How To Enhance Your Product Uniqueness With Price

Price is an expression of value. 

Customers associate the value of your product with your pricing. It is the value-math all customers do. 

How you price should help illustrate the individual uniqueness of your product. 

Essentially, pricing should help customers answer the question, “Is [add your product here] worth it?”

 

Focus on value

A product or service’s unique benefits are what makes it stand out from competing products. Discover what that value is––now! 

You can benefit from this uniqueness by designing your prices on what customers really think your product should be worth. By implementing value-based pricing into your strategy, you will reach closer to what your customers are willing to pay and can help you understand what your customers want from your product. This strategy may raise your prices above your competitors; signaling to the market that this value is linked to your product’s uniqueness. 

Now don’t just raise your prices to make your products unique without having a strong grasp of your value drivers. When Kanye released a $120 plain white t-shirt, he was able to sell-out because his brand and exclusivity are core value drivers for the product. 

Your customers must believe – or hold the perception – that your product is worth the price. When value-based pricing is done correctly, there is greater alignment between your customer, your value, and your price.

One great example of value-based pricing came from a web-based service called If This Then That (IFTTT). IFTTT, a tool enabling users to trigger and connect multiple web services such as Gmail and Instagram, offered customers the ability to set their own prices for their paid Pro-version web-based service.

The customers who choose higher prices signal value for the service – whether it be through the benefits of the services or through a more altruistic desire to keep the service going. This is also a reflection – and test – for IFTTT on what their customers are truly willing to pay when given the choice.

 

Create uniqueness for the customers who value it

Remember, you’re in charge (or at least can influence perception). You have the ability to design your prices. Changing your price strategy is a great way to find a different market segment that is more interested in your product. Do this by lowering or raising prices or even by offering a payment plan to make a luxury product more accessible. 

One way to find and address your target market is by using Customer Rings. 

Customer Rings are micro-segments that pinpoint customer preferences, perceptions, value drivers, and more. Think of Customer Rings as concentric circles. Your core circle are your loyalists. As you move further away from the core, these segments are likely to be more price sensitive. This price sensitivity can be persuaded towards your product or service if you develop a unique pricing strategy that catches their attention. Assessing what part of the market needs or wants the benefits of what you offer them will help you determine the value of your product or service. 

If you find that your product is needed by a segment with a lower income, you may decide to lower your prices to reach those customers. A lower price could be what makes your product unique. That’s a strategic decision. 

Take for example the iPhone SE. Apple realized that in order to reach customers in the outer circles of their Customer Rings, they recognized a more affordable phone was a value driver, and influenced the willingness-to-pay. In order to offer lower prices, the SE model was made of plastic. This also maintained differentiation from their premium priced phones. However, Apple generously marketed this product as being “lightweight”, making the product unique enough to be sought out by consumers in their outer rings. 

 

Differentiate price design to enhance product uniqueness

Change it up! 

Your pricing signals your value proposition and shapes consumer perceptions of your brand. Three ways companies have recently been using price to create product uniqueness is: 

  • Create  a unique way to sell your product. This can be digital-only sales channels or buy now, but pay later. 
  • Revolutionize your pricing. Help your product stand out from competitors and against industry “norms”. Recently, many SaaS companies have decided to offer their products for free and use pop-ups and other advertising tools as their main source of revenue.
  • Change the model. Another strategy companies have been using is changing the model. One example of this strategy is the rise of subscription services. More and more companies are adopting new models that include tiered levels of pricing. Netflix has long been a pioneer and leader of this model.

Netflix has three different subscription packages: $8.99 for Basic, $13.99 for Standard, and $17.99 for Premium. In order to differentiate offers and prices (latest price increase on October 29, 2020), Netflix created different price packages that made specific benefits accessible on different tiers.

Taking a page our of the Netflix playbook, you can also decide what features and fences to use that could be made even more valuable.

One of Netflix’s top competitors, Disney Plus also tried creating product uniqueness by using pricing. They offered their own premium plan with the benefit of watching the live action movie Mulan months before general release. This way, Disney Plus gave subscribers the option of whether or not the premium package had enough benefit to purchase. Making your pricing unique will draw attention to your product allowing your customers to reassess the value and benefits of what you’re offering them. 

 

Final Thoughts 

Building an differentiated product or services is challenging. Having customers identify or perceive the difference can be difficult especially for those operating in crowded markets.

When designed thoughtfully and strategically, pricing can be used to enhance your product’s uniqueness, but reframing how customers understand the product. 

This take insights, design and strategic execution. 

Leverage all the tools available to you – including pricing – to make your product standout and win the customers – and revenue growth – you need to help your company grow.

 

 

 

 

 

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Don’t Break The Bank: Make Promotions Work For You

promotion

Promotions.

As consumers, we all love them. As a company, how do they work for you and drive the results you need? 

When it comes to promoting certain products, there is so much to consider:

1. What type of promotion are you planning?

2. What product or service are you promoting?

3. Should your price change be permanent or temporary?

4. What is the target audience you’re trying to reach?

5. When are you going to do this price change?

This list goes on and on. In fact, we found that companies when using discounting promotions, only 16% found that the discounting they did was effective. 

Let’s break it down. 

Defining The Right Goals 

Before offering a promotion to your customers, you must establish specific and quantifiable goals that are consistent with your pricing and business strategy. Do you want to increase sales volume, focus on customer retention, or concentrate on new customer acquisition? 

aeropostale retailer promotions

Take a look at Aeropostale Inc (AERO).  Like many apparel companies, AERO wanted to have a seasonal promotion to ring in the Fall season. Their goal is clear: to increase sales volume and reach customers that are more price sensitive.

Outlining your specific goal and target customer clarifies what your promotion will be like, making the next steps in the process that much easier. 

