Case Study: New Product Pricing for B2C Wellness Platform

About the Company

Seed-stage consumer mental health company focused on  empowering and supporting the users with live and on-demand meditation sessions and tools delivered by top coaches. 

Client's Quote

It's great to have a professional to guide you through pricing, which seems simple but can be complex.

Stephen S.

The Challenge

  • Company operates in a highly competitive market, and needed a pricing strategy that captured the unique way the platform delivered meditation content and instruction. 
  • Pricing strategy aligned to financial growth forecasts and marketing acquisition straetgy. 

What We Did

  • Worked alongside the leadership team to define core pricing objectives and positioning strategy.
  • Designed and launched in-field pricing research with prospective users.
  • Created strategic recommendations for pricing model based on feature set preferences and willingness-to-pay.
  • Developed promotions, discounting and trial set-up structure.

Outcome

Through the engagement, our client experienced positive outcomes including: 

  • Designed pricing strategy and model aligned to the company’s value proposition and differentiation in the market. 
  • Increased LTV opportunity by more than 15%. 
  • Expanded tools for future price tests and optimizations. 
  • Company has since used the traction to secure new rounds of venture capital investment.

Does our work align with the challenges or needs you currently face? Get in touch with the HelloAdvisr team. 

Doing a Price Change? Guidelines before making the change.

All companies have to adjust their prices at some point. It’s rarely a matter of if, but when. 

With rising inflation, higher sales and marketing costs, changes in consumer demands, and supply chain disruption; there are many drivers for a price change. 

This should not cause anxiety or create fear that delays important changes for your business. Instead with proper assessment and planning, you can navigate price changes that capture opportunities including increase in revenue, bookings and profit, while actively mitigating risk.    

Before reviewing how your company can prepare for a price change, let’s start wit h why your company might consider a price change. 

Why your company should consider a price change

There are many reasons why your company might consider doing a price change. In our experience we see price changes fall into one of three categories: 

  • Proactive value capture
  • Proactive defense
  • Risk mitigation

Let’s explore each in more detail. 

Proactive value capture: Capture locked value 

Your current pricing may be a result of your company’s legacy pricing approach – follow-the-leader pricing, cost-plus pricing, or guessing (it’s ok, many companies still do this). 

Since you initially launched your pricing, you may have created a clearer strategy. A strategy that lays out what your pricing and business model is designed to achieve for your company. You may have also discovered that your customers find more value in your product. In fact they find your product is unique, differentiated and invaluable to their lives or work. 

A price change is an opportunity to align the value you create and deliver to your product and your customers. The potential impact of aligning these factors? Greater revenue, increased bookings and cash flow, and higher profits. 

A proactive approach is intentional and strategic, but has long lasting financial and go-to-market potential. 

Proactive defense 

For some companies, a price change is a defense strategy.  The defensive posturing is driven by several different factors. 

Some companies see an increase in competitors in their industry. While not an immediate threat, making pricing changes now is a proactive move to establish a clearer defensive moat.

For other companies, they may be experiencing softening demand, but a deeply committed and loyal community of customers. For these companies they may opt for a proactive defense to stem potential decline in less loyal customers. 

Adjusting price points, packaging and offers, and updating the value proposition for the company, product and pricing supports a defense strategy.  This not only makes changes in response to shifts in the market and customers, but captures business benefits including increased revenue and profits. 

Immediate threat: Risk mitigation

Some companies face immediate threats to their business that require price changes. These threats can include the fast growth of competition, sudden loss of customers, and increased costs including customer acquisition costs. 

A price change – both up and downward – is one way a company directly addresses threats to the business. One common way is through a price decrease. This was a tactic companies like Tesla used toward the end of 2022 to increase demand and raise pressure on competitors. This helped Tesla to increase units sold by an additional 20,000 vehicles (or 4%) quarter-on-quarter and was a record quarter for the company. For these types of price change, the question then remains for the company as to whether further growth or traction is sustainable without additional price changes. 

Those companies that see threats as an opportunity, view price changes as a way to reposition the company, its product and value proposition. In such a scenario, a price change can also be used as a way to adapt financial outcomes – revenue, bookings, profit – to respond to the threats. Assuming the company has not done so already, this can also give the company room to adjust its overall business strategy and align the pricing strategy to changes to future direction. 

Pricing change guidelines 

Once your company identifies why a price change is needed, we recommend using these guidelines as your company designs its price change strategy. 

Double down on value 

One of the most important rules when doing any price change is to double-down on value. Your prices do not sit in a vacuum. They are tied to the value your customers experience. Making any price change will immediately raise the value question. 

