Product Pricing Strategies & Intellectual Property

For any business, a new product or new product enhancement is an opportunity to seek higher profit margins than previously realized. If the new product (or enhancement) is the subject of some form of intellectual property, then the pricing model significantly changes for several reasons.

First, if the new product has been captured by a pending patent application, then the product's advertising and/or promotional material(s) will carry the omninous notice: patent pending. While few consumers have a true understanding of what "patent pending" represents, the consumer generally believes that the new product is legally protected against other competition, and the perceived value of the product rises based on this internal reference price. If the advertising or promotion incorporates reference to "patent pending" or even "new and improved" along with quality comparisons to related products, these touchstones can drive-up the external reference price. In combination, these two reference price items can lead to significant price increases based solely on internal and external forces.

The logic (if not flawed) is rooted in the perception that a company would not have invested the research funds necessary to get to a patent-filing stage unless there was merit in the novelty of the invention and a high prospect of patent issuance in the foreseeable future. Not to mention the perception of a sizeable number of people that "patent pending" actually confers the legal right to enjoin another from making, using, or selling something similar. Of course, companies fund badly conceived or poorly thought-out designs more than some may care to admit, regardless of how the patent application is resolved.

Related is the ability to raise prices to suggest or indicate that the product is of a higher quality or part of a cultural movement regarding status. Based on the perceived exclusivity of the patent-filing, premium pricing models certainly come into frame and increase the price-point above previous thresholds.

Intellectual property also aids in captive pricing techniques, especially if the expendable(s) or peripheral(s) sold separately from the base are the subject of the intellectual property. One particularly effective means of moving product and capturing a healthy profit is the use of captive pricing to lower the sale point of the base (slightly) and then mark-up the peripheral(s) to not only exceed the "loss" on the base's reduced price-point but to confer an above-the-competition price-point.

So, intellectual property (esp. patents and/or trade secrets) is an important component in determining the consumer's anticipated response to the marketing that reflects an "exclusivity" in the offering of the item. However, caution and care must be taken not to get carried away and over-price the item well-beyond the means to move the product at such prices.