 

 

Targeting The Right Audience

When it comes to figuring out the target audience, consider the following:   Are you trying to get the attention of stingy or once-in-a-blue-moon customers in order to turn them into loyal shoppers? Or are you targeting the customers that value high-quality products that are worth potentially higher prices? This will help you determine what promotions to offer.

Creating a pricing inventory helps you list the inputs you need, have, and won’t obtain which will make pricing decisions easier and more effective. In order to use pricing to reach your objectives, you need to understand the market you’re entering, your competitors, the customers, and your product or service. 

Selecting The Right Promotion Strategy And Design

After you have a clear idea of the direction you’re heading, the promotion has to be on a product (or set of products) that matters to your target audience and that’s going to make them purchase during the promotion. If it’s not relevant or highly demanded, the promotion will not bring the desired results. 

In one of our studies, we found that when acquiring new customers was the business objective, companies found discount promotions were effective only 15% of the time. In the case of a sales increase objective, only 24% of companies felt discounting promotions were effective. It is important that the promotion strategy drives the desired goals. 

This is a good time to remember a key element of your value proposition: how you price your product is a direct message on how you view your own product. If you lower your price relative to your competitors, you’re telling your customers that your product is a bargain and an overall “good deal.”

However, if the product in question is highly-valued (think technology or designer brands) then with promotions – particularly large price discounts – customers may associate your product with inferior quality. Understanding your value proposition helps to do promotions better while defending the overall value.  

design handbag promotions

The Amazon Echo is also a great example. Amazon takes pride in its value proposition that combines high quality with affordable prices. Their product is already accessible to many customers, including those that are price sensitive. To incentivize customers to purchase, even more, Amazon still discounts Echos on days like Black Friday and Prime Day. This is something Apple does differently. Apple’s HomePods sell for around $200 which has made the purchasing process a bit more difficult for customers given the high cost. Apple’s ambiguous value proposition has cost them additional sales. 

The Big 3

The important thing to do is to focus on customer behavior. The promotion is about them. 

This is where exclusivity, scarcity, and value come into play. If a promotion is only applied to an exclusive set of customers, they will begin to feel special and a sense of belonging to a selective group. For example, think about those times you’ve signed up for a company’s email list. At times, email subscribers are given access to promotional deals before companies advertise online or in-stores. The customer’s excitement and sense of superiority for having “insider access” can push them to purchase more regularly from your company. 

In addition, if the product is scarce (and popular), that means it is low in stock and only a few people will be able to purchase. Scarcity alone can increase the value of a promotion by creating a sense of urgency. When something is limited, it can make people push the “buy now” button quicker leaving little room for any second guesses or pensive questions of “Do I really need this?” In fact, FOMO also comes into play here. People want to feel unique and having an item that is in high demand will do just that. 

Overall, promotions will give customers an opportunity to experience your product or service which reflects on your company and brand as a whole. This is your chance to provide something valuable and beneficial to customers that they would’ve otherwise not experienced had your promotion not pushed them to purchase. 

What To Avoid

However, you must be careful. While consumer behavior shifts with price changes, it can also change depending on how frequent your promotions are. 

Don’t underestimate the element of surprise.

If consumers can predict when you’re going to have a promotion, you’re doing something wrong. Switch it up a bit and don’t make promotions happen during the same time each week or year. This will encourage customers to “wait it out,” and I wouldn’t blame them. Because why should they purchase your product for full price today when you have promotions every first Monday of the month? Not only will you lose sales on full-price items, but your promotions will lose their effect as customers will just hold out and expect it. 

Final Thoughts

Ultimately, promotions are targeted, and short-term pricing moves. If you use a price discount promotion, you can attract more customers (new and old) and ultimately increase your sales volume to make up for the lower profit margins. 

How you manage promotions can be as important as the promotions themselves. Frequency, availability, and rules should not be underestimated. This influences the value of not only the products on promotion but also on the overall company and brand. It can also shape customer’s perceptions of fairness where “gotcha” promotions create bad customer experiences. An example is a BOGO promotion, but the rules are so specific to items customers do not value that the promotion itself and the response to future “deals” decreases. 

Done right, promotions can positively impact your business. It all comes down to your own goal: what are you looking to get out of this promotion?

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Make Strategic Pricing Decisions That Work

This post was going to be different. 

Then Apple happened. We’ll come back to that in a second. 

Last year, Peloton made some new price changes and updates to its product range. The changes themselves are interesting, but what is more valuable is how thoughtful these changes are. 

As a company, strategic pricing was nothing new. Early on, when they launched the original Peloton bike they priced it at $1,200. They learned that this did not cross the customer’s psychological red-line for quality – and part of Peloton’s strategy was to be a premium brand. 

So they increase the price. A lot. 50% higher to $1,995. 

Eventually, they’d get prices for their bike to $2,245 (another 12.5% increase). 

So what makes the Peloton price design interesting? 

 

Pricing Is Thoughtfully Designed

Proactive and strategic with pricing

With the pandemic in 2020, Peloton was in no shortage of demand. Far from it. In fact, customers placing new orders can expect to get their bike in December. But they’re looking ahead to expand their base. They looked toward strategic pricing, so they decreased their price by 15% from $2,245 to $1,895 for their base Peloton Bike. 

Create differentiation 

Peloton is a premium bike and brand. Their new Peloton Bike+ continues to support that strategy at a price point of $2,495. But with the price change of its base bike, they were able to increase the price distance to $600 – creating greater differentiation between the two products. Had they kept the base bike at its old price, the distance would be $200, and potentially a weaker price fence between products. 

Leave future pricing options open

One thing Peloton did not touch (for now) is their membership products. Pricing for the all-access membership (which is needed to make either the Bike or the Treadmill valuable) remains at $39 and their digital-only product stays at $12.99. Peloton could have done a complete pricing refresh, as some companies will do to avoid doing this again in the future. Instead, Peloton left open the possibility for future strategic pricing changes.  