This is true for price increases and decreases. This is also true when pricing packages and offers are adjusted or eliminated. 

If you don’t know your value, and the value you need to focus on, your company will face challenges in defending the price change. This can negatively impact reputation, financial outcomes (e.g. revenue, profit), and longer-term competitiveness including the ability to win/acquire new customers. 

If you are clearly aligned on the value your company delivers, the product, the customer and the price, your price change will have some positive tailwinds to support its success. 

Valuable transparency 

A key component of successful price changes is transparency. This goes hand in hand with how you communicate your value. 

Customers generally do not like disruption.  A price change causes disruption. While this may be necessary for your company, it is important to explain to customers current and new, why prices must change. Your company should be transparent in why, but also why the substantial value exists and what new value the customer can unlock (e.g. unused feature). 

For example, when Neflix raised their prices in 2022 they did not cite the changes due to inflation costs, as many other corporations have, but that the “investment” made for their users will help the company continue to deliver high quality in house productions such as “The Crown” and “Bridgerton”. The way they communicated this price change  was to help customers feel they  collectively contributed to the production of Netflix’s  award winning shows and movies, and in order to continue a price change  was necessary. 

Netflix’s strategy increased the value of their relationship with the customers, and most importantly eased the transition to new prices.

Gradual Selectivity

As with most changes, adjusting prices gradually can  make the transition smoother for both the company and the customer. 

Price adjustments do not need to be a radical change that will ward off any other adjustments in the future. Quite the opposite. Your company is communicating that the value you deliver to your customers has increased or unrealized. This additional value delivered can be captured in the current price change or gradually over time.

This is strategic and intentional, and often done by companies that are proactively capturing value or taking a proactive defense strategy. Gradual selectivity is also done by companies that are actively managing their pricing strategy and is aware of the magnitude and timing of price changes.  

One example is selectively adjusting prices for targeted customer cohorts and segments. For some customers, a price change today is not needed or appropriate. For another set of customers, there is a misalignment between current prices, the product and the value received.  It can be more prudent for your company to gradually change prices within the customer base then one universal price change.  Methodically adjusting your prices will have positive long-term effects on your customer retention. 

Final Thoughts

Each company is different and therefore price adjustment strategies are not uniform for everyone. Differences exist whether your company is a leader in the market or a new entry startup. 

It is no surprise that consumers have difficulty with change, especially when it comes to prices. You should not let this influence your pricing changes, but instead view it as a chance to recalibrate and strengthen your value, your positioning and your customer base. 

Applying the guidelines we outlined above will give your company greater confidence  that the customers who are aligned with your value exchange – the prices they pay for the value you deliver – will not be deterred  by pricing adjustments that are in the best interest of the company and the consumer. 

If you’d like more information on how to adjust your pricing, sign up to our weekly newsletter or contact us directly with any questions you may have.

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What We Learn From “No’s”

With how ubiquitous it has become, it is hard to believe that a successful company like Airbnb started out by facing outright rejection. 

When looking at those early rejection emails published by Airbnb co-founder and CEO Brian Chesky, it seems even harder to believe that some investors considered the potential market opportunity “not large enough” or that it was an area that they could not “get excited about”, while others simply did not even reply. But, it is clear from its growth and current status as a multi-billion dollar company that such rejection did not stop them from developing their idea. They had confidence in their startup, knew what market they wanted to target, and felt there was a problem there that could be solved.

In general, all startup founders are simply builders trying to solve a problem. They are usually trying to build something brand new and against the odds. As a result, these founders constantly end up hearing “no” or “it can’t be done” from those around them. Facing such rejection is difficult, so we find that most founders avoid these “No’s” and purposefully seek out those who will give them a “Yes”. But, rather than try to avoid the problem altogether, founders need to get used to the idea of rejection. Not only are they going to continue to hear the word “No”, but they are also going to find that they can learn from those “No’s” for the sake of their companies.

Understand Your Biases

Actively trying to avoid “No’s” is not surprising behavior, and we certainly see this often. It is driven by biases that most founders have. In fact, there are three common biases in particular that stand out when we talk with founders: (1) the Dunning-Kruger effect; (2) Confirmation bias; and (3) the Halo effect (particularly of customers or stakeholders who agree with the founder). 

