You are a small business owner who is getting ready to launch a new product. Your production timeline is very tight and you need to get the product to market quickly, but you haven't yet decided how to price the product. Which is more important: [[getting to market quickly]]? [[setting the best price]]?You have been doing this a long time and you are confident you know how to effectively set a price for your product. You are concerned that that additional time required for market research would derail your project. You look at the prices of your nearest competitors. They range from $199 - $399. Your product is better than the $199 competitor and you think you can steal some market share from the top end competitors if you offer a lower price. At $249, you barely cover your costs. You would make a profit, albeit a small one. However, if you get enough sales volume it will make up for it. At $349, you make a nice profit, but will the higher price have a big impact on volume? What price do you pick? [[$249]] [[$349]] You conduct some research into your product's price elasticity (the relationship between the price and the market demand). In your testing, you determine the average conversion rate at each target price. At $249, customers will buy 20% of the time. At $299, customers will buy 18% of the time. At $349, customers will buy 10% of the time. At $399, customers will buy 5% of the time. Which price do you choose? $[[249]] $[[299]] $[[349]] $[[399]]Your product sells well, but your thin profit margin means you're always right on the edge. You hesitate to hire more workers or expand because money is tight. You end up trying to handle everything yourself and this exhausts you. You decide that the next time you launch a product you are going to take the time to do some market research while deciding your pricing strategy. Try the scenario again to see if you can find a better price for your product. The product sells but the numbers are modest. You will always wonder if a different price would have catapulted it into a superstar product. You decide that next time you will conduct market research when setting your pricing strategy. Try the scenario again and see if you can find a better price for your product. With 100 potential customers: price: $249 conversion rate: 20% revenue: $4,980 Would a different price have resulted in higher revenues? Try the scenario again. With 100 potential customers: price: $299 conversion rate: 18% revenue: $5,382 Congratulations! You picked the price that maximizes your revenue. With 100 potential customers: price: $349 conversion rate: 10% revenue: $3,490 Would a different price have resulted in higher revenues? Try the scenario again. With 100 potential customers: price: $399 conversion rate: 5% revenue: $1,995 Would a different price have resulted in higher revenues? Try the scenario again.