HelloAdvisr CEO On Business Rockstars Interview Talking About Pricing And Entrepreneurship

HelloAdvisr Founder and CEO, Ed Lee, was recently interviewed by Business Rockstars – a multi-media platform interviewing leading CEOs, entrepreneurs and startups.

The interview focused on the start of HelloAdvisr, but also on the role of pricing for startups and entrepreneurs today.

Watch the complete interview here.

 

 

 

 

 

 

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Love Your Customers. Talk To Them.

What is pricing?

It’s a question we often ask when we are invited to speak or host a workshop. It’s not a trick question. And contrary to the responses we get, it’s not that complicated. 

Pricing is the pursuit of understanding people; your customers. These customers who will support your company, brand and product. The people who get the value you offer. That understanding is the foundation from where you will price your product or service. Unfortunately, many companies do not know who their customers are. They have surface level information about who they would like their customers to be, but do not know who they are.  

This is a lost opportunity, especially for companies still in their early stages. They might not realize it, but they’re trying to boil the ocean. This is expensive, time consuming, and for too many companies fatal.  By digging in and learning who your real customers are, you can help create empathy and connection in way that builds long-term value and identify growth opportunities many miss out.  

What is vital is the work to learn not just who they are, but to learning what they value early on in the relationship. This takes a conversation. Yet many companies we come across rarely if ever, talk to their customers. In more extreme cases, some companies have NEVER talked to their users. NEVER. 

The real struggle is not that customer insight is undervalued by these companies, but a struggle with what to ask; how to have the conversation. When we’re not sure what to ask and why, we’re left being reactive to what information we’re able to get and not zeroing in on insights pushing the relationship forward. 

For those still on the fence on whether it is worth the effort to dig in on customer insight research, here are three benefits that will help you reconsider. 

 

Price better 

If you have heard of value-based pricing, you will know that the basis of this pricing approach is to create prices based on the value – real or perceived – your customers get from your product or service. One popular examples of value-based pricing is Apple and the premium price they can charge due to the value they offer customers through their product’s technology and brand association. But it’s not just upmarket where value-based pricing works. More ‘value’ brands like Warby Parker have successfully used price as part of their growth strategy. Instead of going higher for their modern and cool eyewear brand, they went lower for their digital-first customers willing to buy glasses online. 

In both examples, what helps these companies price effectively is they are pricing for their customers. Despite their massive success, they still win the loyalty – and spend – by specific customer segments. In the case of Apple’s flagship product, the iPhone, they have held a largely second position in global smartphone market and often less than 20% of the market. In the case of Warby Parker, while well known, in the market of online eyeglasses, they are far from the market leader Zenni Opitical who hold a 50% market share. 

What these examples can teach us is that if we know who are customers are, what they value and why, we can make more informed pricing decisions that align with who those customers are. If we take a boil the ocean approach, it becomes increasingly difficult to gauge whether the value proposition or any element of value, is resonating with customers and the market. For many entrepreneurs, this noise causes them to turn to price – often through price decreases and discounts – when they did not have to otherwise. 

 

Target your market more effectively 

While the goal of many companies is to be product of choice for all customers, the reality is only a segment and often sub-segments of customers are going to value your product. More so early on in the life of your company. 

That means, rather than trying to create a general proposition for all customers, it can be more effective to target specific customer segments and in stages. To execute this type of go-to-market strategy, you have to know more than customer demographics and data offered by your competitors. You need know about your customers. 

Knowing your customers means you can not only identify them – demographics – but you understand where and how they derive value. You understand why they making seemingly irrational buying decisions. Why they seem to be willing to pass up offers to save money, save time, be happier if all they have to do is buy your product or use your service. By getting to this level of understanding will help you target your market more effectively and take a lot of the guesswork out of how your company is going to market. 

 

Improve customer engagement

We hear it all the time from companies with a loyal, if not die-hard followings, “Our users/customers get it.” This is not by chance.

Companies who know their customers can create channels to better engage with them. This can range from marketing communication to customer service. It is far more difficult if the base you are trying to service is identified as just ‘customer’. Customers expect more from companies they buy from, and with more personalized services and messaging, knowing your customer is even more important. 

There is also a more passive benefit improving customer engagement. The more you can better engage with your customers, the more you can learn ways to improve your product, your service, future opportunities is different markets.  Just like our customers who take cues from reliable sources they trust, the same can be true of the signals your market is sending to your company. The first line should be from customers you know and trust. 

 

Final thoughts

We often overestimate our understanding of our customers and this makes decisions across pricing, go-to-market and customer engagement sub-optimal. Many times we take cues from our competitors and conclude equivalence. Other times we make generalizations or assumptions about a group of customers and make conclusion from that.

Too often both loses out of the important fact is you need to take ownership of your customers which starts by knowing who they are and what makes them tick. By doing the work to research our customers, which includes actually talking with them, we can close the gap in the vital business decisions that need to be made each day. 

This is not easy, but the time and money saved and the new opportunities create will help this an investment worth making.  


 

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

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HelloAdvisr CEO Feature Interview In Voyage LA Magazine

VoyageLA

HelloAdvisr Founder and CEO, Ed Lee, was recently interviewed by VoyageLA Magazine as part of their “Inspiring Stories” series of rising stars in the arts, creatives, entrepreneurship in Los Angeles. 

Click here to read the full feature on VoyageLA originally published on March 12, 2019. 

 

Today we’d like to introduce you to Ed Lee.

Thanks for sharing your story with us Ed. So, let’s start at the beginning, and we can move on from there.
Most of my professional career involved the intersection of consulting and pricing. I worked for a multinational corporation and global management consulting firms, helping companies and executives leverage pricing to create opportunities to grow businesses.