Not seeking expertise and insights 

First, the Dunning-Kruger effect can be defined as a cognitive bias where people might overestimate their own knowledge and expertise in a particular field in spite of their limited competence relative to others around them. It is imperative that founders look at a variety of areas from marketing to pricing to product development when developing their company, so it is natural that there are some areas that they lack expertise in. In such instances, it is best for founders to acknowledge this and instead seek help from those with the necessary knowledge to make the optimal decisions for the company’s future growth. Of course, acknowledging that one needs help can be difficult for anybody, leading to many instances like the Dunning-Kruger effect where founders can overestimate themselves and struggle to solve their own problems. 

Seeking feedback that agree with their views

Another common bias among founders is confirmation bias, which is their tendency to search for and interpret information in a way that confirms their prior beliefs. This can happen when founders look for validation by seeking “evidence” from those who are willing to accept and praise them, causing them to stubbornly stick to their own ideas rather than explore new ones. 

Creating perception errors in decision making  

Finally, the halo effect is the tendency for positive impressions of a customer or stakeholder to positively influence one’s opinion or feelings in other areas. No matter how great a customer or stakeholder may seem, founders should not blindly trust and agree with whatever they have to say because it can lead them astray. All of these biases are part of a founder’s natural defense mechanism and response system to be able to cope with future rejection. What is most important is that every startup founder can acknowledge that these biases exist so that they can avoid them or at least prevent them from influencing their decisions.

Actively Seek Your “No’s” To Work For You

But, there is also a lot that startup founders can learn if they actively seek these “No’s”, especially for companies in their early stages of growth. For some Product teams, they call this “dog fooding” to discover everything that is wrong with their product. Looking for these “No’s” can help companies understand where value exists and where it doesn’t, ultimately helping them improve their product. Yet, when it comes to the value proposition, pricing, and offer, we don’t do it as much despite how much it can help to do so. Similar to product development, if founders seek out these “No’s” with regards to pricing, they can discover what their customers’ value assessment is and shape their pricing strategy accordingly. 

To seek out these “No’s”, there are three different approaches you can take. First, it is always important to understand who your customer is and what they value. Sometimes, founders discover that there is no market need for their product. This can partly be due to the product itself but also because the product failed the “worth it” test: is the product right for this customer at this price and offer? Using this test to seek out “No’s” is important so that you can re-evaluate who your customer is, whether you have set the right pricing strategy for that customer, and whether you are selling the value of the product. At the end of the day, your customers must believe that your product is worth the price. This focus on value is important so that you can design your pricing based on what your customers are willing to pay and what exactly they value most. If your initial pricing strategy faces rejection from your target market, then it is clear that improvements can be made and a better understanding of your value drivers is needed. 

You can also experiment with who your product is for and use customer ring segmentation to discover the various groups of consumers that will actually respond to your product. While you may have a specific group of customers in mind, it is important that you do your research with market testing and collect results that support your hypotheses. Otherwise, if you find yourself facing rejection from a group of customers, you can recalibrate and focus on the target group who would respond well to your product. Discovering exactly who your target audience is and ensuring that they are aligned to your value will create loyal customers in the long run. 

Finally, you should focus on experience and whether your customers actually understand the value of your product. If your research through testing, surveys, and analysis shows you that they do not understand your product or how it acts as a solution to their problem, then you are not communicating its value properly. As a result, it is inevitable that you would face rejection since they do not see the product the same way you do. 

Final Thoughts

In conclusion, it is natural for any startup to face rejection one way or another. Rather than ignore it or avoid it, founders can learn a lot from acknowledging them and spending more time trying to understand the root cause of such rejection. If customers and/or stakeholders are saying “No”, then it is your job to figure out what they are saying “No” to and why. Simply doing that can help you improve your product, develop an optimal pricing strategy, and set your company up for sustained long-term success.

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Year-end Reflections – Growth and Partnership

It is hard to believe we are in the last few weeks of 2022. As the year comes to a close, we’d like to share some meaningful accomplishments from this past year that have led HelloAdvisr to where it is today.

However, first and foremost, we would like to thank our clients, partners, staff, and our families for their continuous trust and support.  

We are looking forward to all the new exciting initiatives we will be working on this coming year, but before we launch into 2023 we would like to take a moment to look back on HelloAdvisr’s year.

This last year had a lot to be excited about – our clients, and our company and team – but there are also big challenges ahead for high-growth companies and investors. A key question the market will tackle in the new year is how does innovative companies and investment align with an effective strategy for sustainable growth?

If you want early access to our upcoming announcements, research, and resources in 2023, sign up to our newsletter to receive our latest articles and insights.

Have a wonderful winter holiday and wishing you an exciting and successful 2023! 🙌🎉🎊

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Introducing HelloAdvisr’s New Website

If you have been on our website before, you may notice that it looks a little different now. As we come closer to the end of 2022 and get ready for the new year in 2023, we at HelloAdvisr wanted to take a step back and do a complete refresh and redesign of our website. 

