Virtual Reality · Startups

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

Natalie Balt Cofounder/CTO at CrewUp

December 18th, 2015

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?

Marc Milgrom Business Manager at Bloomberg, LP

December 18th, 2015

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.

David Werdiger Family Advisor | Business Strategist | Non-Exec Director | Thought Leader | Technology Entrepreneur

December 20th, 2015

There are some very good answers here. The only thing I would add is that when there is uncertainty about what the price should be for a new product like this, it's very important to give yourself permission to change the price. It's easier to drop the price than to increase it. But if you go to the market with an initial price that is called a "promotional special" or similar, then the market understands that the price may change in future, and therefore you have the market's permission to change it.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

December 18th, 2015

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 G

December 18th, 2015

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 if you are not already familiar) and go talk to prospective customers.  

Alexander Shartsis CEO Perfect Price

December 18th, 2015

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, 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.

Dimitry Rotstein Founder at Miranor

December 18th, 2015

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:

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).

Peter Johnston Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.

December 19th, 2015

This is a classic dilemma if you start your thinking with Product.
But that is the error - always start your thinking with People.

The people who will love your product are doing something else now.
Probably paying for something inferior. There's your value.

The second part of this is that people don't buy a category.
Virtual Reality is a new way of doing things. It isn't a product in itself.

But what are the things?

For example VR enables a totally immersive travel experience.
How much do people pay for a cruise or a coach trip?
Or for an exhilarating ride in the sky, on the waves or at speed?
That could be the value you pitch against.

VR enables a new level of games.Something so addictive that, with in-app purchases, you could probably bankrupt people. And gaming too - you can be at the poker table from anywhere in the world.

VR enables a whole new level of corporate communication. How much are people paying for online meeting systems, online training, even phone systems which could be swept away by this?

VR allows virtual operations, with the doctor thousands of miles from the patient.
Sports and skills training, with a truly believable simulator.
Remote operation of machinery, dramatically improving health and safety.

Each one of those has a different pricing model currently.

Two more things.
First, don't underestimate pricing potential. Things start expensive, then commoditise over time. You cut your product life short if you pitch low.

Secondly the price you get for something depends on how good your story is. Seth Godin puts this beautifully - on the shelf in the supermarket there are eggs. Beside them are eggs with a story. The better the story, the more they can charge.

Build a ramp which takes people's perceptions from the old to the new. Make it a "for a bit more, you get a lot more", not a "for the same you could have different".

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

December 19th, 2015

I get concerned when people suggest asking customers (current or potential) if they will buy and how much they are willing to pay. There is a big difference in the thought processes associated with contemplating a purchase and those associated with with making a purchase. Clients mean to give you accurate information with respect to their intent, but their brains are simply not wired to do so. 

Depending on client intent to build business and financial models is risky at best. 

Dimitry Rotstein Founder at Miranor

December 19th, 2015

@Joe Albano,

You're right, of course - potential user's input on this matter is highly unreliable.
Still, that's better than nothing, and I'm pretty sure you can get at least the order of magnitude right, and at such an early stage you may not need more than that.

That being said, it helps to ask the right questions. If you say: "Here's my product. How much are you willing to pay for it?", then you probably won't get a reliable answer.
But how about: "Here's the pain I'm trying to solve. How do you solve this pain? How much do you pay to solve it? How much are you willing to pay to solve this pain twice as fast (or more reliably, or more conveniently, or whatever)?"

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

December 19th, 2015

Survey prospective buyers. As them TWO questions: 1) Assuming that our product delivers everything you want in a Virtual Reality product, at what price would you no longer consider buying it? 2) If you saw a product that claims to offer everything ours offers, at what price would you start to worry that the product is poor quality or doesn't really deliver what is promised? The first gives you a high bound. The second gives you a low bound. Also consider your costs which may be a higher bound than what you get from #2. Also watch where your competitors are priced. This should give you a range of prices to experiment with. Try setting a price high and then offer different discounts to experiment and learn your market's price sensitivity. DON'T - ask people what price they think your product should be set at. You'll either get the high priced answer they think you want to hear (but at which they won't buy), or a low price they would like, but which is below what they would be willing to actually pay. DO - ask them if they are willing to commit to buying at a certain price. POSSIBLY -- try a Dutch auction. Offer 10 or 100 units for sale and see what the price reaches which clears the available units.