What should be the price range of a new product in key markets?
EquipmentCo. was preparing to launch a strategic product that would fundamentally transform the way the current product line was configured in the industry. The company wanted to keep the price of the new product in the same range as the existing product to encourage adoption. To accomplish this, EquipmentCo. sought to identify the pricing range of its existing product suite in different geographies.
The current product line was made up of multiple hardware components, EquipmentCo.’s new innovative product was a compact, software-based product with minimal add-on paraphernalia. EquipmentCo. now wanted to understand the pricing rationale for the new product, since none of the current products would be the right comparable benchmark. Additionally, the complexity in the situation was higher as each current product line had multiple capability versions and was sold at a different price point in different geographies.
The key project objectives were:
- Identify the price range of the new product in selected geographies and configurations
- Identify the parameters and their contribution to the end-user price
SprintlyWorks team conducted a three-phase project to help EquipmentCo. identify a rationale for pricing the new product:
Phase 1 – Price range of hardware in the selected geographies
SprintlyWorks team initiated the project by segmenting the existing product suite into its components namely hardware and software. During this phase, it was also focused on the hardware components and the capability each component provided to the overall product. Based on this the team then used historical transactions to create scatter plots of the sales price of the hardware in various product configurations in each market.
Phase 2 – Price range of software in the selected geographies
During this phase, the SprintlyWorks team focused on segmenting the software bundles and repeated the same process for each geography. Historical transactions were used to create scatter plots between software units sold and sale prices to identify the price range of the top 3-5 software bundles/licenses with the highest volume/price sold. Also, insights were derived regarding the price perception of software in each geographic area. Finally, the SprintlyWorks team was able to identify which product configuration was using which product bundles at what price.
Phase 3 – Develop a price range tool
After identifying the price range of existing product components an excel-based tool was built. This excel tool enabled EquipmentCo. to predict the price range of the new product, based on identified parameters with allotted weightage for each individual component. This allowed EquipmentCo. to select a country and specific configuration and derive the price range. Additionally, it allowed addition of any new country data into the tool and derive the price range for that country.
SprintlyWorks team provided EquipmentCo. with a functional tool. The tool is now in use by the pricing and the sales team to estimate the price range of the new product in multiple geographies. This project solved a key management challenge.