So, the first question you might ask when hearing that is simply: Why?

Though our previous website provided a gateway for you to get a brief overview of who we are and what we do, we felt like it only encompassed a small part of our whole potential. While our previous website summarized the importance of pricing and how we can help, we wanted to show how much more we can bring to the table. Furthermore, we wanted to better show our philosophy and approach and make our website an accessible resource for companies at all stages of growth. 

This meant considering what new and exciting things we could add to our website, not only to help those who are new to HelloAdvisr but also our amazing clients and partners. We wanted to add more resources for visitors to understand the importance of creating value through pricing at an even greater level and see for themselves exactly how we can help and have helped others prior. For many of those unfamiliar with pricing in general, we considered including more introductory resources to invoke greater engagement and willingness to try and learn more. 

In terms of the design, we wanted our website to be both simple and sophisticated: facilitating easier navigation for visitors to find the right information and resources and methods to connect with us when you need.

So, naturally, the next question to address is: what exactly is new here?

Share more about how we support growth

With our website redesign we wanted to showcase our core philosophy and capabilities. From our approach of designing pricing like a product to the range of topics and areas we work on, we wanted to be even clearer how we support companies to achieve their growth goals. 

Our new website also includes  testimonials from clients and partners (but wish we could add all of them!) to share  the impact and experience companies and organizations have had with HelloAdvisr. We also wanted to highlight the amazing companies we have worked with and the many different ways we have helped. We believe that these testimonials provide support of the significance of pricing on a company’s long-term success. 

More resources and network

We have created a new resources section that brings together different content, materials and tools to help you on your pricing journey. One new highlight in resources is our newly produced a series of online courses. For those who prefer to learn through audio and visuals, we have created concise video courses to cover a diverse range of pricing-related topics, everything from how to define your customer to how to determine what kind of data is useful for you. We want to help companies build  from a foundational level how exactly pricing can impact your company. From everything like sales, marketing, and product development, we hope that our videos show just how influential pricing can be and especially how it can provide your company with that extra boost to launch off and find sustained success and growth. 

Another new section with Resources is a page dedicated to providing worksheets and related tools. We want to create a home for different materials we have shared with companies and organizations to organize, assess and implement a value-driven pricing approach.  

Finally, we are launching an expert network, with more details to come on that later in a future post, so stay tuned!

What’s next?

We hope that you take a moment to visit our website and see how much more we have to offer companies in terms of pricing and growth knowledge! The world of pricing is vast and particularly daunting for some, so we would love to provide a pathway to it through our website’s extensive library of information and resources.

If you feel someone you know would benefit from the site, please share! 

Of course, we would love to hear your thoughts on the new website and features, so please feel free to fill out our feedback form here to list your questions, comments, and/or concerns!

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How Experimental Are You?

There is no innovation without experimentation. 

The daily emergence of companies with exciting, new ideas and products can lead us to forget that innovation takes work.

A lot of work.

“When I have finally decided that a result is worth getting, I go ahead on it and make trial after trial until it comes.” – Thomas Edison

Behind every new and inventive product that comes into the market is a team of people who have spent hours and hours brainstorming, developing, and experimenting. So, it is clear that building a startup, especially a successful startup, is filled with experiments. 

In fact, experimentation doesn’t just stop there. The most successful companies experiment constantly with everything, including: the team, product, beachhead market, customers, marketing approach, investment / fundraising, etc. They never let themselves get complacent and, more than anything, they are not afraid of failure. 

However, one area in particular that most startups are afraid to experiment with is pricing.

Challenges startups face mixing experimentation and pricing

There are many reasons for this. 

Some founders lack a clear pricing strategy or philosophy to begin with, so they do not have much to experiment with in the first place. Others are afraid of upsetting and losing their customers and/or users, who are already accustomed to their initial pricing. Sometimes, founders simply do not know what to experiment with or how to experiment. At HelloAdvisr, we have also heard founders explain that they are not ready to “optimize” for pricing, when they could be learning where their value is actually derived and validated by the price paid. 

Regardless of the exact reason, there is no doubt that we have noticed startups express more hesitation towards experimenting with pricing as opposed to anything else. But, ignoring your pricing when you experiment and innovate is unwise, especially considering just how influential pricing can be to a startup’s long-term growth and success.

