Pricing a product is a two-part exercise. First, you must take into account external factors over which you have little or no control. These establish the ballpark within which your product must to be sold. Second, you must narrow the box by weighing those factors over which you do exercise some influence.
Five external factors define the space you have for maneuvering:
1. The cost of developing the product and bringing it to market
2. The market's size
3. What that population is able and willing to pay
4. Direct competition
5. Prices set for similar products
Four factors determine the extent to which you can narrow price:
1. The perceived value of benefits conferred on the user
2. The profit target you set
3. The positive effects of salesmanship, advertising, and PR
4. The effect of spin-offs
The following sections consider these in turn.
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