Pricing a New Product

My book of the month is Predicatably Irrational, by Dan Ariely. It's a good read. For small companies there are some interesting results from this book.

A primary point is made that our expectations are made (and set in stone) the first time a customer sees a new product. Example, the first time you went into a Starbucks. Now the prices were set higher than most coffee places, what did you think about that? Well, his reasoning goes, with a different atmosphere, much better coffee, and nice aromas in the stores, sure I'll pay $2 for a cup a joe! Now that first experience set a new level of expectation for you to compare to any other coffee store. Ariely shows that that expectation is far more important than traditional supply and demand theory! Your first price becomes your benchmark.

This is important for companies bringing out a new product. If you can show that your product is wholly new experience for your customers, then you can set the price you please (within reason of course), not too low because as we know it's harder to go up than down (again the first experience influence). But you may be able to get a better margin on this new product because you are setting the benchmark. So be careful, you will get what want if you do it right.