Companies Building the Next Stage in Healthcare Innovation

In our on-going mission to help the best companies innovate and grow, we are proud to support the Cedars-Sinai Accelerator Powered by Techstars. As part of the accelerator’s mentor community, HelloAdvisr Founder and CEO Ed Lee is excited to share his expertise and experience helping companies grow through smart pricing and monetization strategies.

We are humbled to be involved with this prestigious trifecta of organizations: Techstars, one of the world’s leading accelerators, Cedars-Sinai, one of America’s most innovative healthcare providers, and the impressive cohort of healthcare tech entrepreneurs and companies!

Cedars-Sinai Accelerator Welcome Board

 

Learn more about the companies of cohort 3 here.

 

About Cedars-Sinai Accelerator Powered by Techstars

The Cedars-Sinai Accelerator Powered by Techstars is a collaboration to help today’s technology innovators turn their ideas into breakthroughs that can improve the lives of patients around the world.

To learn more about the program and companies read more here.

The Unlikely Pricing Leader: Lessons from an Industry Innovator

Building a successful restaurant is hard.

The hours are grueling. New menus and dishes have to be created. Customers taste shift constantly and competition is fierce.

With all that effort, the profit margins are small and future upside or exit opportunities are limited.

Within this context, more than a quarter (26%) of new restaurants fail in the first year.

Despite the uphill climb, entrepreneurs, chefs, and food lovers continue opening new restaurants. A true labor of love.

The parallels with the entrepreneurial boom we see today are striking and there are important lessons we can draw from this highly competitive industry.

One restauranteur and business leader who stands out is Danny Meyer, CEO of Union Square Hospitality Group (USHG).

 

Danny Meyer CEO USHG

Photo Credit: Union Square Hospitality Group

 

Meyer has built USHG from an innovative award-winning restaurant to a global restaurant group comprised up of world-class Michelin starred restaurants (Eleven Madison Park) to a publicly-traded burger chain (Shake Shack) now in more than 10 countries around the world.

In Meyer’s 30 years, he’s built a long resume of successes as a disruptor and innovator. But his impact as an industry leader transcends food, but onto how restaurants build viable businesses.

 

Doing the Unthinkable? Making Hard Leadership Choices

In the 1990s, smoking in restaurants and bars was legal in the U.S. When a patron entered a restaurant, they were asked if they wanted to sit in the smoking or non-smoking section.

Anti-tobacco campaigns were building some momentum, but nothing sufficient to codify into law. So it was hard to imagine a world where restaurants didn’t have a smoking section. Except, Meyer’s saw the world differently.

Meyer’s believed smoking happened to someone whether they liked to or not. Even in a non-smoking section, no one could avoid the smoke from the smoking section. So in 1990 – twelve years before it would become law in New York– Meyer decided to do something almost unthinkable at the time at the time, he started banning smoking in his restaurants.

From a commercial perspective, the ban was notable because most in the industry predicted this new policy was the equivalent to commercial suicide.

But Meyer understood his customer.

He understood the option to smoke was a restaurant feature, not the benefit. In pricing, understanding the difference is a core pillar to value pricing. For Meyer, he knew smoking was not why customers went to his restaurants.

 

“[Customers are] not going to quit going to great restaurants just

because they can’t smoke.” – Danny Meyer

 

The result? A small dip at first, but no material impact on his restaurants.

He made a calculated bet his restaurants’ value transcended the ability to smoke and customers were willing to dine and pay (high prices) for the opportunity to enjoy his ‘product’.

There was risk involved in introducing this policy, but Meyer’s made a calculated, and in case, principled risk. His decision took guts at the risk of losing customers (volume). He also had clarity and confidence in his value proposition and the customers he served. Certainly more than the doomsday competitors in the industry.

Fast-forward almost three decades and smoking are now banned in restaurants and bars in 80% of the 60 most populated U.S. cities.

 

Redefining Pricing in Food & Hospitality: “Hospitality Included”

Tipping is an American sport. If you travel to a new city on business, you can easily tip 4 or 5 service providers before you enter your hotel room. For the vast majority of the world, the idea of paying someone more for a job they are required to do is a foreign concept.

The lesser known fact about tipping is the dependence the hospitality industry has on this supplemental income. Apart from food costs, wages comprises one of the largest costs for a restaurant. Yet as minimum wages continue to increases across the U.S., the squeeze on margins continues.

Tipping also created wages disparity within restaurants. Front-of-house employees (e.g waiters, maître-ds) took a lower alternative minimum wage but made up for the difference in tips. This could be significant as tips are multipliers of the menu price, so in higher priced restaurants, front-of-house can make substantially more than their salaried back-of-house (e.g. line cooks) peers.

This posed a few problems for restaurants including the challenge of hiring and retaining quality cooks. This also reduced the supply of cooks in high-cost metros like New York City as the salaried wages could be insufficient.

In 2015, Meyer aimed to change the economics by introducing a new program call “Hospitality Included”, which eliminated tipping from all USHG restaurants.

Hospitality Included was designed to eliminate the wage disparity within the restaurant, increase cook retention and ‘future-proof’ USHG from future minimum wage increases.

The burden of Hospitality Included would fall on customers through higher menu prices. In an already expensive food market like New York, this could mean average price increases of 20% or more.

 

“… if [customers are] willing to pay higher prices, it’s going to make it

easier for everyone else.” – Tom Colicchio, Chef,  restaurateur and TV personality

 

Introducing Hospitality Included is a tough decision, but strategic. Meyer was attempting to undo the industry compensation model and recondition customer price knowledge and perceptions.

Meyer understood, not all restaurants and owners had the stomach for the price increases and changes to the wage structure but knew he could get ahead of his competition.

A restaurant’s cost structure, in its present state, is unsustainable. By reworking the pricing and business model he positioned USHG to invest in people (recruiting and retention) and the commercial growth. Through this program, he also shapes customer menu price perceptions and the user experience of dining – from how bills/checks to service expectations.

Meyer demonstrates why leadership is critical to pricing and pricing success, but the tremendous impact it can have on driving growth by redefining customer perceptions and experiences.

 

Final thoughts

While Meyer and USHG are best known for the innovative food and high-quality dining experiences, his experience as a business leader is invaluable case studies for entrepreneurs.

He demonstrates the importance of leadership in building successful companies. This is not only understanding what needs to be done but making the difficult decisions to defend the value you create and want to expand on.

In an industry driven by volume and ‘me-too’ pricing, Meyer isn’t a follower. He’s been bold with his pricing strategy and understands the value pricing has on growing his company.