 

There’s Always Competition: The Elephant In The Room

Peloton has always operated in a highly competitive space both inside and outside the walls they compete – the room where a Peloton product sits. 

They compete with the brick-and-mortar gyms; both local and national chains. Peloton also competes with the hybrid boutiques such as SoulCycle and Flywheel. Both brands offer in-person (pre-COVID) and in-home options similar to Peloton, and have powerful community and brand recognition in and outside the fitness space. 

In fact, SoulCycle has been selling its studio non-digitally connected bikes to customers while gyms and fitness centers remain closed due to COVID.  

Then Apple released its new Fitness+ digital service. 

Priced at $9.99 per month (or $79.99 per year), it is on the surface, cheaper and based on descriptions (the service doesn’t launch until the end of Fall 2020), similar to other digital home fitness classes. 

Yes, Apple has become a visible competitive threat, but to what extent? 

I’d argue very little. Here are three reasons why. 

#1. Different customers: While Fitness+ as a product appears similar to what Peloton offers (and in fact other fitness apps), their target audience is not the fitness-first user with a higher relative commitment and investment to fitness. It is for the lifestyle user that is using the short and accessible bridge from Apple hardware. Much like Apple+, this can fit into the ecosystem of services within a customer’s fitness repository. 

#2. Different product strategy: Apple is expanding its services business and investing in growth (see Apple One), but Apple is still a hardware-first company. Services are designed to keep customers deeply tied to the ecosystem (and future product releases). Think of this as version 2 of the App Store and iTunes strategy. Peloton is not making much on their bikes, but the software and services are where their long-term opportunity lies. Much like the magic of the SoulCycle culture, instructors, and yes those candles – Peloton’s content library and ability to leverage behavior psychology so prevalent in high-ticket items and fitness will be their longer-term play. 

#3. Different strategic goals: Both companies are at different stages of their lives. Their focuses are different. This is an example of companies who identify their objectives and stay laser-focused – despite the hyper-competitive industries they are in. 

Peloton is continuing to dig in on its market position. The company is capitalizing on its accelerated growth – and shut down of many of its competitors – during the pandemic – unit economics be damned. Apple on the other hand is looking to nurture its next big winner – and future cash cow (maybe Apple Watch?). 

 

Final Thoughts

Peloton has implemented pricing and product changes that on the face of it are straight-forward. Dig deeper and you can see strategic and tactical purposes for these decisions that Peloton’s leaders made. Treating it simply as a binary decision – price change up or downward – would miss the deeper strategy. 

For entrepreneurs, this is a lesson of ways pricing can be used for strategic objectives. It is not isolated to the what (new product and price) of what we call the 5Ws of Pricing. This is looking at the why and how of what pricing is going to do to support the company and its goals. 

Yes, the Apple news gave Peloton – and the industry – a jolt, Peloton was planning these changes since March 2020. Would the news have changed Peloton’s leadership to take a different course? It is hard to say for certain, but what is certain is that for any strategy that’s thoughtfully analyzed, crafted, and executed then as an organization you trust the work your team has put together. You monitor, assess, and maneuver. 

You do not have to be a public company to build these capabilities. If these skills do not exist, then it is in the interest of the company to start building them now – otherwise you might find yourself reactionary and making decisions in a vacuum.

 

 

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Building Your Pricing Inventory

pricing inventory

We’ve all been there before. 

The last few months have been spent building a new product. Tireless days, nights and weekends, bug-fixing, user tests, delays, the list goes on. 

The big launch day is coming and there is still one thing that needs to get done: Pricing.

Now things get tricky. Why? Because a pricing process is not something many new ventures have ready. In one of our studies on startup pricing, we found that less than 30% of new ventures have a pricing process. When the CEO is the primary decision-maker, even less have a formal process (see chart below). 

Pricing process
Source: HelloAdvisr research

 

 

 

 

 

Even if you’ve priced a product before, you’ll often find there is a lot of information required, and potential team friction getting to a decision. 

Here’s what the typical process looks like: 

  1. Trigger: Founder / CEO questions, “We need to make a decision on the price. Bring back recommendations.”. *Nods from the team*
  2. Research: Team does online research collecting prices from “similar” companies, products, or direct competitors. Team collects more information to see what other pricing models and approaches are out there they might not have considered. 
  3. Assess: Leadership team narrows down the list of pricing models to select the one they want to go with. Will narrow the range of price points/level that is relatively close to the competitors found in the online research. 
  4. Test: If the leadership team is still not confident with the pricing and is looking for more validations, it will run tests. This usually entails some “trial and error price tests” to estimate customer demand. (In our research less than half of companies actually run price tests or trials ahead of a new product launch). 
  5. Decide: Pricing decision made. New is pricing updated on the website and other sales and marketing assets. 

Does this sound familiar? (for your reference, a typical pricing process will involve at least 20 steps, involving at least 4 functional teams or leads). 

Teams are trying to increase confidence in their pricing decision, but often falling short. Pricing is often cited as one of the top reasons why startups and new ventures fail.

 

why startups fail
Source: CB Insights

 

 

 

 

 

 

 

 

What’s the problem? 

It starts by fixing the input collection – your pricing inventory.

 

Build Your Pricing Inventory 

Rather than working on your pricing in a vacuum, start by getting your pricing inventory right. 

Designing better pricing requires inputs – a lot of inputs. Making sure you have an inventory of what you have, don’t have but can get, and don’t have and won’t be able to get, will help to save time and focus attention. 

A pricing inventory will establish what you are basing pricing decisions on, but managing potential bias and corrections required to move forward. If you are not checking off a majority of these boxes, then you need to assess how pricing decisions are made and whether pricing is supporting your growth strategy. 

 

Your pricing strategy

No strategy means there is a lack of clarity of where you’re trying to go. It means you’re not sure what objectives you want your pricing decisions to help you achieve. Don’t guess.

Spend the time to figure out what you want pricing to help you achieve. This may be some of the most important time you spend on your pricing and your broader growth strategy. 