Why startups need to get experimental with pricing 

While startups have learned about the “Lean Startup” and perhaps even the Lean methodology, it has not been rigorously implemented. As a result, this leads to “waste” and bad information that founders cannot make decisions on. Furthermore, in the long term, this type of approach creates bad habits for the team and its capabilities by setting the precedent for inefficient and lengthy processes. Understandably, it can be intimidating to experiment with pricing specifically, but in the long run, it is important to embrace change and avoid incurring sunk costs because of your refusal to do so.

How to get started experimenting with pricing

Thankfully, there are strategies you can implement to effectively change your prices so that you can simultaneously experience commercial benefits while ensuring relationships with your existing and prospective customers are strengthened. 

Experiment on your pricing strategy

You can first try experimenting with your pricing strategy itself. This depends on the strategic outcomes you and your company want from your pricing. Do you want to present premium value or be an early adopter? Do you want higher value customers, larger contract sizes, and faster conversion rates? All of this depends on how you construct and design your pricing strategy. So, you can start by looking at simple focus groups of internal champions, which include advisors, investors, and teammates. Or, you can even just create focus groups of specific customers. These focus groups can help you understand how certain people respond to different pricing strategies and allow you to determine which one best suits your purposes.

Experiment on your value proposition

You can also experiment on the value proposition as it relates to pricing. Here, you can use what we call our “$10 Test” to assess the value proposition. So, you should first long-list what you believe drives value. Then, pick out and mark the value drivers that specifically increase willingness to pay. Finally, you want to ask potential or actual customers: If given $10 to spend on any of those value drivers of their choice, how would they spend it? Would they spend $10 on one thing or $1 across 10 different things? Doing this test allows you and your startup to do an initial assessment of the value proposition against money and relative value between value prop. 

More measured changes to your pricing also allow you to be thoughtful and methodical since you can ease your customers in while giving you enough time to create more value for them. A prominent example is Google changing the calculation of storage consumption on their Google Drive product to include their productivity products (e.g. Docs, Slides, Sheets) in late 2020. They incorporated this change by rolling it out over a 14-month period so that users could learn and adjust. 

Another advantage to spacing out any price changes you intend to make is that you can effectively use each small change as price tests and gauge how various customer segments react to them.

Experiment on your customer rings

Finally, you can experiment on your customer rings. Between experimenting on your pricing strategy and your value proposition, it is possible that you may lose some customers. In general, losing customers is tough but this can be a blessing in disguise. 

Because you always want to make sure you’re serving the right customers that find value in your product and are willing to pay for it.  By experimenting with your customer rings. can help you recalibrate your customer base and retain the right ones. The more price sensitive customers were likely hard to maintain as it is, requiring extra expenses and more customer support than should be necessary.

One way to start experimenting against your customer rings is selective price testing of products and services to different customer cohorts. . For instance, Starbucks constantly changes prices to select menu items (i.e. drip coffees, espresso drinks, food, etc.), which allows them to measure which customer segment and retail locations are affected by such changes. Another notable example is Netflix and how they have chosen to change prices on certain plans they offer. While they have changed and increased the pricing of their standard and premium plans, their lowest level basic plan has remained the same. Knowing your customer segments and how they would react to such experimentation is important so that such changes are seen as acceptable.

Final thoughts

In conclusion, it is clear that startups should embrace experimentation rather than shy away from it, especially when it comes to pricing. Such experimentation is not only important to maximize the growth and success of your company but also to innovate and keep up with the shifting market. While many can be hesitant to incorporate such changes in fear of upsetting their loyal customers, it is much easier to do so as long as you focus on your customers throughout and keep them informed. 

As long as you are able to defend your value and communicate the benefits to your customer base, such experimentation should really be mutually beneficial between you and your customers. Every successful company goes through this process of trial and error to achieve innovation, so it is important for you to realize that the same applies to you and your pricing. Without change, you may not realize your full potential and experience the maximum level of growth and success that your company is certainly capable of achieving.

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Myth Of Data

data analysis

Last weekend, I needed to figure out what to eat for dinner and did not know what I wanted to eat. I did what many other people do, I started scrolling through the food apps. 

I was searching for inspiration and hopefully a (delivered) solution to my hunger. 

An hour later, my discovery process had me going through more than 7 food apps that ranged from the food delivery apps, restaurant reservation apps (going out was an option), and even grocery apps (why not, cook?). 

As I went through this labyrinth, I only got more hungry and still did not have a solution. Why? Because I started the process, I discovered constraints that forced new considerations. 