 

Source: National Restaurant Association

 

He values the powering of pricing to change behavior, influence perception and make a positive commercial impact. A critical lesson entrepreneurs and seasoned business leaders can learn from.

 

 

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com 

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

When is the Right Time to Work on Pricing?

Maximizing time is engrained in the DNA of business leaders and entrepreneurs. Time is one of their most precious resources. So it’s not surprising entrepreneurs and business leaders look to improve how they use their time and results achieved.

When it comes to pricing, finding the ‘right’ time to get started is one of the most common questions asked. No one wants to waste time on low-impact activities.

So when is the right time to work on pricing? The answer is now.

Surprising? Shouldn’t be. Pricing is a material opportunity to help your company grow and thrive. It impacts growth from revenue and profits to customer acquisition and retention.

There are many reasons why pricing is deprioritized or tabled. Not enough time. Not enough resources. Don’t know where to start. The list goes on.

If you have this list consider this fact: the best companies are awesome at pricing. Disruptors from Amazon, Apple and Netflix to more traditional companies like Wal-Mart, Starbucks and GE are dedicated to pricing. These companies made the conscious decision to be great at pricing.

 

“The best time to start working on your pricing is now.”

 

If you’re not working on pricing (or have the urgency), there’s a good chance a few of the following are happening at your company right now:

  • No one really knows how to build your prices. Worse it’s a guess.
  • Competitors effectively set your prices when you ‘borrow’ their prices.
  • Your prices don’t reflect the value you believe your product delivers.
  • Your customer insight doesn’t translate to building your prices.
  • If a competitor introduces or changes prices, your team doesn’t have a plan of action.
  • You’re leaving money (and revenue growth) on the table.
  • If you’re not building pricing capabilities, you’re forfeiting a powerful growth tool.

Nothing on this list is great. Definitely not for a company looking to grow and build a world-class company. This doesn’t mean you can’t start on high-impact pricing work now. Let me offer some thoughts on how to make your pricing plan more productive.

 

Be Realistic: Set the Right Expectations

Pricing is hard and takes work; anything worth doing is. So if you’re asking the question of when to start, it probably means you and your company hasn’t worked on it for a while (if at all). That’s ok.

Instead of thinking of when to work on pricing in black or white terms – now vs. later – it is more helpful to think of in degrees and iterations. Like training at the gym, pricing is done in whole or in targeted sections. The key to results is a clear goal or objective, structured plan, and consistency in each activity. Your pricing plan should be no different.

Chances are your company doesn’t have the bandwidth to start a large price management project. Most Fortune 500 companies don’t either so you’re in good company. What can derail companies new to pricing is an overextended scope. While I love the ambition, sometimes there isn’t enough time, attention or knowledge (yet). Know what your pricing ‘win’ will look like and go after it.

 

Status Check: Identify Where You Are and What You Need

A common way companies approach pricing is assessing whether or not they have a price and does the company believes the price is ‘right’. This only scratches the surface.

An alternative to the simple binary view of pricing is to assess status, requirements and next steps based on the stage of your product or service.

If you’re still developing a product, chances are there is no price. Now is the time to build the building blocks of the price – from the level to the strategy. This requires insights about the customer, your company’s goals and requirements and the market and competition. The process also yields important product development implications. Pricing is a bridge between products and its impact on commercial results and customer experience.

If your product has launched or is ready for an update/refresh, the focus shifts to optimization and iteration. What have we learned about customers, competitors and the market? How will updated or new pricing be received? What pricing tests or trials have been developed?

I speak often about pricing questions and one of the reasons is it changes the mindset for what needs to happen next. The number of steps to a pricing decision is decreased, and for time constrained entrepreneurs and companies, this is critical.

 

Your X-factor: Leadership

Danny Meyer is one of America’s leading restaurateurs and CEO of Union Square Hospitality Group (USHG). Through USHG, Meyer has created an impressive portfolio of restaurants including the world renowned Eleven Madison Park to the global burger chain Shake Shack.

In 2015, Meyer introduced a new program call “Hospitality Included”, which eliminated tipping from all USHG restaurants. The program was designed to eliminate wage disparity found in restaurants between non-tipped back-of-house (cooks) and tipped front-of-house (e.g. waiters).

The greatest burden of Hospitality Included would fall on customers through higher menu prices. In an already expensive food market like New York, this could mean price increases of 20% or more.

This is a tough decision, but strategic. Meyer understood, not all restaurants and owners have the “stomach for it’, but he was going to get ahead of his competition. A restaurant’s cost structure is, according to Meyer, unsustainable, but by reworking the pricing and business model he positioned USHG to invest in people (recruiting and retention) and the business (future proofing new minimum wage increases). Through this program, he also shapes customer menu price perceptions and the user experience of dining – from how bills/checks to service expectations.

Meyer exemplifies why leadership is critical to pricing and pricing success. Pricing is hard not just on a technical level, but also operationally. One of the five-cores to what defines pricing is leadership and I talk about this every time I’m invited to give a talk, lead a workshop or teach a class. Pricing leadership takes vision and the stomach to make tough decisions that reflect the value you create and the company you want to run.

 

Final thoughts

While there may be no perfect time to start working on your pricing, there is a wrong time and that’s in the future. Pricing requires vision as well as technical and operational execution. For most, this is evolutionary. As your company grows, pricing only becomes more difficult. Pricing takes work, but the work is worth it for your company’s success, so there is no time to start than now.

 

Photo Credit: Visual Hunt

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com 

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

Pricing Gets Harder with Growth: Lessons from a High Growth Company

Obstacles and growth

As entrepreneurs, one of the most difficult decisions is how to monetize and price your product. Pricing is a ‘moment of truth’ (MOT) decision in the growth of a company. It is as important if not more important as signing-off on a product design, starting production or launching a website.

Pricing is a MOT because it helps define the product and company. This is when customers tell you how much value is between your product and their wallet. Despite the importance, pricing, unfortunately, takes a backseat.

What results is the rise of “good enough” pricing and the start of what we call corrective pricing. Corrective pricing is exactly as it sounds – prices that correct past pricing decisions that delivered undesirable results. This is not additive in building value; this is catch-up.

One of the common causes of corrective pricing is the belief entrepreneurs and companies will invest time and effort to build the “right” prices in the future. Except when they don’t. Not dissimilar with new years resolutions you make with yourself to go to the gym, life has a habit of getting in the way.

The irony for companies is with growth future corrections only become harder, more visible and more costly as time goes by.

