How do you price a new entry into a competitive market?

Earlier this month I was lucky enough to be sitting in and observing an NRT Sales and Marketing seminar at one of the North East’s leading Universities. The audience was made up of professors, lecturers and post-doctoral research students, from many different departments of the university each of whom were each working on their own start-up ideas.

One of the attendees was a lecturer in Biochemistry and during the discussion he mentioned he was working on some newer ecological insecticides based on natural products. One of the benefits of the newer offering would possibly be that it would only need to be sprayed once a year, rather than traditional insecticides that had to be sprayed up to four times a year.

So I must admit I drifted off  – not out of boredom, but because I began to think about… how would you effectively price such a new, more effective insecticide?

Some may say well it’s easy isn’t it?  You’re saving the farmer 3 lots of insecticide spray costs so price your competitive offer at 2 or 2.5 times as much as the current treatment and hey presto, a saving for the farmer and a higher price for you and more profit !

But what is the real value to the farmer?

If your product means a quarter of the farmer’s current spraying of insecticide to do each year; and if it takes the farmer 6 hours, a day, a week to spray the fields each time – your product has just potentially saved them a day, three days or three weeks a year – how valuable is that freed up time to an ever busy farmer?

Your product is natural – would it help the farmer achieve fully organic certification quicker, thus being able to charge a premium for their product? It also is more effective in inhibiting key pests from producing offspring thus potentially reducing the risks and losses next season…

Then I realised that I hadn’t being paying attention to the talk and the NRT speaker had asked me what £100,000 over 6 years was per month … I just looked blankly at him and after tutting at my poor algebra he continued with his talk as one of the students had correctly answered his question.

So thought; how much does the farmer have to pay to rent the spraying kit…and the tractor… and the labour… percentage efficiency… resurgence rates… dilution ratios… all of these variables, and how many more, could have an impact on the economic value your new product could deliver to the farmer?

And after all of that, how much of this value you have created with your new product for the farmer, could you realistically capture for yourself? That is the real question here!

PS Apologies to the NRT speaker – I promise to pay attention and listen next time!

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