These experiences provided an amazing global education working with businesses at scale, the challenges they faced, and how they seized new opportunities. So, when I started to get involved with entrepreneurs and startups, it was both a mix of excitement and a pinch of fear.

Early on, while I was still with a large management consulting firm, I was invited to work with portfolio companies at the then-new global tech startup accelerator Wayra in their London (UK) program (now 13 programs globally).

Nothing could hold these companies back from their vision. Nothing except the critical task of the company to one day generate revenue and profit. This was going from zero to one in pricing and monetization for many of these companies. I soon discovered this was not an anomaly.

After several years based in London, I returned to LA; my hometown. When I returned, I wanted to learn more about the tech/startup/entrepreneurial ecosystem and met with everyone I could – from early stage founders to local tech accelerators and organizations. What I discovered was nothing like I remembered seeing when I left the first time.

Entrepreneurship in LA evolved into every industry you can think of: fashion, retail/ecommerce, software, consumer goods. Yet one theme continued to come up again and again in my conversations – pricing.

These discussions on pricing and growth, would eventually be the genesis for my growth consultancy, HelloAdvisr. I wanted to change the paradigm of how entrepreneurs grow companies by leveraging smarter pricing; a proven growth engine and industry-defining as market leaders such as Apple, Amazon and Netflix demonstrate.

My path to entrepreneurship was anything but linear, but experience has led me where I am today and excited to continue working on my three passions – pricing, entrepreneurship, and education.

We’re always bombarded by how great it is to pursue your passion, etc. – but we’ve spoken with enough people to know that it’s not always easy. Overall, would you say things have been easy for you?
It seems a bit of a cliche, but the hardest step in my journey is making the plunge to start my company HelloAdvisr. I knew what problem I wanted to solve – bridge the gap companies face when working on pricing – but did not figure out how best to deliver the solution. Would I offer a product? A service? Join another company aligned with the mission and start helping just one company?

The task of figuring this out delayed the plunge into entrepreneurship – but the time I took for discovery turned out to be invaluable in my next steps. I spoke with entrepreneurs, investors, and community-builders and heard what they had to say. I gave talks and workshops where I engaged with participants on their pain points and the problems they want solved.

Ultimately, I needed to accept there is no perfect answer. The most frightening part is this – unlike so many other professional decisions – was 100% my own. No committee. No board. No one else. Just me.

As long as I was true to the company mission, and our own unique approach to help clients solve their most pressing pricing and growth challenges, we’d be ok.

So, as you know, we’re impressed with HelloAdvisr – tell our readers more, for example, what you’re most proud of as a company and what sets you apart from others.
HelloAdvisr is a specialist consulting firm focusing on pricing, monetization, and go-to-market. Our mission is to help entrepreneurs identify their company and product’s real value to use smarter pricing to proactively achieve sustainable growth and beyond.

Through our experience, we know 100% of companies have to do pricing , but only a small percentage actually work on pricing. This is critical for entrepreneurs where poor pricing is cited as a top 5 reason for failure.

HelloAdvisr brings specialist knowledge by working with entrepreneurs and companies wanting to gain a competitive edge by using smarter pricing to grow their companies. Research shows, a 1% improvement in pricing can have a bottom-line impact three to five times greater than improving customer acquisition/volume by 1%.

HelloAdvisr helps entrepreneurs and companies harness that growth potential. This includes startup and founders from pre-seed (<$100k in revenue) to series D (>$10m in revenue). We also work with entrepreneurs, not in the investor-backed world, bringing creativity and innovation to their industries. This includes ‘lifestyle’ companies creating athletic gear to marketing agencies who are experiencing double-digit annual growth.

Our client’s progress and success is why we do what we do, but also love the constant learning opportunity that comes from working with diverse clients – from the industry they’re in, the products they’re building to the gender/cultural makeup of the executive team.

As we continue to grow, my goal is to create more awareness around the importance of smart pricing to growth. I have been fortunate to be invited to speak and teach on pricing and pricing strategy at leading universities such as UC, San Diego and University of Southern California (USC) and most recently as a lecturer at UCLA and industry advisor for Said Business School at Oxford University. I look forward to many more opportunities to continue the discussion and see even more entrepreneurs and new ventures achieve their goals.

So, what’s next? Any big plans?
My first priority is always supporting our clients and helping them achieve their goals. So, I’m excited to see how they continue to grow and disrupt their industries and sectors.

I’m also excited about HelloAdvisr’s on-going activities to help more companies and the wider entrepreneurial ecosystem to talk about the role of pricing in their organizations.This includes hosting and participating in a number of conferences, workshops, talks and events to raise awareness and insight of pricing as a growth strategy.

One core project HelloAdvisr launched this year is a pricing study to understand how entrepreneurs and companies view and work on pricing. I’m excited to be sharing the findings later this year!

How Entrepreneurs Can Sell More Effectively

race runner

As an entrepreneur, you’ve likely wondered about the best way to approach the sales process. Your natural inclination may be to think about the “sales funnel”, “developing prospects”, and other industry jargon. These are all valid approaches, but there is a vital step so many companies skip over in their sales strategy: develop a competitive position and demonstrate the value you can offer and win on. If you know what value drivers your customers care about and can deliver on, you’re already halfway to a signed contract.

Think Beyond The Funnel

The problem most sales teams face is a lack of perspective. Many sales managers like to talk about the sales funnel and treat the sales process like a conveyor belt. If you want to be an average sales team, that strategy is fine. If you want to exceed your targets and make an impact, you need a more nuanced approach. Think hard about what it is that you’re offering customers. What makes it valuable and unique? What kind of customer would assign the most value to those attributes? Most importantly, how will you deliver on that value proposition and create a repeat customer?