 

Case study of Classpass: A lesson in pricing growing pains

Classpass has disrupted the fitness industry over the last decade. Its subscription-based platform offers consumers access to local fitness classes ranging from kickboxing to yoga outside the traditional gym setting.

Founded in 2010, Classpass made two hard pivots early in its history before taking its current form. Currently, it operates in over 30 U.S. cities and international markets, with several more cities planned.

With over 20 million classes booked and built a loyal consumer base, investors have taken noticed. To date, they have invested over $100 million into the promise of Classpass.

By most measures, Classpass represents successful growth and monetization, but look deeper at the pricing history, and a different story emerges.

 

Who’s captaining the ship? Price changes and more price changes

The last decade has seen the rise of the boutique studio such as SoulCycle, Barre and Crossfit and the evolution of the $40 fitness class. For comparison, the average gym membership in Los Angeles can range from $40 to $60 per month.

Classpass took advantage of this trend by offering a $99 per month unlimited plan; a fantastic offer for consumers.

In actuality, the price point proved more financially challenging for Classpass. In 2015 – less than 24 months after introducing the $99 unlimited plan – Classpass increased the unlimited plan to $125/month; a 26% price increase. A large increase by any standard, and clearly required for the company from a revenue sustainability perspective.

Unfortunately, the changes did not end here. Over the following 20 months (see chart below) a series of whiplash price changes would see the elimination of the popular unlimited plan, introduction of tiered and regional pricing, and aggressive promotions (in part to win back customers).

 

 

Hard (but avoidable) growing pains

One of the results of the series of prices changes is the lost of customers and goodwill. Classpass lost an estimated 10% of customers.

The management organization also took a hit most notably the replacement of the founder and CEO.

One of the core functions of pricing is to keep the company’s light on, and as responsible entrepreneurs and business leaders, that is what Classpass did. The margins relative to their cash on hand were originally misaligned and unsustainable at existing prices.

While things appear to be looking up for Classpass there are several takeaways all entrepreneurs can learn.

 

Growth = Complexity

Growth inevitably leads to greater complexity and layers to an organization and its operations. Anticipating and managing increased complexity is core function of an entrepreneur; especially the head of a growing company.

Know what you don’t know and how this gap will impact pricing and growth. This is the opportunity to build your pricing foundation with simple processes. This will ease the burden of managing price through growth.

 

Proactive pricing: Helping overcome revenue challenges

While pricing is not the most common term in the startup or entrepreneurial vernacular (on Medium, less 1,000 readers follow the tag ‘pricing’), pricing is a key growth driver that all entrepreneurs can influence.

Learning by doing is part of every entrepreneur’s DNA, but so is operating as effectively as possible. The idea you can go back and fix things later should be accepted as a relative concept. Ask the founders of Warby Parker, the eyewear makers with a billion-dollar valuation, how important it was to put in the work and get expert advice on pricing right from the start.

Like other efficiency hacks aiming for results with the least amount of cost/pain, why would any entrepreneur treat pricing differently?

 

Pricing drives growth: From startup to company

While the focus of revenue growth by many investors and venture capitalists is on influencing the volume-side of the equation, insufficient attention on price can have costly results.

Having a stronger grasp of the value proposition, customer insight and anticipation of pricing needs can have a huge impact on the health and trajectory of the company.

 

Final thoughts: Happily ever after?

While Classpass continues to write its story, what is clear is the role pricing played in its story of growth, customer brand building, and product development. Through the trials and shake-ups, Classpass has been able to raise another $70 million in investor funding.

Unfortunately, not all companies have this outcome. Pricing pain is preventable if proactive and treatable if you’re lucky. While hindsight is 20/20, ignoring the lessons of history is not advised. Some takeaways from Classpass’ journey:

  • Proving financial viability: Had Classpass not made the painful, but necessary price changes, the financial credibility needed to appeal to investors would be in doubt.
  • Building core skills: Through this experience, the several pricing lessons will help the company in the future. While most visible is the CEO change, the turbulent 24 months was an opportunity to assess internal pricing leadership and make required adjustments.
  • Managing future pricing complexity: While top-line prices may remain stable, other pricing tools (e.g. promotions) need active management. Especially with the large churn of customers, Classpass is actively using promotions to win new as well as lost customers. As anyone with a gym membership knows, promotions to win customers changes the value and perception of the product and potentially creating a promotional cycle needed to support subscriber volume.

 

        

 

As a founder of a LA-based SaaS startup recently shared with me, the work she’s putting into pricing is to find out what she doesn’t know. The initial aim is not to perfect her prices, but to avoid obvious mistakes and build the necessary process forward. A great mindset to take as she drives her fast-growing company forward.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com 

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

Do Competitors Know More About Your Customers than You?

Man with binoculars

When I meet with a new company, I start by asking the same two questions: What does your company make? What makes it different?

It takes a nano-second for the eyes of the entrepreneur or executive to light up in excitement. They talk about the product idea and inspiration. Walk through the cool features and functions their teams developed (or in-development). Then comes the big finish, the x-factor – why no one else is doing it and why this will disrupt the market. The enthusiasm is infectious. When presented right, you feel like they discovered fire.

Then I start asking the “money questions” – How much are you charging? Why will customers buy and use your product? Who are your customers? The response often comes in a little slower and less assured.

It is here when the customer insight gap appear. The insights collected are insufficient to make pricing and go-to-market decisions. To compensate, competitor data plays an out-sized role to make these critical decisions. This begs the question, do competitors know more about your customers than you?

Competition is important, but…

Competition is absolutely important and should not be underestimated. Where it becomes counterintuitive is when a company believes (a) the product is market defining; (b) the product is better than competition; and (c) customers will get immense value in using the product.

If either is true, then why are competitors playing such a prominent role in pricing decisions influencing your customers?

This is not how market leaders and makers approach pricing.

Apple recently announced HomePod, their new speaker and smart assistant hub. HomePod is a direct competitor to market leader Amazon’s Echo and challenger Google’s Home.

The price for Apple’s latest hardware? $349. That’s 90% more expensive than the Echo ($180) and 170% more expensive than the Home ($129).

Apple has historically positioned its products as upscale and premium. To justify HomePod’s positioning, Apple spoke to the customer. More specifically their target customer segments. The HomePod is designed for the music lover. It’s for customers who appreciate a premium listening experience and technological innovation. It’s for customers who love to have a piece of luxury design occupy a visible space in the home.

This isn’t branding, this is customer insight in action. Apple knows the customer they want to win and is going straight for them. They do not allow competitors to dictate their prices. Instead, Apple uses price as a differentiator.