 

Your market

Well-prepared companies understand not only their place in the market but also the conditions that drive the market. This includes:

🔲 Distribution channels, business models, and suppliers, and vendors.

🔲 Geographical and seasonal dynamics. 

🔲 Cultural differences – where applicable – within the market. 

🔲 And more…

 

Your competition

There are many levels to competitive intel for pricing, so awareness of what drives pricing strategy and models for competitors is particularly valuable.

🔲 On the most basic level, collect competitors prices (publicly available), but rarely consider the drivers for competitor pricing.

🔲 This can include where strengths in the competitor offer sit, and how much do competitors follow the market leader’s behavior.

🔲 Equally important is the extent competitor alternatives are replacements or substitutes for your offer. 

🔲 And more…

 

Your customer

If you went through the process above, you saw there is sparse intel about your customer. There is so much to learn about YOUR customers to help you build prices through a segmented, value-based approach.

🔲 One of the critical customer inputs are your Customer Rings. These are micro-segments that hone in on customer’s preferences to build value-based pricing.

🔲 Customer perceptions and value drivers. 

🔲 Price sensitivity and tradeoffs. 

🔲 And more…

 

Your product

There is some overlap between inputs about your product – the product itself as well as the offer – and your customer, but the goal is to learn what elements of your product do customers really care about and are willing to pay for.

🔲 Product substitutes. 

🔲 Feature benefits (current and planned). 

🔲 Terms and discounts. 

🔲 And more…

 

The One Thing You Need To Avoid

How many of these inputs have you already collected (and collect regularly)? How many do you use to build and manage your pricing?

If the answer is very few, you’re not alone. 

To confront this challenge, it is vital you do not waste time. 

One of the biggest mistakes we see entrepreneurs make is wasting time in the pursuit of being fast and not wasting time (yes, ironic). 

Now you have a pricing inventory outlining what needs to be collected to start reframing how your company prices. More importantly, put this into action in your pricing and monetization strategy. 

The upfront time to collect, assess, and design pricing is a lot more than many anticipate. But the initial time and effort to setup pricing pay HUGE dividends – time, decision quality, and revenue impact – from launch to EOL. 

The goal is not perfect prices, but better decisions on pricing. Pricing is an on-going process for the life of your product and company.

 

Final Thoughts

We have spoken to hundreds of entrepreneurs and companies and too often, pricing is built on limited information – even if not directly related to their customer or product. This too often leads to misguided pricing decisions that impact revenue traction and profitability. 

When markets quickly change as we’re seeing today, companies need the flexibility to assess and adjust prices quickly.  Too often the lack of structured inputs, analytics, and management programs makes the process frustrating and do not build the confidence experience should usually yield. 

Start with this pricing inventory to see what type of information is actually being collected, and where biases in your pricing decision lie. Leaning on simply “what’s available” can lead to misguided pricing that reduces revenue and profitability potential. 

The real opportunity is what else can be done with pricing to create differentiation from competition, and also yield the business results needed to accelerate growth. 

No one will ever complain about not having to recreate the wheel, and not having confidence in the decisions you make. 

 

Do you have everything in our pricing inventory? What are we missing? Let us know what you think!

 

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Pricing For Your First 10 Customers

A few months ago – before COVID-19 and travel was still something we did – I was in New York City in a conference room of a major financial institution with investors and their portfolio companies. 

Unlike what you imagine in the traditional Wall Street boardroom of suits, we had tech startup founders in sneakers, hoodies (yes still wearing those), and jeans. The purpose of the meeting was to work with these founders through a series of targeted workshops to build their growth plans and bring in experts across different fields to help. 

I was there to talk about pricing and monetization. 

One of the investor partners asked a great question, “How would you do pricing for your first 10 customers?”. 

This was a great question because for many founders, pricing is a white sheet of paper. So much time was spent on the product and finding potential customers that when the time came to share prices there is confusion. 

So what was my response? 

 

Pricing Strategy For Your First 10 Customers

Price for learning versus setting. 

If you haven’t worked on your pricing before launching or prospect meetings, the reality is your pricing is going to lack direction or foundation. 

Your first customers are about helping you to learn about the dimensions of your pricing rather than to strictly set prices.

Most early-stage companies we speak to do not know what really drives value for their customers (they don’t have any). They also don’t know what drives willingness-to-pay (haven’t done any pricing work).

In the absence of these inputs, the early customers should be used to learn what value drivers resonate with clients – what do they care about and want to continue to talk to your company about.  

It’s important to clarify that a value driver IS NOT a feature. In the words of Peter Drucker, “No one buys features, they buy the benefits these features derive”. 

When we run workshops with founders, we run a value-driver exercise. In those exercises, founders generally come up with 3 or 4 value drivers – why a prospective customer would want to buy their product. It was rare for founders to come up with more. This continues to surprise us. At the same time if they have not spent the time working on pricing it is also not shocking. 

This is why these first customers are to test hypotheses on what drives value, the relative value of each, and what potential prices can look like. 

It is important to know that these value drivers are how you justify and defend your pricing. The less confidence you have in this, the more difficult it is to defend your pricing. 

 

Price based on clear objectives

While many launch products or go into the first customer meetings with a desire to “know” their prices, what becomes apparent is how unclear we are about what we’re trying to achieve with our pricing. 

You might be thinking, “That’s silly. The goal is to close the sale.” 

Anyone who’s done sales well knows there is such a thing as a bad sale. Blanket goals can be dangerous.  Think twice for anyone advising you to take any deal – the net value of that deal can cost you more at the end than the trophy traction win. 

In actuality, these first customers – as appreciative as you are for their leap of faith they have in you – is not what makes or breaks your business. 