I recently received a sales pitch for a timeshare. The agent did everything right, telling me that I was “specially selected” for the opportunity before talking about the “free” benefits I would receive, such as free flights and free nights at the vacation property. Then the agent pivoted, stating that I could get all of these benefits if I attended the property’s presentation. All I had to do was provide my credit card information to secure my spot for this package “valued” at over $2,000. Despite my best efforts, I could not get her to commit to telling me the actual price of the timeshare. The best salespeople are pricing experts and save that discussion for the very end of the sales process. Everything up to that point is communicating and defending the value of the offer.

Build A Foundation For Your Value Proposition

Understanding your value proposition is great, but only if you can clearly and concisely communicate that value to the customer. You need to go a step further and understand how that value relates to the benefits created. Is this product or service going to reduce the customer’s workload or increase efficiency? Is it going to enable the customer to be more competitive and help to achieve new goals? Once you understand how the customer perceives your value proposition, you can influence customer behavior. You’re not selling a product or a service; you’re selling a benefit; a solution to a problem. In order to identify that problem, you need to know your customer.

Know Your Customer

Clearly defining who your product is meant to serve is difficult, particularly if your product or market is still in the early development stage. Customer discovery is an iterative process as you begin to develop a clearer understanding of your value proposition. You may be forced to pivot several times before you land on a long-term strategy, and your target customer base might shift over time. Once you do have a minimum viable product (MVP) and a target market, it’s time to understand the customers that inhabit that space. Understand what challenges that industry is facing and how your product can best empower customers. Be rigorous and use data to support your analysis. If you can do that, you are far better prepared to have the discussion with your customer – in-person or digitally – and turn an initial conversation into a sale.

The best sales strategies are customer-centric. A great – not good – salesperson doesn’t sell a product, they sell a solution, and solutions are customized to the end user. Your product may have a variety of features or values but each customer will have different needs. Figure out which product features resonate most with your customer and how they might be valued. Once you answer that question, you’re better positioned to quantify value and start assigning dollar figures to the solution you’re providing.

Don’t Compete On Price

Here’s the catch. Don’t compete on price – at least not directly. A customer-centric sales approach moves away from the “follow the leader” approach that many entrepreneurs adopt when thinking about pricing during the sales process. But in order to build this working position, you must know your pricing strategy to effectively execute this in your sales process. Not knowing how and why your prices are what they are, will make it extremely difficult to clearly communicate the benefits that defend the product’s value and pricing.

What if you’re selling a commoditized product, like bananas or water? Here too there are still ways to differentiate beyond a lower price – if you know your target customers. For every generic own brand bottle of water, there is Evian and Voss. A commoditized product, but differentiated for the customer they’re looking to win. 

Ask any highly successful sales professional; once you compete on price, it’s difficult to get the customer to listen to any other part of your value proposition. Start off by fighting to urge to do what the competition is doing and develop a competitive position to defend the price you offer, rather than race your competition to the bottom.

Address The Knowledge Gap

Depending on the complexity of your product and the customers you serve, you may need to bridge the knowledge gap. Take cybersecurity software for example; a potential customer may have network vulnerabilities but not realize the value of your antivirus software; in short, prospective customers don’t know what they don’t know.

There are a number of ways to leverage content marketing and communications programs to bridge that gap. Publish a white paper, speak at a conference, become a “thought leader”. These strategies allow you to build credibility and market your solutions and influence customer behavior without a hard sell. This is an intentional strategy that requires investment but can have huge rewards.

Final Thoughts

For entrepreneurs, being able to sell is critical to success. Too often the urgency to get prospective customers on the sales conveyor belt misses vital components. This takes away from sales effectiveness and the sales growth your company needs.

The more your decisions are based on what you know – not on a gut feeling or guess – the more effective and purposeful you can be. Make sure you understand the value of what you’re selling – both from the company’s perspective and the customer’s perspective – and the solution it creates for each customer. If your customer understands what you’re selling as well as you do, you’ve already started the defense of your price.

Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

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

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

A Easy Guide To Designing Customer Research

Whether or not the customer is always right, the customer is always the one who makes the purchase decision in the end. Over the past few years, more and more companies have shifted to a customer-oriented business strategy as the impressive performance statistics of these businesses roll in. CMO Magazine reported that customer-centric businesses have been 60 percent more profitable than their peers, and nine out of 10 CEOs surveyed in the US have agreed that they will invest in programs to strengthen customer engagement in the year ahead.


Building A Customer Focus Journey

The basic starting point is the customer focus journey. According to the Harvard Business Review, this journey generally follows along four stages:

  1. Info gathering – where the company uses a dedicated team or third party to collect information about their existing customers and desired customer segments.
  2. Data mining – where past customer behavior is analyzed to build a working model of customer motivation and a series of ideal customer personas.
  3. Predictive analytics – where a separate team builds on data analytics to discover and propose future pathways for customer-oriented product and service development.
  4. Active engagement – where customer wishes and preferences are accommodated collaboratively in real time.

One aspect of this journey that may come as a surprise is that many companies, especially startups and entrepreneurs, do not do their own customer research, especially in the early stages. For many, the process of what information to collect, why it is information and how will the information help to make better future decisions is often loosely constructed, if at all, early on.   

There is no question that customer research is a core component of a successful company. Unfortunately, companies that don’t put in the work to know who their customers are or what those customers want are at a substantial disadvantage in competitive markets.

Customer research helps company leadership teams figure out their competitive strategy, product development and go to market including their pricing strategy. Not speaking to your customers puts you in a position where you’re making pricing, product, sales and marketing decisions in a vacuum.