Why some companies let competitors influence the value of their innovation

I understand not every company is Apple (yet). But all companies have three key tools to help win the market: product, price and marketing communication.

Conceding price from the beginning is a risky strategy. Often price concessions dilute product differentiation and growth opportunities. It is a growth strategy many companies have trouble pivoting from. So why do companies lean on competitors to determine their prices? Here are three factors I’ve seen drive this risky strategy.

Built-in market validation (with a pinch of fear)

It’s hard enough convincing your family and friends your product is a winner and worth paying for. Harder still with total strangers. When competitors are already in the market doing even half of what you’re doing, then there is access to pricing validation. If the price started from gut feel, even better there’s “data”.

Is this “right” for the company? Most likely not. The trade-off for the perceived ease and validation of competitor pricing is avoiding the necessary customer insight work needed by growth companies. It’s accepted as ‘good enough’ to move on.

Bridging the gap of incomplete and imperfect information is the value of comparables. It is a common tool used by investors to determine company valuations. Unfortunately, the risk that often bears out is the comparable is too superficial and not accounting material differences that influence outcomes.

Companies using competitor pricing as the market price run similar risks. The most obvious are creating perceptions the product is comparable thereby diluting the innovation and inherent value. The larger risk is missing the preferences and behaviors unique to your customers.

There is also the understandable fear of ‘going it alone’. For entrepreneurs, most moments of their company’s existence is a risk. I can empathize the risk aversion. Unfortunately, that doesn’t mean the right customer insight shouldn’t be collected and used.

Not asking pricing focused questions when gathering customer insight

Too often the customer insight is insufficient. What this means is relevant pricing questions are not asked. This is dangerous. These questions are critical for three reasons.

  1. First, these questions help inform the baseline perception about your product. Asking the right questions inform gaps to address via product, marketing or sales. It’s a lot easier influencing customer behavior when you know what they think about your product.
  2. Second, the right questions inform the relative value of your product. This can include competitor alternatives, specific features, and use cases. What is important is gauging influences on customer behavior and decision-making.
  3. Finally, this process builds into the company’s research DNA commercially-minded questions. It’s a different way of communicating with customers and sometimes a harder one. The goal is not to collect opinion, but understand the behavior of your customers.

This lack of insight decreases confidence to make a decision. Too often the insight is at a population and not target cohorts. What results is some blended pricing using competitor prices and costs.

Belief prices can change in the future

Like other parts of the business, some entrepreneurs believe that prices can be updated in the future so accept prices that ‘work’ now. As some prominent entrepreneurs suggest, get it out to the market and hear what the market tells you.

Unfortunately, pricing is one of those things that is less forgiving. Even when customers are willing to give a second chance, there is often no basis to believe the company is capable of the necessary correction.

One recent example is the highly competitive food delivery space where companies such as Sprig and Munchery competed for the dining table. There is an increasing downward pressure on what e-food companies prices led by increased dependence on promotions and discounting to win customers. This leads to a danger cycle which becomes very expensive and difficult to sustain.

Technology and operational fine-tuning provide opportunities to scale. As a ceiling is reached (read: cost savings), the unit economics makes even less sense as the customer’s willingness to pay was far lower than most of these companies could afford to offer. In the case of Munchery which was losing up to $5 million in a single month and recently closed Sprig was losing up to $350k per month.

When pricing receives too little attention too late in a company’s go-to-market, corrections are difficult. In addition to a misread of customer’s willingness to pay, these food companies were conditioning price perception with each new deal or promotion.

Hindsight is 20:20, but one has to wonder how much revenue and profit growth could have been achieved with a pricing strategy built on customer insight and value.

Get the insight you need

Entrepreneurs and companies can be proactive in gathering customers insight and take greater control of their pricing destiny.

While time is a key ingredient to customer research, some quick wins are achievable. Here are 5 things that can be done today.

1. Set goals: Know what you don’t know and fill in the blanks

Before asking a single question, define what insight is needed to push the product and company forward. The questions you develop based on these goals will give more impactful insights

2. Define early customer segments, refine and repeat

Sounds obvious right? Surprisingly many companies struggle defining who their customers are. Companies need to get specific or at least who they want their customers to be.

This is iterative so don’t expect the perfect customer profile the first go around. The goal is to peel away layers to get to the heart of what makes one customer group unique from another.

3. Build behavior questions, not opinion questions

A pricing truism I often share with clients and in talks: pricing is always important. It’s more valuable to determine what other factors are important and the relative value of those factors versus price.

Like an anthropologist, you are looking for behavioral cues. Focusing on behavior questions shed light on what customers value, how decisions are made and the inputs needed to form that decision.

4. Use every customer interaction as an insight opportunity

When entrepreneurs and companies hear ‘research’ they often imagine long projects resulting in a bulky report collecting dust. Customer research shouldn’t be avoided but practiced by the entire company.

Gathering responses from even a small cohort of customers can be powerful. These interactions shed light on what is valued, friction points in adoption and refine the proposition. Don’t miss these opportunities customers give you.

5. Link insights to go-to-market actionable activities

Insight gathering may seem like an end in itself. It’s not. You’re collecting insight so that it’s actionable. That means the things you learn from and about customers should serve how prices are set and communicated.

Insights should inform how marketing and sales campaigns are designed and measured. If you’re collecting customer insight that is not actionable, then stop. The goal is to reduce the number of steps to get from question to action.

Final thoughts

Going out and learning what you don’t know about customers can be scary and intimidating. Not doing so is riskier. Don’t dilute the value of your product even before you give yourself a chance to learn about your customers.

If you have a product (or building one) that is better for customers, then embrace the difference by not giving it away. Find what makes your customers unique and what drives them.

Don’t concede your pricing power without knowing what that pricing power is. If you accept competitor prices are right for your product, then eventually your customers will too. This is a losing and unsustainable position to be in.

If you bet on a ‘change it later’ strategy and not get the insights you need, you’re effectively mortgaging your pricing power. Don’t give up before seizing the opportunity to learn and win customers, which will pay dividends in the short- and long-term.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

Is “Good Enough” Pricing, Really Good Enough?

We’ve all been there. Our eyes crack open, look over at the phone or alarm clock and the panic sets in. We’re late.

Slow at first, but you go through a mental checklist to make sense of the situation and a plan forward. You know the drill:

  1. Why didn’t the alarm wake you?
  2. How much time do you have to get to work/school/appointment?
  3. What do you need to do first? Shower? Get dressed? All at the same time?
  4. Enough time to eat breakfast?
  5. …

So what ends up happening? A little of bit of everything and just enough to be where you need to be.