  • Cuisine type
  • Time: Delivery time, cooking time
  • Opportunity cost: Time to order pickup, save on the fees, and save time waiting
  • Fees (all those fees!) 
  • Promotions: limited time no delivery fee, new order discount, spend $X, get Y% off
  • Health considerations: is fried anything a good option for the 10th time this week or should I just get a salad?
  • Socializing: Eat alone? Eat with a friend?
  • New discoveries: New restaurants or cuisines I haven’t tried but looks appetizing
  • Review: Need to know what others thought about these “platform recommended” places
  • … 

You get the picture. I had plenty of data, but further from a solution.

In the end I had to settle for second or third best choices. I ended up making something at home – ramen. Sad. 

The data rabbit hole

While the spirit of wanting more information is right, how a startup captures that benefit has a lot to be desired. 

There is a belief that having more data will provide the answers, and it potentially can but you need the right framework to get the insights you need to make actionable decisions.  

Let’s try to illustrate this with a simple example. 

Imagine someone who needs to get from point A to point B. They believe a car is the way they’ll get from A to B. Then each day, someone delivers a piece of the car. A wheel on one day. Nuts and bolts on another. Steering wheel on a future day. You get the picture. After a while you have a lot of parts. You potentially all the right parts to build the car to get you from A to B.

Except you don’t know. You were busy accumulating parts for a car or at least the parts you are aware of or can acquire. You did not figure out if you have the right parts for the right car that will get take you from A to B. 

And that’s where the promise of data leads some founders down the wrong time-consuming rabbit hole. 

Ask better questions

When a startup says, “we need more data”. I pause. 

This is a common statement I hear from founders when they need to make a decision on something and are uncertain how to proceed. 

Seeking more information is great. Seeking quality information is even better. 

Unfortunately for most startups, what this means is unclear, just short of the answer falling on their lap. Anyone who’s ever worked with data knows this just does not happen. 

Instead startups should start by asking better questions. Better questions help startups a few ways: 

  • Clarity in what the startup actually needs to know.
  • Determine what the startup doesn’t know.
  • Where urgent gaps exist. 
  • Avoid opportunity cost of waiting (worst) or collecting data that does not get you insights and solutions (still pretty bad). 
  • More importantly, consider ways to acquire better data that lead to insights necessary to build steps you can execute on. 

Use this approach to start building your strategy 

One simple way to assess how well your startup has this process down is to see what data and insight your business and pricing strategy is built on. 

Take a single piece of paper and write down in one or two lines what your business and pricing strategy is. Then underneath each strategy list the data, analysis and insight used to conclude this was the right strategy for your startup. 

Now some founders will say: “we’re building something new” or “it’s never been done before”. 

Strategy is forward-looking and it needs reason-to-believe to pursue. This is why so many startups who believe they have a strategy, don’t have one.  

Like Airbnb who discovered people were willing to sleep on air mattresses in a strangers apartment during the Democratic convention. They collected data based on specific questions. 

Like Slack who found that teams disliked email and wanted more efficient ways to communicate and collaborate. 

Even beyond product-market-fit questions and data collection, decisions by Uber to launch a  VIP program in 2016 and later a loyalty and reward program in 2018. Strategy that required hard questions, and data collection on “something new”. 

Sometimes data isn’t sitting nicely packaged for you on Google. When that happens, conducting primary research is one effective way to create your data. 

Startups who are running lean – focused on thoughtful experiments and testing to test hypotheses and iterate – will find this second nature. For others, now is the time to start. Discovery should not be confused with serendipity. 

Great decisions are waiting, otherwise you might be left with ramen that’s been in the cupboard for years.

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Pricing Psychology 101

HelloAdvisr Pricing Psychology

Have you ever seen a message that said “limited time offer!” and ended up purchasing something you never thought you even needed in the first place? 

If you answered “yes”, then that company or brand has successfully used psychological pricing to motivate your impulsive purchasing nature into a sale. 

Isn’t it incredible how the very same product applying different pricing techniques can greatly impact spending habits? 

We complied 5 of the most useful – and not the most obvious – pricing psychology tactics that you need to know to create the right perceptions with your customers and increase your sales. 

These pricing tactics are supported  by research and help you to navigate the type of price communication and perception for your product with your customers. 



Less is More

The “Less is More” concept applies both visually and audibly. 

Visually, the more symbols and digits your price tag has the pricier your consumer assumes your price to be. For example, imagine you had a product priced at $1,399.

If you present the product price as  “$1,399.00” it would be perceived as more expensive than if the same product had a price tag of “1399” written on it.

If a challenge is the price perception of your product is high or “expensive”, reducing the number of symbols or digits  can be an easy way to shift perception with your customer. 