Best Practices For Designing Your Own Customer Research

When it comes to customer research, many entrepreneurs and business leaders share a perception that this is simply too difficult or time-consuming (read: not scalable). Fortunately, that doesn’t have to be the case as long as the research – like any good test – is well structured, well planned and well executed. Here is a useful template for launching your customer research project in the right direction:

1. Define your objectives

Create a clear set of goals your research must help you achieve. This might involve defining the customer segments, identifying customer attributes, preferences for specific features, pricing, etc. Limit yourself to the two or three highest priorities.

Here you want to think about the key questions that you either don’t know or assume to be true about your customers. Be precise in the language you use. Consider how customers would interact with your products/services and which factors would discourage them from engaging with you.

Think two steps ahead of the typical answers customers give. You are looking for insight that gets at what is really needed to move forward with your market strategy. As you build your objectives, consider how the insights from the research will be used. Ultimately, the goal is to design research that is directly actionable and aligned exactly with your top objectives.

2. Define your audience

The next step is to create a persona for the type of customer you want to speak to. Get as detailed as you can about the customer segment. Investigate who your customer are now and think about who you want to attract for the long term. When you find your target, look into where they are spending their time to determine how to attract them. If you can’t tell, ask.

If you still struggle defining your audience, one source of inspiration is ad targeting platforms like Google Ads or Facebook. Facebook’s ads platform is a useful guide on factor defining customer segments; even if you are not going to do Facebook ads.

3. Design your customer research tool

Customize existing tools to fit what you need. Gather data on great online surveys, in-person interviews, focus groups and industry trend reports. Then you can improve and refine them to suit your purposes. Each tool will offer different benefits for collecting the relevant data and insights that go into intelligent, actionable decisions.

While these examples were written with new product development in mind, this open-ended approach can also be helpful for more mature companies and products. Again, what you are really looking for are gaps in your knowledge and challenges to your assumptions about the market, customer, and product.

4. Build-Measure-Learn

The customization in the above point doesn’t end at the interview. You will very probably not get everything you want the first time, but by deploying the Lean Startup‘s methodology of Build-Measure-Learn, you’ll get better with each execution. Eliminate ambiguity from questions, beware of question fatigue, widen your sample and do it again.

Crafting your questions is an art. Don’t rush through the revision process, as this can mean the difference between nice-to-have interesting responses, and actionable insight. One common mistake to avoid are simple yes/no questions but code in structural limits on open-ended ones. Common question types include:

  • How do you do [a process, problem resolution] now?
  • How do you wish that process was different/better?
  • When during your day, do you see this as a significant problem?
  • What kinds of workaround do you currently use to address these and similar problems?
  • Why do you use those specific workarounds?
  • What issues did you face with the current solutions available in the market?

5. Analysis

The last step of this process is to design questions so that they can be analyzed easily. Whether quantitative or qualitative responses, you want to create a functional database of information that can be critically assessed and revisited for comparison over time. Treat your customer research project like a form of test.

From the beginning, you will need clarity on what you’re testing for and how you’ll measure whether this particular test was successful or not.


Final Thoughts

Designing customer interviews can be intensive, but it doesn’t have to be complex. Even the experts use the iterative model to build informed hypotheses, get answers, learn from the data and try again.

With just five steps – defining your objectives, defining your audience, designing your tool, mining the data and measuring the success of the tool – you can help create an agile organization that is customer-oriented and well ahead of the competition.


Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left-side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

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

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Know Your Value: Capture Opportunities And Manage Uncertainty In The New Year

The new year is a blank sheet of paper. Time for new goals, renewed ambitions, and more wins. People are making new health and lifestyle goals. Professionals are updating career plans and objectives. Companies and entrepreneurs are excited about opportunities – new and old – that writes the next chapter of their company’s history. Everyone has an opportunist mindset. 

This optimism, unlike past years, is confronted by uncertainty and volatility in the economy and political environment as a whole. This has real consequences for companies big and small, and presents a real opportunity for companies build solid foundations to thrive in all conditions.

Navigating Uncertainty

Some investors are taking proactive steps to prepare their portfolio companies for a potential ‘winter’. For some this means preparing founders for a reality where the next round of funding – or injection of capital – will be harder to come by, or worse, not available.


“There’s a large cohort of founders who haven’t seen a down economy
and  that’s a risk to the ecosystem”

– David Frankel, Managing Partner Founders Collective

For others – including several companies we have spoken to – it means strengthening the bones of the company; greater focus on financial and operational fundamentals and practices to help thrive across market conditions. This means greater focus on managing things they can influence; going from guessing to certainty. At the top of most companies’ list is capital requirements and cost management.

Companies are looking to fund-raise sooner and for more while capital remains available and the cost of capital remains low. This also means a renewed focus on managing costs including a smarter use of existing capital resources, more efficient internal processes, more effective product development, more selective hiring/recruiting decisions.  

Another core element to the sustainability strategy is pricing and monetization. As much as companies focus on what goes out (e.g. costs), there is not equal time or effort spent working on and improving what comes in (e.g. revenue, profit). Knowing – not assuming or guessing – how to monetize and price products and services help to make better decisions on a core function of the company – how it makes money. 

The Power of Your Price

Taking the guess work out of pricing and monetization, reduces the opportunity costs of time and lost revenue and profits, and increases focus on the activities that have impact and avoids the things that don’t. 

Working on pricing is often overlooked, but is a proactive approach to build the company’s capabilities to compete and grow. Even the slightest of pricing improvements can take your company further than most imagine. In fact, impact on the bottom line is up to 3 to 6 times greater on a 1% top-line price improvement than increasing volume by 1%. Compared to a 1% decrease in variable costs, a price improvement can have more than 50% better impact to the bottom line.