For many companies and entrepreneurs, this perpetual sense of everything due yesterday isn’t new. In the rush and mountain of things to do, so “good enough” often has to do. Pricing usually falls in this category and it shouldn’t.

Pricing is one of those things where having something only ‘good enough’ today, can bite you in the ass tomorrow. Iterating on your pricing strategy isn’t as customer-friendly as iterating on an MVP product, which is why it literally pays to establish a price strategy early.

Below, I’ll walk you through three common pricing approaches and their pitfalls.  Then, I’ll get into the pricing best practices I recommend for start-ups and small businesses.

 

‘Good enough’ pricing approaches

I’m a big Jon Favreau fan (pre- and post-Iron Man) and love food, so when he made the film “Chef” it was perfect match. There is one scene (spoiler alert) where Favreau’s character, Chef Carl Casper, needed to prepare a menu for an important critic. The restaurant owner pushed for dishes with ‘proven’ success. Chef Casper knows this isn’t the best, and itching instead to innovate. Long story short, Chef Casper chooses the ‘proven’ menu and the critic goes on to pan the meal (product) and the restaurant (company).

Good enough pricing is often the search for what’s worked in the face of uncertainty. Good enough pricing is designed to not to lose a deal/customer. The mindset is not proactive (how do win a deal), but defensive (how do we not lose a deal). A subtle but powerful distinction.

The feels right

This is the pricing and monetization model that feels right. It makes sense and there is some data that helps justify the pricing. The model may feel right because it’s a pricing method used in another industry or competitor, or a false-positive validation by the lack of push back from customers.

The follower

You don’t want to rock the boat and get too far ahead (or behind) of the market so you price at or near competitor pricing. The follower assumes the prices used are correct and represents some of the product’s value.

The finger in the wind

No kidding. Some entrepreneurs and companies guess. Sometimes the price covers costs. Sometimes the price makes a profit. The aim is to close/convert the customer. So it’s about finding a price that will get there and as fast as possible.

All three buckets get the job done of getting to a price and winning some new customers. Except there are pitfalls…

 

Pitfalls of “good enough” pricing

Changing prices is hard

In the short-term, good enough pricing can undersell the value created by your product or service. It’s not unusual to hear entrepreneurs say their prices are probably too low, and many more finding it difficult to prove to customers that an increase is justified (especially absent any product improvements).

Moreover, if you raise your prices, customers have a (lower) anchor price to compare against and shape the value perception. When no clear upsell pathway exist, then customer sees the price change for what it is: a price increase.

Culture of bad pricing practices

The tradeoff for the speed and ease of good enough pricing is the lack of planning and processes necessary to price better. Why does this matter?  If pricing discipline is not prioritized, you almost guarantee that you will hurt potential revenue growth. You shoot yourself in the foot just as you’re starting out of the gate.

Difficult managing complexity

The damage caused by bad practices can be relatively contained in closed environments that operate within limited set of conditions. Adding new dimensions such as geography or industry creates complexity that demands a robust pricing strategy. At best, revenue growth is lost when pricing isn’t adapted to the complexity. At worst, new revenue streams are lost because the new product’s price is ill-suited for prospective customers.

 

Doing better than the ‘good enough’ price

Even taking small steps away from good enough into the ‘better’ pricing territory positions the company for future evolution and innovation.

Differentiate features from value offered 

This sounds obvious, but it is not uncommon for entrepreneurs to believe product features are interchangeable with value. This is a painful mistake that goes something like this.

Company: Our product offers features A, B and C that saves costs by consolidating systems and processes. Is this offer value to you?
Prospective customer: Absolutely! We needed something like this for years. How much?
Company: Our solution is $[price].
Prospective customer: Um, ok. The price is steep. What’s the price for just B? Can you take the rest out of the solution?
Company: ….

The exchange above is simplified, but is an illustration on how willingness to pay can differ to the value a company believes it is offering. Not only is it dangerous to confuse each feature as equally valuable, but it is vital to not give away value on those features customers will pay for.

Create pricing defenses

For entrepreneurs using “good enough” pricing, pricing defense begins when you realize you have no defense. Basically your army has been sent out with sticks and rocks, when competitors are coming by land, air and sea.  To avoid this, the following steps are critical in a company’s early days:

Identify what you absolutely need to defend, and be prepared to defend these vigorously.  You’re not just defending a product in entirety, but you’re defending the value customers find in your product. If you don’t know what you need to defend, you’ll be effectively defending against everything which is not effective or sustainable.

Build pricing fences to avoid self-inflicted wounds. It’s hard enough fending off competitors, but you don’t want to value to leak within your customer base. Pricing fences helps to differentiate products and features, while distinguishing offers for specific customer segments. For example, movie theaters offers discounted pricing for either value seekers or customers unable to go to see movies during more popular times. In this instance, time is used to fence these prices.

Identify your best customers, and fight for them. Not all customers are the same and you shouldn’t approach them as such. Some customers will have more lifetime value and others present better future opportunities. Define what you need to achieve, then identify those customers that will contribute most to that aim and build pricing that caters to these customers.

Integrate pricing to the product roadmap

In the short-term, most companies will not be able to release new products or features fast enough to confront challengers. Longer-term it is vital that the product roadmap and pricing work hand-in-hand early in the lifecycle. There are few reasons why it’s important pricing works alongside product development.

First, as the product grows increasingly complex or the product portfolio expands, how each are priced and monetized also becomes complex. Not creating a clear pathway early-on can cause customer confusion, lost revenue and over/under-selling of the product. This last point is important, because if the company doesn’t know if there is willingness-to-pay, a lot of time and money can be spent on something that had no monetizable value.

One example is when a new edition of a hardware product is developed. The new features are clear, but as many customers ask, how much better is the new version. Relative to that value, how will you price the new product versus the legacy. Going further, questions of inventory, discounts and promotions on the older model will need to be determined. Again all pricing questions.

Second, integrating pricing into product roadmap offers a valuable input into the products and features to be developed. This is when senior leaders and product managers can begin answering whether what is being developed is a nice-to-have versus value-adding. Especially when resources are scarce, pricing can help to prioritize development.   

Lastly, working alongside the product roadmap gives a temporary process to test pricing hypotheses to create inputs to make a pricing decision. When pricing is part of the development process then ‘pricing questions’ can be asked to vet the revenue potential and pitfalls. The result can very well be not to monetize but the product is of such value it must be developed. Having this process can make that decision rather lose time on the backend or attempt to monetize and then having to retreat from the decision.