Those first few customers can be about building goals: 

  • A clear sales pitch to get to value and pricing. 
  • It can indeed be about acquiring a new customer irrespective of who they are and how they perceive your product and value. 
  • More specifically it can be about segmenting customers. testing the hypothesis that these customers are the right customers for the product and prices presented, and there are 1,000 more if that is true. 
  • Sell against the right packages that are defendable based on clear value drivers. 
  • Secure the highest revenue / average order value. 
  • Price to the longest customer commitment (e.g. 3 months, 1 year, 3 years)
  • …

Knowing what you are trying to achieve in these first few customers is vital because it will set the tone for the next set of customers you engage, what you offer them, how you price them, and how you defend your value (read = price). 

 

Price for outsized value 

One of the common mistakes we see with early-stage companies is to under-price… by a lot. 

 

“The No.1 theme with our companies when they are struggling is they are not charging enough for their product.”

Marc Andreessen, Co-Founder Andreessen-Horowitz

 

Part of the reason young companies underprice is they have not done any pricing work, so there is little confidence and defendability for the prices they present to customers. 

While it’s understandable that the early prices are lower than they should be (or could be), the real danger is that this often is not corrected. That is potentially revenue and profit on the table for no other reason than we did not put in the work. 

When pricing for the early customers, look to price for outsized value, which means purposely pricing at the upper bounds of what you were going to present. 

Why? 

For one, you created this product because it uniquely solves a problem or needs in this world. It is by definition different. It should be worth more. 

Second, there is a good chance you used competitors prices as a reference and priced around those products. Assuming your customers actually use those competitors as a reference, by pricing near competitors takes away potential differentiation you can create. If differentiation is the strategy, this is a lost opportunity that will require effort to correct in the future. 

Finally, changing prices is easier at the early stages before your brand, reputation, and value proposition is established. Your price presentation is your big stage moment to say this is what the product is worth and why. 

All startup founders pitching investors do this all the time. 

It is a lot harder to increase prices than to drop prices. Price changes require discipline. Price changes also require collecting and analyzing your data. Even then, it is hard to do. We speak from experience. 

The prices you give your first 10 (or 100) customers will most likely not be your pricing in the future for your next 10,000 customers. 

 

Price for relationships rather than revenue 

Your initial set of customers are taking a leap of faith in you and your product. That’s a valuable relationship and potential evangelist for your product and brand. 

That is worth something, and something more than revenue for any early-stage company.

That can mean pricing your product at $0, or free for a period of time. 

Like personal and professional relationships, not all are the same. So if you’re pricing for relationships then it’s important to identify the difference between each segment. 

If you are pricing for relationships, then ensure you set up fences. Customers who do not fall into this special early customer relationship bucket should not get the same offer. When the two mixes it can muddy the value on offer. Think of these early offers like your “VIP cards” – they should be special. 

 

Price for the future  

While the focus of this approach is on the initial set of customers, there must be a clear focus on the future of your pricing. 

What you offer today should not be what is offered in the future. These first customers should be an opportunity to learn and refine. 

This should also be a stark reminder to work on your pricing in greater depth. 

Many founders we speak to have won their initial set of customers with pricing “that worked”. But what “works” eventually led to more questions: How to price different customer segments? How to price new products or upgrades to existing customers?

Inevitably the lack of knowledge and confidence that should come from data-driven decisions, leads to revenue and profit left on the table. 

Founders need to be prepared – and must get started early and often. 

 

Final Thoughts

Winning your first customers is scary and nerve-wracking. You want and need those customers. This is important for the validation for your product and company. You want this also for the revenue. 

This feeling is very emotionally-charged, and making pricing decisions in this mindset can lose great opportunities to learn today and build for the future. 

One of the biggest missed opportunities when pricing for early customers is what was not learned. Too many founders walk away not learning what to do with pricing – strategically and tactically – for future customers. 

When trying to accelerate revenue traction, this lost learning and structured approach forces founders to work harder for similar – and sometimes subpar – outcomes. 

The implications stretch into fundraising.

Revenue traction is an important part of raising capital, and follow-on rounds. Looking at the “survival rate” of companies going to later rounds of fundraising:

One of the challenges in moving on is the business model – where pricing plays a critical role – that makes the company increasingly unsustainable. 

Use the opportunity with your first customers to test your core assumptions. Who are your target customers? What (really) drives value in your product and offer? Most importantly, how does value influence willingness to pay? This can pay huge dividends in the long run. 

How did you approach pricing for your first 10 customers? What did you do differently than what we recommend? Let us know what you think!

 

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Why We Need To Embrace Complexity

laser lights

One of the hobbies we’ve (rediscovered) since the start of the COVID-19 pandemic has been making Lego sets. 

Since none of the Legos were organized, we would take our big box of Lego mixed with several sets from Star Wars to basics, a Lego instruction guide (luckily we saved all of those), and started to build. 

It is a very tedious process – great for situations where you have to stay at home- where we would go step-by-step in the instructions looking through the big box of blocks looking for the right pieces. 

We’d discover pieces from old block sets, and of course the oddly detached arm or head from the Lego characters (don’t ask why).  

As we progressed, there were a fair number of times that required improvisation – right block but wrong color. 

We did not have “perfect” sets, so we had mechs that had only one arm or an AT-AP that had blue legs. We’ve slowly amassed a collection of Lego sets of incomplete figures and sets. 

Getting it right is complex. What we were building is complex. To build what we wanted to create takes a lot of input and instruction to get there. 

Complexity is good and we should embrace complexity. 

 

Complexity Makes Us Unique

In many of our conversations with founders, the question is often centered on getting to point A to B faster. It’s about what’s the answer. 

The actual answer and the reality for most is the achievement of the “10-year-old overnight success”. 

Building success is complex and requires knowing what pieces are needed, how to manage those pieces, and to do that well over time, which often means many adjustments and changes along the way. 

This is because solving hard problems is complex. 