Design An Inside-Out Pricing Approach

For a great chef designing a world-class restaurant, the first step isn’t to build the dish. Chefs design dishes around the vision and goals for the restaurant. They create menus and offerings that drive this vision. They work to win customer segment tastes and interests. Building effective pricing follows a similar inside-out approach. The focus is on answering key internal questions before getting to external presentation. That first step starts with strategy. 

1. Define your strategy

The definition of strategy is the high-level plan to achieve one or more goals under conditions of uncertainty. We share this often but the starting point is identifying what goals pricing is intended to achieve. Does the company need to increase revenue and profitability? Does the company need to accelerate market share capture? Being clear and upfront of what you are designing your pricing for can make a huge impact on outcomes. 

Reality is your company can’t do everything – most companies can’t – so prioritization and focus are vital. Much like you see in an idea funnel, the first step to developing an effective pricing strategy is creating constraints on the problem set. 

Companies can also take the strategy building exercise even further by assessing resources to invest to work on pricing – money, people, time – and define goal timelines. At minimum, defining the strategy and its goals is a vital first step.

2. Identify how you’ll monetize

Once you have defined what pricing needs to achieve, the next step is to identify how you will charge for your product or service or the revenue model. 

Discovering how we want to charge becomes as important than what we charge. Take for example a simple freemium pricing model. A portion of the product is offered for free, and customers who want more features or functions need to upgrade to a paid subscription of $5 per month or $60 per year. This could compare to charging customers a single one-time fee of $60 without a free component. Both can achieve the same revenue per customer for the year, but depending on the model used, can have consequences on longer-term revenue and profit opportunity, customer acquisition cost and retention, price perception, and so on. 

Figuring out how to charge is not as simple as selecting a model. The best companies understand that to design the right model to charge, you have to understand your customer – who they are, what makes them uniquely your customers, and what they are willing to pay. Structured research and analysis is a vital step to successfully determining the right monetization approach for the company. 

3. Set your prices

Most companies start here, but yes this is the last, not the first step, in the process. Too many companies and entrepreneurs we speak to start and end here, without recognizing what prices you charge are a result of your pricing strategy + monetization plan. 

There are three main ways to price your product or service:  

  • Cost+: Calculating the costs associated with developing and distributing the product or service, and adding an arbitrary percentage margin. 
  • Competitor-based: Perhaps most common for companies and entrepreneurs, this approach is to research either direct or related competitors and their prices, and making pricing decisions based on competition.  
  • Value-based: Highly research and testing driven, this approach enables companies to not only price based on willingness to pay, but can build products and marketing around customers and the things they most value and need. 

But this is not all…

4. Execute

For many companies this step is the go-to-market strategy. In the pricing world, a great pricing strategy goes hand-in-hand with execution. The marketing and sales efforts is ultimately designed to reduce – if not eliminate – friction in the minds of customers when they ask “is it worth it (for this price)?”. 

To begin executing on the pricing work you’ve completed, companies to start looking at: 

  • Leadership: The company’s leaders set the tone of how pricing is designed and executed in the company.
  • Process: The clear steps and internal owners to manage the review, changes and implementation of pricing decisions.
  • Rules: Rules provide accountability and remove ambiguity on company’s pricing, and also sets restrictions on price changes such as discounting. These rules set a powerful tone on how the company will go to market and how success will be measured. 

Much like the monetization step, research is a key success factor to setting prices. This requires identifying the right methodologies, work, and discipline, but will take the guess work out of the company’s pricing decisions today and in the future.  

Final Thoughts

Building a strong foundation and removing decisions based on guesses help to prepare for uncertainty and proactive seize opportunities. Working on pricing is one powerful way to be proactive.

Pricing helps companies to answer important questions vital to the commercial viability and success of the company. This is important not only from a top-line perspective, but also for the company’s efficiency and effectiveness in any market conditions. 

Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left-side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

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

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

What Your Product-Market Fit Test Is Missing

What is the both the earliest and best indicator that a company has a future?

Is it the napkin where a great idea is first sketched out? Is it the bank confirmation of your first paying customer?

Those are important milestones to be sure, but a powerful indicator for proof of life – and one early financial backers like to see – is evidence of your product-market fit (PMF).

The concept of PMF was first introduced by Wealthfront CEO Andy Rachleff, who wrote, “First you need to define and test your value hypothesis. And then only once proven do you move on to your growth hypothesis.” Both qualitative and quantitative indicators contribute to your assessment of how well what you want to provide will fit in the market.

One of the most common mistakes entrepreneurs make is the thinking that their PMF is the same as their commercial opportunity. Too often entrepreneurs use initial positive customer response and early adoption is equates to commercial viability. What makes these commercial assessments either misleading or incomplete is because they often do not incorporate pricing and willingness to pay. Bringing pricing into the mix, not only expands any conclusion of PMF, but stress tests core assumptions about the product, the customers and the value proposition.

 

Benefits of Pricing-Driven PMF Research

When pricing is integrated in the PMF validation process, the results are more robust. Pricing research discovers not only whether customers will adopt a product, but adds more real-world context by incorporating customers decision-making. In other words, what parts of the product has enough value that customers willing to pay?

There are two common disagreements with integrating pricing into PMF research – (1) the product is too early for customers to properly assess the value; and (2) we don’t know the right price to test against.

These are both fair arguments for why PMF research omits pricing, so let’s examine each.

Product is too early: Yes for many companies searching for PMF the product is early and may be far from the final product. Yes the core proposition – the why customers care – often does not see huge variations. At the very least, when pricing is brought into the discussion, customer feedback is often more honest and realistic; because you’re asking whether or not they’d pay for what they see.