Like a retailer who projects how a new product will fit into its range – pricing, customer-fit, etc. – entrepreneurs need to plan how new product development and pricing will fit into the overall architecture. Starting early in the product roadmap is vital.

 

Final thoughts

Good enough pricing, isn’t good enough. Too often we are victims of being rushed.   It doesn’t have to be this way. There are steps to take to upgrade good enough pricing and a few have been shared here. Entrepreneurs and companies looking for long-term success need to build their pricing roadmap. Just as in product development, processes and planning must be developed that are sustainable and adaptable to achieve the company’s growth ambitions.

 

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

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Why Better Pricing Builds Company Value

It was one of the most intense project I’ve been a part of. The project was challenging from all angles – from subject-matter to project logistics – but it would turn out to be one of the most valuable experiences to help me understand pricing from a company valuation prospective. Let me explain.

Our client was considering making a bid on a leading marketplace company. My team was brought on to offer strategic guidance on the pricing and revenue opportunity of the acquisition company. Put it another way, we wanted to know if there was reason to believe the company’s growth forecasts. (*If you’re a startup founder or an entrepreneur who has ever looked for or is currently looking for funding, the exercise of supporting your value and growth forecast should sound familiar.)

The core questions was clear. What we were after was more than an exercise about whether the numbers added up, but a deeper look at how pricing and the capabilities required to effectively price was in place to support growth. This meant challenging the existing price structure and levels for gaps, but also critically assessing:

  • Market and customer positioning
  • Competitive strength
  • Company’s processes and structure to execute

I talk to entrepreneurs and companies all the time about the importance of pricing to growth and commercial operations, but this project put into context how better pricing can enhance (or harm) a company’s value. Why? Because I saw pricing not only as a revenue and profit driver, but is also how pricing is used as a tool to position the company in the market, influence customer perception and operationally touches all parts of the company.

If you are looking for ways to start enhancing your company’s value with better pricing, here are some lessons I’ve acquired working with leading companies and startups to get you started.

 

Foundation: Understands pricing is about creating shared value, not just setting a price

You and your company spend enormous time and energy creating a product that will excite and enhance the lives of people who use it. The challenge most companies face is in extracting that value through pricing. Companies that look to create shared value between the customer (the benefits most valued in your product) and your company (extracting value by creating pricing structures and levels that align with customer benefits) do the most to enhance the company’s value.

Too many companies and leaders fail to see that pricing evolves and iterates from the moment a product idea is conceived. There is definitely science behind pricing. There is also an art that must be managed. Customer preferences and requirements evolve and the product iterates. Pricing should at least keep pace, and even better to get out in front before changes occur. Loss of monetary value can and should be avoided, but requires an early recognition of the role of price to the growth story.

 [No. 1 cause of startups struggling] “they don’t charge enough for their product”
– Marc Andreessen, Co-founder of Andreessen Horowitz

A company’s ability to iterate and innovate pricing is a powerful way to assess how company extracts value and creates willingness to pay for the benefits created for customers.  Moving from a foundation of simply setting a price to pricing holistically – from product to customer to financial – brings tremendous value not only in the immediate future, but also long-term.

 

Operations: Pricing shows how the company is organized and executes

Companies today understand that silos between teams and functions can harm team culture and the ability to successfully execute. Unfortunately, the pricing function too often sits tucked away in a gray area, like an organizational orphan.

What makes pricing unique is that it touches all parts of the business from finance to marketing, sales to customer service, so it’s vital that the feedback loop between groups is regular, connected and integrated for future pricing decisions.

This also means having the right individuals and teams in place to champion the pricing processes. They go beyond surface level insights (e.g. price is high/low) and asking the questions that assess the value of your product and assign prices. The organization and process is designed to increase confidence in the pricing decisions made, not add bureaucracy.

“If you have to do a prayer before you raise the price 10%, then you’ve got a terrible business”
– Warren Buffet, Chairman Berkshire Hathaway

When there is disconnect – where teams are excluded or processes not seamless – is often when challenges arise and impacts revenue and growth. This ultimately harms the value of the company not only in opportunity cost caused by delays or partial rollouts, but raised concerns of future ability to successfully implement.

 

Leadership: Pricing shows how company leaders make decisions and executes

“The best business? It’s one where you can look in the mirror and say, ‘Today, I’m
going to raise prices.’ And you can do it.”

– Warren Buffet, Chairman Berkshire Hathaway

I love this quote for many reasons, but what always made this so instructive is the insight that pricing is not just about setting the level, but the leadership to achieve the prices required to help a company thrive. Pricing is a leadership question and Buffet challenges leaders to understand the value created and the confidence to extract that value.

As simple as that may sound, many leaders balk at executing a new price or changing existing prices. I’ve seen it many times irrespective of the company’s industry, size or geography. There is a natural fear that leaders feel they (1) don’t have enough analysis to make a decision, (2) don’t believe the analysis they have to make a decision or (3) even with evidence, an aversion to risk rocking the boat.

This is not to suggest non-action is necessarily bad action, but to highlight the large responsibility of company leaders on how well pricing is executed. The pricing can be high or low, tiered or dynamic, but figuring that out and taking it to market impacts the company’s on-going value creation. Eventually leaders have to figure out pricing and value extraction, and failure to get a handle on pricing and its execution can end in more challenging transitions.

 

Final thoughts

I can imagine what many entrepreneurs and startups must be thinking, “this may apply to a $1bn company, but is it really relevant for my early-stage start-up?”.

My response? Is it absolutely relevant.

Pricing and monetization is a core component and competence of any company; and a core driver of the company’s value. What many companies are learning now is that pricing is not a bolt-on of something to do in the later life of a company or after a product has a ‘steady’ following, but a core test of early product-market-fit and assessment and refinement of the value the company can create.

This is hard, but the implications are so widespread and important. These pricing decisions (or lack of) can influence product perception and value, customer retention, the financials to sustain the company or the current runway and so on and so forth. Successfully innovating and building better pricing positions your company to confidently build the value created and future prospects for growth.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

How to Prevent Your Growth from Going Flat

You’ve come up with a great idea and built an awesome product or service. You’ve won customers, some who actually pay you in more than fandom and gratitude (read: money). Best of all, you’re getting customers excited in volumes you never expected.

Great job! So what’s next?

Don’t let growth go flat

Building a company is an interplay of both the short- and long-game. While the burst of speed may feels great, it’s vital to keep a critical eye on what is fueling this growth.