If we use venture capital math (see this great video by Hustle Fund co-founder and partner Elizabeth Yin for a great guide on VC math), 90% of the companies in the average VC portfolio are destined to fail. This is built into the investor’s model. 

Money helps, but even the investors putting money into your company expects most to fail.  

The real jewel is not in eliminating complexity, but in understanding how to navigate and take advantage of complexity. 

This was the beauty of the Apple iPhone, a pair of Allbird shoes, and email marketing software by Mailchimp. None of these products or services is easy to make or deliver. 

The ease of use for the end-user should not be confused with making removing complexity. Quite the opposite. This adds another level of complexity that when done right, adds to the moat of competitive advantage these companies aim to create. 

 

Complexity Is The New Normal

If COVID-19 has taught us anything it’s that change can happen in an instant. Whole economies, human movement, and interaction can be shutdown without warning. 

It also taught us just how resilient our businesses are, and in many cases what is needed to make our businesses more resilient – if not thrive – in the future. 

As our society and economy begin to slowly reopen how we adapt to this new normal will depend on how we adapt to the complexity of the new rules of the game. 

How businesses operate, interact with customers, and grow will evolve. In many instances, businesses will no longer be recognizable to the world before the pandemic. 

We are quickly moving from simple adaptation to the swiftly implemented shelter-in-place rules, to looking to the foggy future to determine what’s next for our businesses. 

This starts by understanding shifts in our inputs.  

 

Shifts In Inputs 

In our world, we think of inputs as the drivers of decision-making. 

How well we collect, understand, and assess improve the decisions we make. This is true with how products are made, what markets to enter, and how we price and monetize our products. 

This is not an easy process, and many will do little if any at all to sufficiently collect the inputs needed to make necessary decisions. 

In the new normal, it is vital to understand how these inputs have changed for our customers not only in their personal and professional lives but also in the context of our products and services. 

Learning whether the customers we believed were our “ideal” customers is still valid. If so, then what do they expect to change in how they consume our products and the perceptions they have for our category. 

While there is much higher-level evidence for what is shifting in the market – such as the acceleration of work-from-home and eCommerce spending – what is less clear for many businesses is what does that mean to them and what decisions to take. 

Take for example a VR software company we were asked to advise on for their pricing strategy. With shelter-in-place, more people were consuming digital media more than ever and demand for more content was as high as it has been in recent memory. 

There was pent up demand for more and new. Yet when this company conducted customer research, they found that more than 45% were not willing to spend more than $5 per month for a new premium VR software the company was looking to launch. What happened? Didn’t the pandemic create pent-up demand? 

This research led the company to reconsider who really is their customer. They re-evaluated what components of their offer – both the basic and premium software packages – needed to change to align with the needs and willingness to pay of those customers. 

For this company, better inputs helped to reframe the questions that needed asking and re-focused the path the company would need to take. 

This enabled the company to then shift focus to the business model. 

 

Rethink Business Models 

When looking back at past market-shifting events and downturns, are shifts in business models. This includes businesses changing models altogether or for others the creation of new business models. Two prominent examples are the rise of freemium and subscription-based models. 

Market-shifting events create new perceptions of what is essential, and what customers are willingness-to-pay for and how they want to pay. These new realities make it critical for businesses to rethink their business models.

For the VR software company, collecting and assessing inputs during a pandemic raised important questions about the business model they looked to pursue – a new subscription model. 

Pursuing a new business model made sense for the company. The benefits of a subscription model for the company included more predictable recurring revenue, more customer “stickiness”, and a business model potential investors have grown to like. 

Except the company learned their customers did not understand the subscription as it was packaged, and this changed their willingness-to-pay and perception of the price. This insight put into perspective what potential challenges and requirements exist in marketing and converting these customers.  

Changes to the business model will be needed. The new normal requires it. But now we take the complexity of the today, and form decisions enhanced with greater clarity 

 

Reduce Dependencies

In the decisions we make navigating complexity, getting from A to B requires dependencies. 

These dependencies are there assumptions or requirements to move the ball forward. 

Sometimes there are external dependencies such as changing regulations and pandemics. Others are created internally, by businesses. 

How many dependencies does your business have, that are not all necessarily in your control, to move from X to Y? 

Just a few months ago, the playbook to build a growth company was to build an MVP and then raise capital. 

The new normal shifted this goal post, and for many startups, this is a dependency your business may no longer be able to count on. 

Investors are looking for more strength in companies as a business. Is there revenue, real revenue that can grow without a constant refresh of capital? Do customers really need and want to pay for your product? 

Even prospective hires are reevaluating the companies they may or may not join. With instant layoffs at smaller companies and startups, and even the larger scale cuts in well-capitalized companies (see Airbnb), the rules are changing. Stability or a demonstration of future stability (usually by achieving financial independence) is going to be a must. 

Businesses will need to adapt and create even more strength in the organization they build. One of the ways to do that is by reducing how many dependencies your business has to move forward. 

There are potential trade-offs such as raising less capital or growing at a slower rate. But today’s world is forcing leaders to ask, “what are you building, and is it strong enough?”. 

 

Final Thoughts

The COVID-19 pandemic put a spotlight on the challenges ahead of us. Rather than run from complexity, these difficult times allow us to embrace complexity and create new opportunities. 

Those companies that are agile in how they re-examine and re-think their businesses will be better positioned to manage the complexity ahead. 

The rules of the new game have yet to be written, but waiting for certainty and simplicity will quickly dilute any differentiation created to date, and reduce opportunities to accelerate new competitive advantages in the future. 

How are you navigating the complexity of the new normal? What challenges is your business facing managing complexity? Let us know what you think!

 

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HelloAdvisr CEO On IDA’s “Ideate.Decide.Act” Podcast

IDA

Recently HelloAdvisr CEO and Founder Ed Lee was invited to speak on the Idea.Decide.Act (IDA) podcast to talk pricing and growth. 