But it’s not just whether or not they’d pay that’s insightful, but more for the reasons. This helps companies to assess whether what they’re building is worth continuing to build. It also helps companies to assess if the features that are currently under development should be built at all or whether other feature builds should be high priority. This can save not only time, but the precious resource (e.g. money) that would have been used on building something that did not materially increase value for the customer.

We don’t have a price to test: Not to be overly cheeky, but many companies often don’t have a well-defined price even at launch, but let’s assume for the moment that the company will go eventually through the necessary pricing process to design the right pricing structure and level.

It is fair to say that the price being tested at the PMF stage is not ‘right’, but what bring pricing forward is the opportunity to test some of the assumptions that the company will use to build future pricing such as competitor benchmarks or variable costs. This is also a safe environment to test assumptions on what will or will not increase willingness to pay. There is little downside, and far more upside.

Even if the company’s business model is built around a market share strategy where the objective is to gain as much market share to push out the competition, gain economies of scale to reduce costs or be first to market, this is again an opportunity to test how much pricing power the product has to gain the benefits of this strategy.

Many recent ‘success’ startups have gained considerable scale, insufficient pricing power amongst other factors raising considerable doubt as to whether these business model will ever be sustainable, let alone profitable.

If there is an opportunity to test your company’s business model assumptions in a real world context, do it. You may discover other potential revenue sources that can complement or replace revenue from the company’s original value proposition.

 

PMF for New Products Development (Pre-launch)

Do customers really want the products/services you want to sell? Are they willing to pay? These early stages of development is a great opportunity to shed light on the commercial unknowns and find direction. This means building a more structured methodology to how pricing and customer response is tested and assessed.

Like any good experiment, you’re creating hypotheses that you want to test and designing tests accordingly, rather than testing blind. This means you’re starting to explore success objectives – particularly around pricing and commercial goals – for the product. You’re asking early on what drives value in the product. What are assumptions made by the team, and what is more reflective of what customers value. Finally you’re looking identify your customers, who value the product in its current and future forms.

The goal at this stage isn’t to find absolutes but greater direction to make more informed decisions, manage the consequences of future product (read: development) and commercial (e.g.  pricing, business model) decisions. This should be an on-going and iterative process, and not a one-time event. Those that stop this part of the iteration and testing process is where decisions are increasingly made blind.

 

PMF for Those Already in the Market (12 Months or Less)

If you have newly launched but still have not found the path to significant traction, don’t give up. Now is the time to do the research you did not have the opportunity to do earlier. It’s one step backward, but you’ll move 10 steps forward.

This research is focused on identifying your benefits and value drivers – the reason why customers will use your product, potential friction points, who these customers are and what these value drivers worth (or not). This doesn’t have to be a global research study, but it needs to be expansive enough to give you the directional guidance to make decisions on your price, your product, and your marketing. You read about some research methods we’ve recommended for your research.

 

PMF for Those Already in the Market (More than 1 Year)

A year or more on the market is a great accomplishment. Although estimates vary greatly, the SBA estimated that 3 out 10 business fail within 2 years, so you’ve made considerable positive strides overcoming important hurdles to get to today.

You have probably gained some traction as customers get comfortable with how the product works and feel positive about your company. After your first anniversary, turn your attention to running quick pricing sprints.

Test the strengths and weaknesses of your pricing by assessing why customers use your product as well as how much more they’re willing to pay for it. Discover that’s changed in what you knew before and what is actually happening today.

Investigate alternative strategies to monetize your product, such as changing the pricing structure, differentiating your price and offer to different customer segments, or how you handle payment arrangements.

This research has to be well structured, planned, and scheduled for periodic reviews, but the results can be extremely valuable and can set your company up with more strategic and tactical opportunities to win customers and grow.

 

Final Thoughts

There’s an old saying that nothing is really possible until it’s practical. The halls of invention are littered with the relics of great ideas that went nowhere. PMF is about understanding how your customers get through the day in the real world and what they consider valuable in a rapidly changing world.

You may only have a short window of monetization before your basic value proposition has to evolve and offer them something more relevant. PMF is really a business survival tool that you should master and keep close at hand as your business matures.

 

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How One Company Used Price To Build A Cool Fashion Brand

Warby Parker, the eyeglass startup with the funny name, was founded in 2010 by 4 MBAs Neil Blumenthal, Andrew Hunt, David Gilboa, and Jeffrey Raider. While in business school, the co-founders created the idea for the company and spent the time while in school to build the foundation for what would become a fast-growing brand and company valued at over $1 billion.

One of the key success factors attributed by Co-CEO Neil Blumenthal was their approach to pricing and the early work they did to make sure their pricing was right.

 

Influence Of Pricing On Warby Parker

Warby Parker’s co-founders were originally going to sell their glasses for $45. This price was substantially lower than the average pair of eyeglasses where according to the National Association of Vision Care Plans, the average cost of a pair of eyeglasses in the US is $263 making Warby Parker glasses a fraction of the price.

The thinking was to make the price low to attract more customers and differentiate from the competition. But two early factors influenced their decision on the price: the desire to create a premium brand and the feedback from their business school marketing professor.

 

Building An Affordable Premium Brand

From the beginning, the co-founders knew they wanted to create a brand around Warby Parker, not just a low price commodity. They had a clear idea of who their customer was – young, tech-aware, cares about style but not looking to break the bank to achieve it.

To connect with this segment and gain credibility, Warby Parker ensured at launch they were going to be associated with this style group by having features in leading style magazines such as GQ and Vogue.

Another core element of their brand is the social mission. For every pair of glasses sold, the company gives a pair to a person in need. While not a social enterprise, Warby Parker made sure they created a brand that also connected with customers who are socially aware.