9 of 10 startups fail (vs. 6 in 10 restaurants) and it’s not because these companies don’t know how to get out of the gate quickly. According to some VCs, failure is built into to their investment assumptions by expecting approximately 1/3 of companies invested will effectively not create a material return. Put another way, a company’s backer is expecting failure.

Look a bit deeper into the causes of failure, and 3 of the top 5 cited reasons are core go-to-market capabilities: pricing, proper market assessment and research and preparedness for competition. These are all things companies can proactively improve on, but it requires focus and planning.

It’s in these moments entrepreneurs need to scrutinize their growth to assess and learn, fill gaps and iterate as quickly as possible. This means asking whether the right type of growth is beng achieved including:

  • Is the growth sustainable?
  • How much of our growth is due to my pricing?
  • Are customers buying into the value proposition?
  • What questions should we be asking customers for our commercial decisions?

Preparing the company strategically and tactically is a critical action companies can take to defend against stale growth and here are two areas company leaders can focus on immediately.

Be relentless about your value proposition  

In an interesting conversation with the chief of staff of a public figure here in LA, we began talking about the productivity tools his team used and the companies behind these tools. He began sharing his experience using a particular SaaS product for their digital marketing and CRM from a fast growing VC-backed startup.

What began as just a simple product overview became a indictment on the product (and company’s) value proposition. He simply didn’t see the value why his office was spending more than 3-times more per month versus comparable products. He did not see the value and was instructing this team to begin transitioning out of the product and cancel their subscription.

At minimum, this startup didn’t sufficiently communicate their value proposition relative to price. Bigger picture this raises the question of when their pricing was last reviewed, sales account management and how this will impact related customers. Now the startup is on the brink of not only losing a customer and the recurring revenue, but also the bad word of mouth review, which is equally bad.

As an entrepreneur, delivering value and benefits must be in the DNA of the product and a critical component to the company’s success. Do your customers understand the proposition to the point they open their wallets and not only pay, but will potentially pay MORE (versus alternatives)?  Can you help show customers the value if it isn’t clear already?

One simple exercise is to start is matching the benefits your company believes it delivers to customers and compare against the benefits customers (paying and not) believe they receive. More often than not there is a mismatch. But this is an important learning to reshape the marketing and sales pitch as well as the offer and pricing presented. It’s vital to understand if you’ve actually sold your value proposition – the ‘why’ you’re better than other products or services – or if what you actually sold is a one-time deal or promotion.

Identify capability gaps to monetization and pricing

I once had a entrepreneur who reach out to me for growth advise for her platform startup. When I asked her how I can help, she said simply ‘I need to know what I don’t know’.

It’s this type of gap analysis many entrepreneurs and startups don’t do especially when it comes to pricing and monetization. This is even more true when things appear to be going well, but I’d argue this is precisely the time to look at current processes, skills and tools.

For startups and SMBs, resources are limited so any given individual or team is often responsible for multiple functions. In the early days, rationing resources is critical, but much like how marketing or sales experience is vital to growth, so are developing skills to monetize and price.

If you’re not yet monetizing…figure it out. This doesn’t mean put a price tag on everything, but it does mean honestly determining whether you’ve created enough shared value where both the company and customers are able to benefit.

It also means identifying where value is created for customers (read: why they love your product) and ultimately assessing whether there is a price they are willing to pay.

There may be a friction point too high to monetize or may be inopportune to attempt to monetize now. That’s ok. The bigger concern for leaders should be not understanding that this fricition existed at all.

But beware, because waiting too long to monetize – if this is the what is ultimately what your company plans to do – can also create future challenges. As customers use your product and understand your company, they build ‘institutional memory’; a level of expectation of what your company will deliver.

Pivoting away from this institutional memory creates new expectations and interpretations of value. So companies need to figure out what process is needed to to execute – marketing, sales, PR/communication, customer service – and what capabilities need to be developed or acquired.

Pricing is one of those activities that requires all corners of the company so leaving this to ‘the person who does pricing’ leaves open risk of delays, incomplete rollouts and worse, unhappy and confused customers.

If you are monetizing… is this where you need to be and is it sustainable? Your customers now have a point of reference of what is the price for the benefits they get from your product. Is this develop and structure of pricing enough for your company strategically? Financially?

Pivoting from what was ‘good enough’ pricing or a monetization strategy sufficient to go-to-market must be thoughtful and planned. Doing otherwise can not only hurt growth, but also upset the crticial trust equity your company has built with customers.

Customers don’t like change if it mean it’ll cost them more and the value-added benefits aren’t clear. Larger companies can (but sometimes barely) weather the ‘pivot storm’, but for startups and SMBs, this can truly be costly.

The best market making companies like Amazon and Starbucks get ahead of the curve and not only build capability, but install it into their culture very early on. Postponing can create an opportunity cost to growth. Even the nimblest of companies move slower when they gain scale with more opinions and stakeholders to every decision.

Your monetization model should always be evolving, but how well it evolves will depend on your company’s ability to develop the required capabilities to execute.

 

Final thoughts

All the effort to get your company and product to where it is now must be applauded, but this is the beginning.

There are no short-cuts to thrilling customers and winning your market.  You will have to constantly strengthen all facets of your business.  What you’re working towards is a strong(er) FUTURE position and focusing on what’s driving your growth is critical to ensuring the growth you’ve achieve doesn’t go flat.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

Thinking About Your Monetization Model? 3 Things Entrepreneurs Should Know

Earlier this year, HelloAdvisr was privileged to be invited to University of Southern California (USC), where our CEO Ed Lee gave a guest lecture to talk about pricing and growth.

The entrepreneurship class on growth hacking was engaging with a lot of good questions from the students, but one question in particular stood out: how does a company identify the right monetization model?

It was a great question (kudos to the class!), because more often than not, the question from entrepreneurs and corporate executives is about what is the right model versus how to create the right model.

The goal is not the model itself, but rather the ability to achieve your growth goals including higher revenue, increased profitability and lower churn.  This requires the right approach to identifying and building the right monetization model for your company.

Here are 3 things you should consider to get started.


#1: Your model is tailored to your company

If you ask three chefs how to cook the best steak, you’re more than likely going to get three different recipes. The same is true for your monetization model.

To continue the food analogy, you can have many of the same ingredients, you have to make the final product that meets your goals and will be receptive by your customers.

A common challenge companies of all sizes face is to find models ‘that worked’. Many things go into the success of any monetization model and often times, more so for startups and earlier stage companies, many of the dependencies for success (e.g. talent, systems) are not there.