On the podcast, we cover a number of questions including: 

  • Why is it hard to figure out the right price?
  • What are some common struggles founders have when it comes to pricing?
  • What are some of the different types of pricing models founders can consider?
  • How is the best way to figure out what pricing strategy best fits your startup?

Listen to the entire podcast here.

 

About IDA:

Idea.Decide.Act (IDA) is a platform to empower female entrepreneurs to succeed in their busienss goals and give them the support they need, whether they are starting out with abusiness idea or already have it under way. Learn more: www.thinkida.com

How Smart Startups Are Outsourcing Pricing

TL:DR

  • Pricing is strategically important, which is why the CEO is the decision-maker for more than 3 of 4 companies in a study we conducted.
  • Those CEOs also know pricing is not a core competency or skill set their company possesses, making revenue benefits from pricing difficult to achieve. 
  • CEOs do not have the time to learn and level-up on pricing’s many approaches and nuances. 
  • Rather than attempting to tackle pricing internally on their own (or worse yet, do nothing at all), outsourcing pricing can generate a much higher impact for companies even at the earlier stages. 

 

CEOs know pricing is important. Strategically important. It is why for more than 3 of 4 companies, the CEO is the pricing decision-making for their companies. 

Yet most CEOs oftentimes have limited to no experience in pricing. From pricing strategy to building pricing models and setting, to testing and management, very few CEOs are actually trained to build and manage the pricing that fuels the business model. 

In fact, when we examined the world’s top business schools, less than 2% of the required curriculum had even an element around pricing. Usually, pricing fits into a single module within a marketing or microeconomics course. 1 to 3 hours to learn how your company will position its products, win customers, and help the company win a sale. 

This is very little preparation for a key function of running a business – determining the price that will sell a product and make the company revenue. 

Unless you have a pricing expert on the founding team, outsourcing the pricing work can be an alternative approach to managing to price. This can enable companies even at the earlier stages to effectively use pricing to accelerate revenue traction, build the price management structure to take forward, and most importantly defend the value created by your company’s innovations. 

In addition to direct revenue and profit benefits, there are additional benefits to outsourcing the pricing work: 

  • Save months (or years) in lost revenue (e.g. money left on the table) from each hard-won customer. 
  • Save in the costs of hiring pricing professionals to bring in-house.
  • Bring a diverse outside perspective coming from the work they do with different clients, industries, and situations.  
  • Eliminates the need to onboard and ramp up before benefits from pricing can be realized.
  • Access the latest thinking not only in pricing but successful go-to-market ideas across industries and geographies. 

 

Don’t Go It Alone (Really, Don’t)

Unless there is an expert on the leadership team, do not try to hack your way through these four areas of pricing (or worse yet, do nothing at all): 

 

1. Strategy

Founders want – understandably – the price level. Should the price be $9.99? $10.50? $9,999?

The rush to get a price without a pricing strategy can miss out on vital opportunities. Not only does a strategy help to define the right pricing models to help your startup to achieve desired goals, but will also help create better decisions on what price levels should (and should not) be applied and when. 

Creating a pricing strategy is more than a mission statement for the future, but a data-driven process that looks across the business – business strategy, marketing, and sales – to define the path forward to win the right customers that help achieve the right objectives for the company. 

 

2. Pricing models 

Every founder has Googled [insert their industry or product category] and “pricing model”. That is certainly one way of figuring out how the company will price. But this approach misses the complexity of not only identifying but building the right price model for the products customers are offered. 

Designing a value-based pricing model is a structured process. The process evaluates many elements including customer segments and buyer personas, value metrics, promotions and discounts, and testing. Few small teams can afford their own professional to manage all of this work, and even fewer teams have extra time to reallocate to do this necessary work. 

Too often companies will adopt the “standard” pricing model but can find themselves either forcing a circle into a square peg or losing customers because the pricing model does not sufficiently help to differentiate it from its competitors.  

 

3. Price setting 

Optimizing the price is where all companies want to get to, but the path to getting there is more complicated. Pricing is a lot like cooking – two chefs can be creating the same dish but the ingredients they use, the cooking methods used, and the ultimate product created can vary in appearance and taste resulting in very different outcomes and reactions. 

For companies there are decisions to be made on the inputs to use then there are the tools and methodologies used to build price recommendations. Then there are the additional strategic and tactical considerations that a company’s leadership team must take into consideration when making their decision. Perhaps the most important step to realizing the benefits of pricing is in the execution and how best to take the pricing to the market. 

 

4. Internal price management workflow

For many companies, pricing is a “set it and forget it” activity. It was hard enough to try and figure out pricing the first time, so why go through it again. 

But as many teams discover the work of pricing never really ends. The lack of a pricing management workflow not only increases the time the team must dedicate to responding to new pricing events. Without a clear process to start can result in hacking their way to suboptimal price decisions that leave money on the table or lower conversion because the pricing does not align with their customer’s willingness to pay. 

Some examples of pricing events throughout the year include: 

  • From a competition standpoint, key competitors can change their pricing or offer discounts. 
  • The company can be working on new features that make the product “better”, and need to price this into its offer. 
  • The company is developing and launching a new product and must determine the pricing for the new product AND figure out how the new product’s pricing will fit with the existing product lineup. 
  • The company’s revenue and profit expectations change and opportunities must be identified. 
  • …



Final Thoughts

Every startup has to price, but the reality is very few actually work on pricing. The main challenge is they can not cover all the bases along with the resources and experience they have. 

In order to compete and accelerate growth, companies have to take a proactive smart approach to price. Not doing so is costly not only to the bottom line but to the ultimate success of the company (poor pricing is cited as a top 5 reason for startup failure). Outsourcing pricing is a great opportunity to figure out what the monetary value is (pricing) and how best to take this market. The alternative is leaving money on the table (and company growth) and confusing customers on the value proposition. 

Do you outsource different functional areas in your company? How can outsourced pricing help your company grow? Let us know what you think!

