Share

More than one blog post is required to talk about product design. There are books, blogs, courses, seminars and more all devoted to this one thing and its categories. You hear “user experience” (UX), “industrial design” and other buzzwords floating around that all point back to the same thing. Product design.

Product Design

Faithful followers will have noticed in the new About Us page a short section that describes our design process. It really breaks down into four parts:

  1. Concept
  2. Model
  3. Perfect
  4. Create

I think today I’ll reverse things, a la the 4 Hour Chef, by starting with the endgame first. The hidden #5. I like to call it the “Pricing Model”. Not in the list, but always on my mind, the pricing model guides consumer based product design like a rudder on a ship. A steering wheel for a car. A sheepdog and its flock. You get the picture. This model guides my product design path as much as aesthetics and comfort.

Consumer Based Product Design

Maybe I’m way off  base, but my goal is to sell to the 50th percentile. I don’t care too often to make custom pieces for people and I enjoy the manufacturing mindset needed for small scale mass production. High quality meets low cost. People want beautiful furniture for reasonable prices. Reasonable has what I’d like to call a gut-check factor. In consumer based product design, I’d like to imagine every DIY person out there do a double take as they calculate if they could build what I’m offering for roughly the same retail price. This is exactly how I got started building furniture, by the way. I wasn’t willing to pay lots of money for import ‘designer’ junk made with poor materials and working conditions.

What is it?

For every item I want to build I do some background research first. I find, at random, ten prices from four different retailers. My retail list includes a high-end outlet, a very inexpensive import retailer, my big and well known ‘competitor’ and an average online furniture retailer.

This research gives me 40 prices that I then assign a weight to. This weight is a lot like the 80/20 rule. You can also use some market share metrics if you have them. I just guessed. For instance, I assume that by volume, about 50% of people look to Ikea for furniture first. Regardless if they buy it there, that is the price point they have in their heads from which they compare other retailers.

I assume that only 0.5% of people are buying the really high end stuff. The $4,000 chairs and similarly priced tables and rugs. I work through my other retailers and assign a weight to each.

Let’s work out an example for a lounge chair.

All Retailers Average  $ 1,063.37
Weighted Average  $    363.33
 $    159.00
Retailer X Average  $    236.88  $    499.00
Mkt. Weight 5  $    349.00
Delta  $  (126.45)  $    109.00
Percent Delta -53%  $    399.00
 $       50.00
 $    150.00
 $    180.00

An Example

The table above shows a small snapshot of the pricing model. The first row’s Average is the average value of all 40 chair prices without a weight assigned. I did consider chairs that were similar in style and material for this model. The weighted average is essentially an average of averages. This can be a dangerous thing to calculate and should not be used incorrectly. The math for the weighted average of a single product looks something like this:

((Retailer X Average Product Price) * (Retailer X Market Weight) + (Retailer Y Average Product Price) * (Retailer Y Market Weight)) ÷ (Sum of Market Weights)

That calculation gives us a target price, or what I consider the price point that consumers in my target demographic will pay for a lounge chair. In this example, that figure is $363.33. The rest of the numbers in the right-most column are just the prices for each of Retailer X’s lounge chairs.

This retailer was assigned a market weight of 5, meaning that for every 10 lounge chairs of the 40 available in the study, 5 will be sold by Retailer X at an average price of $236.88. The ‘delta’ row is the difference in our target price (not shown but you can calculate it) for a lounge chair of our creation and the weighted average. We can also easily see that we are 53% overpriced from our weighted average. This isn’t a great pricing strategy, but it’s something to go by.

This model guides my product design path as much as aesthetics and comfort.

Caveat

The pricing model isn’t the be-all-end-all for your product design and pricing needs. I made it up myself and don’t always follow it to a fault. A target price is only as accurate as your market weights and how much people are willing to pay for your designs. That leads me to my next one, something I’ll discuss in another post how I use the pricing model and a parts list to guide final product design decisions. My goal is to make choices that don’t price me out of the market. Changing materials is an easy way to reduce costs but more often than not it’s the manufacturability that will get you. Good luck pricing your products and use the end game to guide you as you iterate your designs!

If you liked this and want to read some more, check out Part 2 of the Product Design Series where we talk about creating a Bill of Materials to help determine our Cost of Goods sold and prove feasibility of an idea.

Meanwhile, enjoy this photo of a bygone eras great product design.

product design

Don’t smoke. It will kill you.

Leave a Reply

Your email address will not be published. Required fields are marked *