 

Finding Pricing Smarter

While building a brand was critical to the vision of Warby Parker, so was price accessibility. One of the early problems the company set out to address was tackling the high prices led by eyewear behemoth Luxottica.

The company reviewed their pricing with their marketing professor Jagmohan Raju, an internationally recognized expert in pricing, and the feedback was clear, the price point was going to be perceived as too cheap. Customer will question the quality of the product and weaken the brand positioning. The professor also pointed out that the revenue generated with cause issues for funding other functions – namely marketing – for the business.

The team went back to work and tested numerous price-points through customer research. The result was increasing the price by more than 100% to $95 in hopes of establishing a high-quality product and making enough profit for marketing costs.

Warby Parker also understood that they had to defend their price by reducing resistance to purchasing eyeglasses online. If the customer felt unsure or uncomfortable buying eyeglasses online, then they would find the price ‘not worth it’.

To address this friction point, Warby Parker introduced try at home, where customers can select up to 5 frames to try on at home. A customer can then see what looks and feels right, return the trial glasses and then order online. Not only does this make buying eyeglasses easier, but it injects value into the price customers were paying.

 

Closing Thoughts

Warby Parker’s early appreciation of the role pricing has on its brand, business model and customer satisfaction played an important role in setting up the company for growth. This early foundation has built up value with new and existing customers that enable the company to now not only increase prices of existing products but to introduce new lines at higher price points (now up to $145). The work the team put into research, test and manage pricing has created a unique competitive advantage for the company with the funny name, and an important lesson for entrepreneurs to learn from.

MoviePass (Or Fail?)

MoviePass, an online movie ticket subscription platform, has gained a lot of attention over the past few months – and rightfully so. In the two years, this company has gone from a behind the scenes company to headline news and market disruptor.

How MoviePass works

MoviePass was founded in 2011, offering movie-goers monthly subscriptions for access to a set of movie tickets. What originally started off as a voucher system eventually evolved to a pre-loaded, debit card-like product where customers were able to redeem their tickets at theaters.

The core value proposition of MoviePass is quite similar to other online platform businesses such as Classpass, which offers the same voucher system- but with fitness classes. MoviePass aimed to build a product that brought customers value through lower prices and the convenience of booking movie tickets online; Their mobile app was a way to connect to millennials who want immediate access to movie tickets.

Since their launch, MoviePass has faced strong resistance from major movie chains such as AMC Theatres. Many of the major movie theater operators saw MoviePass as commoditizing the ticketing and customer engagement process, eroding already diminished differentiation theater chains. This threat came on top of the challenge many online streaming services, such as Netflix and Hulu, posed to the share of customers’ entertainment wallets.

 

Accelerating Growth With Pricing

MoviePass currently has over 3 million subscribers- users have access to a set number of movie tickets per month. As of August 28, 2018, MoviePass offers only one monthly subscription package for $9.95 for 3 movies per month.

Since 2016, with the arrival of new CEO Mitch Lowe, MoviePass has been actively using price to test new strategies and models, tactically acquire new customers, and influence the market as a whole.

One way MoviePass has used price is with deep price cuts. The company took their original packages that cost as much as $50 per month to a flat $9.95 monthly subscription fee that allowed customers to watch one film per day. The single price cut won more than 150,000 new subscribers in just two days.

Another pricing strategy MoviePass used was to offer unlimited movie tickets per month for a single flat price.

While subscribers only pay a flat fee for their subscription, MoviePass has to pay the theatre for each movie ticket purchased using a MoviePass card. At the current subscription fee, customers can begin saving money upon redemption of their second ticket. While this pricing model offers abundant benefits to MoviePass users, it is unclear how MoviePass can sustain this business model.

One way to help the business model are ‘ghost subscribers’ – customers who continue payments but neglect to go to see movies. Like a gym, MoviePass is trying to factor in non-use. It is unclear what percentage of users are inactive, but the risk to sustainability is a legitimate concern; The company temporarily went offline in July 2018 due to a lack of cash, resulting in many unhappy customers. ( ).

Along with sales stemming from subscriptions, MoviePass also gains revenue through deals with local restaurants. MoviePass’ CEO revealed controversial information stating the company tracks its users via location-based services on their app. The company uses mass surveillance to see where customers go before and after seeing a movie. MoviePass then analyzes this information and works with frequented restaurants to create deals for MoviePass users. MoviePass realizes a profit from the success of such promotions- although the exact percentage of their revenue gained from this strategy is uncertain.

 

The Good And Bad Of MoviePass’ Pricing Journey

The Good: MoviePass has been very active in experimenting with their pricing. They used their tests to adjust their product offering and customer willingness to pay. The company was also bold with their pricing; They were proactive in price changes – both increases and decreases – but also in package designs and fences (e.g. access to blockbuster films) in their offer.

The Bad: With proactive pricing, also comes customer confusion and dissatisfaction. As MoviePass accelerated growth, customers experienced the price experiments in virtual real-time. When prices were too low, MoviePass increased prices. When movie theaters pushed back on blockbusters, MoviePass adjusted their offer design and price. Making both incremental and material price and offer changes only become more difficult with growth. MoviePass has also had the added pressure of managing expectations and deliver on its core value proposition.

 

Final Thoughts

MoviePass’ ambition is bold – leveraging its pricing toolkit to accelerate growth and disrupt a huge market.

If imitation is the most sincere form of flattery, then the movie theatre industry has done just that as major movie theater chains like AMC and Cinemark are taking a play from MoviePass’ playbook by offering their own subscription service.

It is still uncertain as to how MoviePass will navigate its business model reality and how they’ll manage the consequences of their pricing strategy. One thing companies can learn from MoviePass is how testing different price-points can be used to better understand a business strategy and how it influences the market. Just not necessarily in real time; not everyone needs to see how the sausage is made.