 

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Managing Your Pricing Strategy In A Downturn – Your Cheat Sheet

pricing strategy downturn

The economic downturn brought on by the global coronavirus outbreak has forced companies to reassess their financial position, business model and pricing strategy. As businesses adapt, one of the first things to go is pricing power – having a lasting impact on current and future revenue opportunities.

Being proactive is critical during a downturn. It is critical for the company’s survivial, the team’s security, but also the longer-term opportunities and future. 

Entrepreneurs are faced with unprecendented circumstances to navigate. There is much to consider and priortize. To help companies navigate the current uncertainty, we created an easy to use cheat sheet on how to manage your pricing strategy during a downturn.

You can get our free cheat-sheet here.

We will be sharing more resources in the coming days and weeks, so keep a look out on our website and social channels. 

Be safe and well.

 

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Thoughts On The New Business Reality For Entrepreneurs

business uncertainty

What the future holds is more uncertain than ever before. 

On a global scale, coronavirus (COVID-19) is challenging our institutions to contain and communicate, let alone manage and cure. Coronavirus is changing how we live our lives. 

Understandably, the new reality has raised fear and uncertainty. And its showing. 

The public markets have seen massive stock market selloffs. Large-scale events (e.g. SXSW, Google IO) are canceled or rescheduled. Universities and schools are shutting down public events and moving to online learning. Whole countries are shutting down. Investors are issuing caution and warnings to portfolio companies and the general markets alike. Then there’s toilet paper hoarding…

All indications point to the situation getting worse, before it gets better. 

Having seen some of the biggest downturns of the last two decades – the tech bubble of the naughts, 9/11, and the global financial crash – and recent events creates a necessary moment of pause and reflection. 

Where do we go from here? What does this mean from a business perspective? 

Our forecasts never include a global virus pandemic. Most forecasts are more often than not, up and towards the right. As we navigate the new reality, we want to reflect on some thoughts, as we take stock of the current business climate and plans forward.  

 

1. Entrepreneurs are resilient

What makes entrepreneurs special is that entrepreneurs are built to overcome adversity. It’s in their DNA. The genesis of any company starts from a position of doubt. Doubt that the product can work. Doubt the company can be a viable business. Doubt from everyone not on the team (or your mother). The desire to build a solution to a problem, is not timed to the markets. Entrepreneurs did not start their companies by timing the market and market conditions. They started their companies because they saw a need for what they are building, and was driven by passion and grit to make that a reality. 

 

2. Strong business fundamentals are key

Weathering the storm – any storm – requires a strong business foundation to stand on. In better times, “you can put lipstick on a pig”, but when uncertainty increases, it is hard to hide a business standing behind weak fundamentals. This includes everything from the company’s capital position, business model, pricing power, and team and culture. It’s not the good times that test what the company is made of, but the rough(er) times that see what the company can do and will go. 

 

3. Proactive planning creates new ideas for growth

If planning was an admin exercise in the past, planning will be more critical as the macro environment rapily evolvates. “Fail fast” can be a very unwelcomed premonition in times of uncertainty for company leadership, and the employees that depend on them. As a leader, this is where level of preparation and strategy is key. The paradigm is shifting. In the short term, the greatest impact is to make the most out of every new deal and customer, and position the company to weather the current storm. Longer-term planning is to capitalize on missteps of competitors and build a value creation machine that will help the company grow faster and deeper. 

 

4. Don’t be a toilet paper hoarder

There is caution and conservative decision-making, then there’s panic and paranoia. Knowing where to conserve, and where to spend will be one of the hardest decisions companies will have to make. Making panic decisions and following the herd must be avoided. It is behavior we are seeing today, but as Oxford University researcher Zhibo Qui points out in the current crisis, rising anxiety makes more people likely to conform and fail to address the real issues. 

For those who started their first company (or first job) in the last ten years, this will be the first time exposed to this level of macro-uncertainty. It’s vital to form pragmatic decisions based on known information, and scenario plan to navigate the months ahead. One suggestion made by Sequoia Capital to its founders and companies in their “Black Swan” memo, to to rethink and reassess how their companies run. When it comes to marketing it’s not only about reining in spending but to “consider raising the bar on ROI for marketing spend”.  This is not only about stopping or cutting spending – EVERYONE will do that in a market downturn – but how to maximize what is achieved. 

 

5. Easiest way to lose money is not to make any 

The other side of market uncertainty – apart from cost management – are opportunities to grow. If it was hard enough to gain and grow revenue traction in good times, a global health crisis will not make it any easier. Optimization, efficiency, and effectiveness are terms that we will be hearing more of in the coming months especially when it comes to sales and growth. It is vital that proactive steps are made not to manage loss, but to discover opportunities to continue building revenue traction. There is plenty out of your control, but how you plan and execute – and with what speed – is entirely in your court.  

 

6. Be Safe

It goes without saying that the threat of coronavirus (COVID-19) is real.  Take all necessary precautions to keep yourself, your family, and your team safe. There is no business priority greater than the safey of you and those around you. Be prudent and pragmatic. 

 

Final Thoughts 

Last year we wrote about navigating uncertainty and capturing more value. As we start to watch what unfolds in the current crisis, it is inevitable there will be company failures. Some will be due to the company’s business fundamentals, some because of just rotten luck. An investment that you expected to close stalls, drying up remaining runway. A new customer who delays purchasing because of fear of the current market environment. 

There are no answers to the depth and length of what is to come, except to plan and prepare, and execute. Take constructive steps to navigate uncertainity is one way to positively influence what happens next. It is up to company leaders to begin preparations to not only weather the storm, but to seize opportunities where there seems like none exist, capitalize on competitor missteps, and ultimately get the ship to the ultimate destination. 

Be safe. Be smart. Be kind. We’re in it together. 🧑‍🤝‍🧑

 

How is your company navigating the current market uncertainty? Let us know what you think. 

 

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