Our product caters to a niche but high-value market – should we price it higher (as a premium product) because the value is high, or lower to avoid scaring off the limited pool of customers?

Based on our saas pricing book, Price to Scale, here's how you might approach this decision:

Direct Answer
If your product addresses a niche, high-value market, pricing it as a premium product can capture the higher willingness-to-pay of sophisticated, high-value users. However, you should carefully weigh this against the risk of narrowing your customer pool too much.
Key Considerations from our Book

Margin Maximization vs. Market Share:
As discussed in our book (see the discussion around enterprise-focused pricing on page 93), companies targeting smaller, specialized markets often opt for a margin-maximizing strategy. This involves pricing premium to generate higher cash flow despite a limited pool of customers.
Market Segmentation Strategy:
Our book suggests that in such situations, a tiered approach—offering both premium plans for high-value, advanced users and more basic, affordable options—can help prevent scaring off potential customers. The bisection of the market, as explained in the context of advanced versus basic functionalities, allows you to optimize revenue across varying customer segments.

Practical Application

Evaluate whether your product’s unique benefits justify a higher-price point.
Consider offering tiered packages: one targeted at high-value customers willing to pay for advanced features, and another for users who only need essential functions.
Ensure that the premium pricing is clearly linked to enhanced value, thereby maintaining differentiation from lower-cost alternatives.

Summary
For a niche, high-value market, a premium pricing strategy is often appropriate, especially if your target customers seek and can sustain higher value. However, if market size is a significant concern, a tiered pricing approach can balance premium pricing with broader market appeal. Always align your strategy with both your revenue goals and the specific expectations of your customer segments.

This balanced approach is in line with the frameworks and examples discussed in Price to Scale, ensuring your pricing decision both captures the product’s inherent value and manages customer perceptions effectively.