We are on track to launch a few related wearable products. Outside of packaging, we've nailed our BOMs and COGs for the initial versions of these products. I've got a good feel for what I believe the current market expects as far as pricing. But, as I initially stated, I need to digest a collection of ideas, theories, and working/not-working practices on determining the market price for this very important exercise. An immediately related followup topic is the implementation of support plans and the pricing for that. I expect there to be some complexity other than X% of COGs@Y Quantity.
ugh...should be "current practices"...
And I will add, I have the pricing in place based on COGs and operations costs forecasts, but doing yet another hopefully final review based on the theories, motivations, and executions of others.
The industry averages vary widely for profit margins. If you're talking computer hardware, the margins can be 2-3%. If you're talking about fashion, the margins can be 55-80%. Regardless, your product is only worth what people are willing to pay for it right now.
It's not a simple equation based on COG. You also have to consider labor, marketing, office overhead, real estate, transportation, support, defective rate, etc. Sometimes the market tells you that they're not willing to pay over a certain price. In that scenario, you have to work backwards and figure out how low the cost of manufacturing, rent, salaries, etc. have to be to make the economics work.
Just because you have a desirable product doesn't mean your price can reflect the same margins as someone else making a similar product.
This is fundamental research on product-market fit. No one can do it for you as well as you can do it yourself, because you know the marketplace (or should) better than anyone else. Sure you could hire someone to conduct a competitive analysis, but that doesn't necessarily mean you understand pricing pressures, or where pricing is likely to go.
In the end, the price someone is willing to pay has the most to do with the perceived value. It doesn't cost a lot more to make a Gucci handbag versus a NineWest handbag. But, the retail price can be multiples different. Why? Perceived value. Your marketing strategy needs to include validating the assumptions you've made about your buying audience so you know not only the amount they're willing to pay, but why.