Audibly, the more syllables the price contains the more expensive it is perceived to be. In a study by researchers at Clark University and University of Richmond, researchers found a positive correlation between number of syllables and perception of how expensive a product is perceived.

Despite being the same in length, the study found that despite 59.99 being a higher number it is perceived as less expensive. 

 

 

Time Constraints

If you have been shopping any time this past month, odds are you have seen a sign or messaging that says something along the lines of “Today Only! BIG Sale!”. 

In reality, these sales can actually occur pretty often but by creating this sense of urgency pushes you to spend money now. This taps into consumers’ pricing psychology. In this case consumers’ FOMO (fear of missing out) on an opportunity to save money and get a good deal. Equally powerful is the fear that everyone else got a better deal than you. 

An infamous example that shows how well time constraint sales worked is the day that JCPenny decided to get rid of all their sales, which played an important role in the company’s 20% sales decline. 

 

Pricing Order 

You can positively influence how your customers feel about more expensive options by placing your products in order of descending prices. 

The effect of pricing order was tested by three researchers Kwanho Suk, Lee Jiheon and Donald R. Lichtenstein, who worked with a bar and changed the order of beer prices over a span of 8 weeks to find the sequence that maximized revenue. At the end of the research, it was concluded that pricing high to low would increase sales by approximately 4% for each beer sold.

The first reason that the researchers listed as contributors to why “high to low” pricing maximizes prices is that the initial prices create an anchoring effect. By seeing the higher prices first, consumers will use those prices to compare the rest of the list to. 

The second reason was loss aversion, which is the human’s tendency to focus on losses. With pricing low to high consumers will perceive that they are “losing” the power to save money. While pricing high to low, consumers will feel like they are “losing” quality. 

 

Small Changes Can Go A Long Way

Pricing similar items at the same price can easily deter consumers from purchasing the product. 

This was demonstrated by a study done by researchers from Yale who found a 31% increase in purchases, from 46% to 77%, when identical items were given a slightly different price. In their study, they utilized two packs of gum which were both initially priced 63 cents each and then 62 cents and 64 cents. 

When the prices of gum were different, it decreased the consumers’ need to spot differences and made the purchasing thought process more simple thus leading to more sales. 



The Power of “Discounts”

Consumers look for a deal and for some, this objective drives the pricing psychology and perception. 

With the transaction utility effect, consumers are motivated by the potential of losing out on a “deal”. if the exact same product at the same price is offered to the consumer, the one with a “discount” label can have a higher willingness to pay. 

For example, if a retailer offered a chair but with two different offers. One offered the chair priced $100 dollars. For another offer, the exact same chair is also priced at $100 dollars but shows that the chair was discounted 20% from $125. In this scenario, studies have shown consumers would be more willing to purchase the second option – the chair on “discount” even if the price is the same.

This is similar to how the “timing constraints” technique works. As consumers are wary of missing out on a good deal, that is a core motivator and shapes price perception more than the number itself.



Key Takeaways On Pricing Psychology

Companies with powerful pricing strategies leverage all pricing “senses” that best connect with your customers. This includes understanding your customer’s pricing psychology. This helps to focus your customers on the unique value-adding elements of your product, but also to align price perceptions with that value.  

There are appropriate applications for each tactic. Time, place, frequency, and customer ring all should factor into how and when such tactics are used. Selective use can have an outsized impact on sales and perception. Here your strategy and research will always pay off when it comes to pricing. 

These  small changes can drastically impact your sales in the long run so consider exploring  these simple changes to your pricing playbook!

 

 

 

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Are You Too Accessible?

Accessible Post

Many founders started their companies because they saw a problem in the market and took the initiative to create something that would solve it. 

They envisioned their solution helping communities and society – big impact at scale. 

To achieve this, here is how the thinking tend to go with founders and early startup teams: 

  • The product is for everyone (big mistake).  (Use this instead to figure out who your product is really for.)
  • To capture the largest market possible, the product must be accessible. 
  • To make the product accessible, price will undoubtedly be an important factor. 
  • Charge too “too high” or anything at all is going to scare off would-be customers, and therefore is no longer accessible. 
  • Conclusion – either don’t charge or charge even lower. 

Is this something you’ve considered?

Now to be fair, this can work in certain situations. What I more often see is the anticipated benefits of being more “accessible” do not materialize. 

