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5 W’s Of Pricing: Your Starting Guide To Pricing Decisions

Pricing can be a daunting task as a startup. 

When thinking about the creation and development of a product or service, we often focus on the pricing component that seems the most important to success — the “what”. On the surface it seems like this is the most important thing that one should think about with pricing, so it is easy to fall into the trap of fixating on “what is the price point for our product?”

This is certainly important; but when it comes to pricing, there are multiple components that need to be researched and developed in order to design pricing successfully. Companies need to consider their pricing multi-dimensionally or what we call the 5 W’s of Pricing.

The 5 W’s of Pricing provides a framework for companies to assess their price design strategically and tactically. This framework can also offer companies an early step to building a decision-making process. This is even more powerful when you consider less than 30% of new ventures have a pricing process

As you go from the “why” to the “what”, the decisions made become increasingly more visible to your user or customer. The “why” is what your company thinks about and sees and the “what” is what your customer ultimately sees. 

Let’s start with the “Why”. 

 

The “Why”

To start thinking about a pricing strategy, you need to figure out the reason behind your composition and structure. Why do we need to make these pricing decisions?

 It is critical to start here, because this will influence not only how you price, but to what customers and at what price. The “Why” is also important because it really pushes you and your team to think about the decisions you’re making in the context of your vision and overall business strategy. Less thoughtful approaches can lead to lots of filler with little content that’s actually valuable to pricing decisions you need to make. 

Question for you and your team to consider — what is your goal and what do you want your pricing to help you to accomplish? When thinking about how you want to structure your pricing decisions, will lead to successfully moving forward into other areas of your business. 

 

The “Who”

Knowing who your target audience is and trying to sell to is extremely important. 

Picture this. You put in years developing something that you are finally ready to offer to the world. Although you probably spent a considerable amount of time researching how to market and distribute, there is a good chance that you didn’t connect who these people are and how your product resonates with them from a value and pricing standpoint. 

We find too often that one of the reasons why companies discover there is no market need for their product, is yes partly due to the product, but also because the product failed the “worth it” test: is the product right for this customer at this price and offer?  

Knowing who exactly your target audience is and ensuring they are aligned to your value (which includes price) creates loyal customers. More companies need to focus on researching and surveying their customer base — we found that only 47% of companies stated that they ran a price test or pilot with customers

In order to address this, you need to validate what you believe to be true about your customers which can include online surveys, focus groups, and in-field testing. 

 

The “Where”

Now we need to consider what our channels are for pricing, engagement, and distribution. 

In other words, where will your product be sold? Do you want to sell across multiple channels, directly or indirectly, internationally, and overall what would be the optimal way to sell your product? Where will your pricing be displayed (if at all) and on what platforms do you plan on connecting with your customer base?

Mapping out the “why” and the “who” leads to an easier transition to finding out the “where”.

If we already know the meaning behind our actions and our customer base, then there is already a strong foundation to pave the way for where our prices live and how. 

The message being sent has to be accessible and practical to the audience you’re trying to reach.

 

The “When”

The “when” is focused on the timing of monetization and the influence of pricing. This is the stage where you need to figure out the timing of your pricing decisions. 

For example, you can offer a service that can be paid for monthly or annually depending on the needs of the customer and what they are willing to pay for. In order to try to bring in new customers, you can also offer a free 14 day trial. 

These are not only structural mechanics, but also the types of “when” decisions to be considered for your customers. 

 

The “What”

At last we have reached the “what”. At this point you will have found that there is no one way to decode pricing. The “what” can be influenced materially when accounting for the other W’s.  

One consideration to think about with the “what” is to think if you want to offer just one price point or multiple prices. This can be housed in tiers, but also can be designed for timing and for different customer types. 

Other consideration when thinking about multiple prices, is also the pricing distance between the prices. Are your prices really “simple” because they are exactly $10 apart, or do your customers find this irrelevant to their decision-making because prices are divided into payments? 

Every price difference needs to be considered when planning out the “what”. Each level of pricing and all additional components need to be assessed and determined at this stage. 

 

Final Thoughts

Pricing is a complex journey, but once you understand the 5 W’s of Pricing, it brings it down to a level that is more manageable. Using a structured framework like the 5 W’s of Pricing can improve your pricing decisions, and make a material difference in the early traction and success for your business. 

Take it from companies that are successful — pricing is strategic and goal oriented. Researching and testing at each level takes time.

We all need to get into the mindset of working smarter not harder. Pricing is challenging but once you’ve mapped out each step and your objectives, most of the hard work has already been completed.

 

 


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