomberg, LP
I'm surprised no one has mentioned crowdfunding-- a good guide to initial adopter pricing is what someone will pay for an option on a product that doesn't exist yet. You don't say if your VR product is hardware or software, but at least for hardware, a successful crowdfunding campaign is almost a prerequisite to get funded these days.
I will second the recommendation of Steve Blank-- go read "Four Steps to the Epiphany" and seriously figure out which quadrant you are in. If you are truly creating a new market, you really need to get out of the building and figure out, first, if users would take what you want to build for free. Only then ask what they would pay for it.
Shishir Gupta
0
0
Shishir Gupta Entrepreneur
CEO at StartupLanes.com
I would recommend conducting a simple survey of potential consumers. Ask them whether they would like to buy it or not? Also ask them the price that they will be ready to pay. As per Paul Graham, "Build something that people want".
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