Costly pitfalls of accessibility 

Instead, some costly pitfalls emerge. Here are three: 

  • Acquisition costs increase: Even at free, users don’t understand or find value in the offer (e.g. pricing package, product, communication)
  • Smaller bump in demand: While the basic principles of supply and demand hold true for price changes, I often see startups over-estimating the price sensitivity of their market. In other words, the perception is if the price is a lot lower then there will be a relative bump in demand. This rarely happens without external influence – namely a substantial increase in acquisition spending or some moment of virality. 
  • Revenue opportunity cost: By focusing on “accessible”, what is lost is discovering what drives actual willingness to pay. That means you may be getting only a fraction of what customers were actually willing to pay. I find startups are getting less than 65% of what their customers are willing to pay, and this is for startups that are actually charging for their product or service. 

Unfortunately the unsexy stuff like unit economics, profitability, and cash flow still play a role in whether this dynamic is plausible, let alone attainable. 

How to assess if you’re too accessible 

  • Identify gaps in your strategy: This starts by stress-testing the assumptions you have about your customer, what drives value for them, and their willingness to pay. What insights have you collected that validates this strategy? 
  • Identify wastes in your go-to-market approach: Here you want to see how your go-to-market resources are being used and the results they drive. For example, are you seeing low conversion on site visitors or trial users? In other cases, are you seeing high churn from your customers? The goal of this exercise is to determine how much waste is created, and offer an initial view of the financial impact of continuing with an accessibility strategy.
  • Think experimentation even not for scale: You should be looking for experiments to determine not only the validity of increasing accessibility through price, but also different ways pricing can be shipped (via offers, packages, discounts) that create financial opportunities. 

The bottom line is this decision is an important one, and should not be made hastily. Fear of rejection is real, but should not be the basis to shy away from defending your (pricing) value.  Patience is critical, but a thoughtful approach will pay dividends as the numerous success stories demonstrate.

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Why Figuring Out Your Worth Is So Hard

Rejection is hard. 

Whether it is in your personal or professional life; rejection is hard to swallow. 

Anyone who’s experienced rejection will have created their own response system to cope with potential future rejection. 

One of those mechanisms may be looking for validation by seeking “evidence” from those who are willing to accept and praise you. This is a form of confirmation bias. Others may be intensely self-critical; that the rejection is a self-reflection. 

As founders creating something from the ground-up and against the odds, hearing someone find what you’re building as “not worth it” is difficult to shallow. The founders I have worked with are all extremely talented, intelligent, and if they were in any other profession or field would be considered leaders and elevated as successes. Hearing “no” is a swift blow to the ego. 

Yet too often the rejection is not a reflection of you as a founder or your startup, but your approach. It is that approach that makes it difficult for founders to go out and tackle the critical question you most need answering – is what you’re building worth it? 

When it comes to pricing, there is an aversion for startups to tackle the value question; figuring out your worth. Just a few reasons I’ve heard why startups say they don’t work on pricing: 

  • We don’t have enough data.
  • We don’t have enough customers / users. 
  • Our product is still early and not what customers are really going to get. 
  • We need to build up marketing and branding. 
  • We can figure out pricing and  monetization later.
  • Our current pricing doesn’t make sense until we scale. 

Do these look familiar to you? 

Unfortunately this list is an excuse to avoid the problem – which is figuring out your worth to the target customer.  Part of this is driven by a fear of rejection. 

A potential customer or user saying no your product is not worth $X. It’s even harder to accept when the product is free (read: $0) and customers still don’t take it.  Ouch. 

The goal early in the pricing journey is learning and iteration. Start with the foundational elements. 

For early-stage startups, I start with three areas: 

  1. Customer – Are your “customers” actually rejecting you, or is your perception of your customer rejecting you? Like any other relationship, there are those you feel are right for you, and then there is the one. We find most startups, even further down their growth journey, are looking at customers too broadly. To narrow the field, we recommend using our customer rings principle. 
  2. Value – Founders create startups to solve a problem or fill a gap in the market. What that means in terms of value and more specifically what value drives willingness-to-pay is often lost on founders. Most customers have a second brain when it comes to their wallet. It’s your job to understand what’s driving that second brain, otherwise you might end up spending a lot of time and money pitching “value” that is worth nothing. 
  3. Experience – Do your customers actually understand what amazing things you’re offering them? This is not only a product or user experience question, but an important pricing topic. If it’s hard or frustrating for the customer to have their problem solved with your solution, then you may be making it more difficult for customers to find the value (that’s linked to your price). 

Hearing “no” is hard. Not figuring out your worth is really hard. As a founder, you need the right inputs to drive effective decisions. If you’re already having the hard discussions – great! If you’re not (yet), then it needs to be worked on now. You need as clear a view as possible, and omitting a crucial insight is not the way to do that. 

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