Longer-term, the question is how well any current adaptation will work as your company grows and evolves. Some planning in these early stages will help the time and resources required to attempt to adopt or build an entirely new model in the future.


#2: Your model is evolving 

As with pricing, there is a perception that monetization is static; you ‘set it and forget it’. But as any seasoned entrepreneur will tell you, no business looks exactly the same in year 2 as it did in year 1 whether it is the product or the company’s organization.

Like your product or sales process, the monetization model will change. Accept this truth. Then comes the fun stuff, the actual work.

A plan and process needs to be in place to enable your monetization model to evolve as your company and product(s) evolves. This starts with identifying the owners of monetization and pricing. Then will start to move to the processes and management to analyze and implement changes and manage monetization in the future.

These are all key areas that the company’s leaders must steer, leading to tip #3…


#3: Your model is top of mind for the leadership team

For entrepreneurs, there is a seemingly endless list of things to do but monetization and pricing should always be at or near the top. There should be time set aside each month or quarter to review progress and anticipate changes.

The last thing any entrepreneur wants is a missed opportunity, especially growth opportunities. Being proactive with your monetization model is one way to avoid this.

Longer-term, leadership will steer the ambitions of the company from market perception to revenue growth. Anticipating what monetization is required will require a close eye by leadership and can influence other parts of the business including compensation (e.g. sales team) or supply chain (e.g. consumer goods).


Final thoughts

As entrepreneurs look to build companies that are fast-growing, sustainable and (one day) profitable, building the right approach to the monetization model can pay dividends in the long run.

Like all things worth building, an impactful monetization model requires thought, development and execution. This starts from the leadership team, but should be embedded throughout the company. Almost as bad as missing an opportunity is having to recreate the wheel each time pricing and monetization has to be reviewed and updated.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.

3 Pricing Misconceptions Entrepreneurs Need to Avoid

As consumers we’re constantly surrounded by pricing. Pricing when grocery shopping. Promotional signs in the store window. The latest email offer. With all the prices we see, it’s natural to build a comfort level with pricing and the purchase decision process. After all, we’re asked to compare offers, make tradeoffs and assess whether the price is ‘worth it’. Then why do entrepreneurs struggle with pricing?

We attribute this disconnect to misconceptions of how prices are set and managed. What we see time and again, is this perception that pricing from the entrepreneur’s consumer experience can be translated over to the commercial side of their business. The unintended consequence is the product’s value is under-marketed and -sold, and ultimately monetization and growth opportunities are missed.

Here are 3 common pricing misconceptions we come across working with entrepreneurs and companies.

 

Pricing is a benchmarking exercise

This is one of the most common misconceptions of pricing. There is a perception that prices are set and managed by benchmarking; if you know what others are charging then you know what to charge.

The problem is the thinking is counterintuitive. If your company is selling something – a product or service – that is ‘disruptive’ or better than the rest, then why do you allow the competitors you’re ‘better’ than to set how much you monetize?

In a conversation with one startup founder building a consumer service platform who explained they ‘mastered’ pricing because their company was ab/le to automate the benchmarking exercise with his primary competitors. There were three questions raised by this method:

  • Are the benchmarks ‘correct’? It was assumed the competitors he was benchmarking actually had the ‘right’ price compared his service. What he collected was what he believed were ‘market’ prices, but customers were still unfamiliar with the product, so much about the customer, offer and lifetime value is unknown.
  • Are the company goals the same as benchmarks? The goals he was trying to achieve differed from what the other, more established, competitors were aiming to do. He wanted to be premium versus competition and wasn’t interested in capturing a disproportionate segment of the market. This contrasted greatly with his market share-minded competitors.
  • Are the company’s products the same as benchmarks? He listed no fewer than 8 reasons why he believed, and states his customers agree, his service was superior to competition. Why then would he price his service or base his entire monetization model exactly the same as these ‘competitors’?

It would be a shame for so much value created in such a cool product be lost this early on, simply because the founder was going to follow what his competitors.

 

Pricing is just a number

Entrepreneurs often view pricing through their consumer experience and perception. The number paid for a cup of coffee, streaming video service or gym membership. Many companies and brands have been very good at giving a sense of price stability and predictability, so when a price change goes wrong, customers let the company hear it.

The problem, and where the misconception lies, is the belief that the objective of pricing is to solely get to a number and then ‘set it, and forget it’. The reality is pricing is more fluid than most entrepreneurs (and consumers) believe. The very best companies are actively managing prices as the value of the product changes.

One example is how Apple prices older generations of its iPhone or iPad. When they launch a new model, they recognize the value for their older generations are lower (also lowering demand) therefore lowers the price. In addition to older products, Apple is also differentiating newer models from a price perception perspective. They are ensuring the value gap with their newer products is sufficient and understandable for consumers.

What is key is matching consumer value to the prices set. This goes beyond just identifying a static number, but understanding both prospective and current customers on what drives their willingness to pay for your product (or not).

 

Pricing is easy

There is a beautiful imperfection to pricing that’s both rational and irrational. This doesn’t mean its ok to get pricing wrong. It certainly doesn’t mean pricing is easy.

One of the reasons why some companies are world-class, industry-defining or [insert your own description of awesomeness] is because these companies understand, among other things, pricing is not easy, but it’s important and to do it well it comes with work.

To be fair, for growing companies, nothing is easy. So much is learn as you go, including pricing. What is vital is recognize how much more complicated pricing becomes as the company grows. Not just the more technical components of setting prices, but also the execution and maintenance elements:

  • Is the Marketing team clear about how they will communicate the product and changes in price? Benefits and value?
  • Is Sales equipped to have difficult conversations to argue for higher/lower prices when speaking with prospective (and current customers)?
  • Is a consistent message in place if customer service receive inquiries about pricing?
  • Who on the team will monitoring pricing?
  • …

Like all things important to the company, pricing is not easy with many moving parts. The larger the company grows the bigger the challenge. Building not only the infrastructure to set prices, but components needed to monitor and maintain prices is not easy, but essential to win.

 

Final thoughts

Pricing carries with it many misconceptions that start from our lives as consumers. Yet continuing on this path can be harmful to the value entrepreneurs are building each day in their company and product.

Short-term, monetization opportunities can be lost, revenue growth not fully realized and development of necessary management processes are slowed. Longer-term, coming back from pricing mistakes and corrections carries both a financial and growth liability as well as a reputational and brand cost with customers and the market.

Being proactive is key and starts with the business leaders of the company to recognize gaps, and develop not only the technical component, but the processes and culture to actively manage pricing as a key competitive tool.

Interested in learning more?

If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter and LinkedIn.