 

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

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Paradox Of The Market Share Strategy

Entrepreneurs want to bring their solutions to the greatest number of customers and people possible. Commercially they want this scale to grow, capture efficiencies of scale, and ultimately achieve economic profit.

To achieve the original vision, many entrepreneurs embrace a market share strategy to establish a foothold in the market and scale. This strategy is designed to quickly acquire new customers and users; usually winning customers away from incumbents within the market.

To execute this strategy, entrepreneurs use price early and often. With few other tools to leverage, companies use lower prices, discounts and promotions to entice customers to either switch or at least try the product or service. Once the company either captures enough scale or wins sufficient market share, then the company will attempt to move upmarket through its offering and pricing.

The paradox is that making that transition from a volume to a value play is extremely difficult. The reality is very few companies successfully make that leap, and only after significant investment and time.

One of the objectives of capturing market share or outright leadership in a market is to own their pricing destiny. As former PayPal co-founder Peter Thiel explains in his book “From Zero To One”:

“Whereas a competitive firm must sell at the market price, a monopoly owns its market, so it can set its own prices.”

None of this is to suggest that acquiring and growing market share should not be a strategic objective of a company. The purpose is to point out that companies pursuing market share give away the one thing they are trying to acquire via market share – greater influence on pricing.

If you do choose to implement this strategy, here are four considerations to help guide you and your company’s decision-making:

 

1. Market Share Strategy Is Common With Entrepreneurs and Startups. Differentiation is critical.

How does an entrepreneur inch closer to dominating market share? According to Thiel it is about dominating a small market rather than trying to penetrate a large established market. Put it another way, it is better for a company to be a big fish in a little pond, and make the pond bigger over time, rather than trying to eat up big fish in the ocean.

At the heart of this thinking, is that if you want to win market share, then do so where the pressures of competition are lower; where you can control you value proposition and pricing.

To make this assessment, entrepreneurs need to properly assess the market they are in and want to be in, and the customers they need to win. Unfortunately, many companies have not done this work.

For these companies, scale means competing in an out-sized market and capturing even a small percentage because in absolute terms it can be huge. So entrepreneurs will try to “buy” market share by selling at a low or lower price. While not exactly a price war, you’re one step closer.

The core assumptions and success factors are:

  • The company is aware of the actual willingness to pay of customers;
  • Customers understand and value the product on offer (and link to a monetary value;
  • The company can quickly achieve higher pricing benefits by executing on the unlocked value proposition via sales and marketing.

Truthfully these are large assumptions that even better companies struggle to achieve.

It is one way to gain traction without brand recognition and position the company for future growth. With the right execution of this strategy, but companies often find they’ve ignored the one thing that retains customers for the long-run: value.

 

2. Ruthlessly Manage Value

The market share strategy revolves around several objectives including establishing firm footing in a new market or pushing out existing competitors, gaining scale to drive efficiency, and establishing brand credibility for the future.

The hidden risk of this strategy is that firms create “anchor” prices, either through consistently low prices or frequent use of discounts or promotions.

Value can be diluted through aggressive, sometimes even blind, pricing strategies. Those initial low prices set customer expectations about what they should pay for your product, the value they receive, and how they perceive your brand.

The very best sales executives I have had an opportunity to work with shared the same advice when it comes to defending your value through price: “Never start a conversation with your customers about price. If you do, [customers] won’t hear anything else you have to say about your product’s value proposition.”

Defending value means understanding what that value is worth and patience. It is always easy to decrease price, but a long journey to win the value you deserve.

 

3. Effective Hedge: Customer Segmentation

Talk to a pricing consultant and you’ll find examples of companies embarking on this strategy and failing to translate any of the achieved scale into economic profit or value addition.

Customer segmentation can act as a vital hedge. Unfortunately few companies – particularly startups and entrepreneurs – apply it effectively.

One example is Blue Apron- a leading online meal kit provider. The company built a foothold in the meal kit market with aggressive prices, discounts and promotions. It is untold how much revenue ‘leakage’ Blue Apron is experiencing while implementing promotions and discounts to win customers to retain market share.

While Blue Apron did ultimately IPO, it continues to lose money and has since been displaced by incumbents (e.g. HelloFresh) as the market leader and is threaten by new competitors (e.g. Amazon) in its space.

Bed Bath and Beyond also tried to capture market share with low prices but has failed to convince consumers that the brand can provide more pricey luxury products. Many software as a service (SaaS) companies are using a “freemium” model and will likely face similar challenges. Even B2B companies offering products from workspaces to hardware start anchoring prices with discounts and other incentives. Companies who effectively segment their prospect customer base build corresponding packages and can create an effective “value blend” that drives sales.

 

4. Consequences Based Decision-Making

Seizing market share is only the first stage of this strategy. Figuring out what happens once you’ve established a foothold in the market is critical. Think in terms of consequences. What options are available after we make a certain decision? What options are available after that next step?

This approach is both resource intensive at the beginning and resource-intensive to maintain. This is particularly true in markets where customer switching costs are low.

Here are the questions you and your leadership team need to be asking:

  • How do we convert low-paying customers into high(er)-paying customers?
  • How can we defend price increases?
  • What about our value proposition justifies higher prices and how can we confirm that?
  • How will we respond if a competitor or new market entrant also adopts a market share strategy?
  • If we fail to convert customers to pay higher prices, how will that impact our growth prospects?

This approach should align with your company objectives and the value you offer.

 

Final Thoughts

The purpose of this discussion is not to dissuade you from using a market share strategy, but to encourage thoughtful, strategic objectives and planning to be prepared for what happens next.

There are opportunities with a market share strategy, but there is a very real risk of diluting hard-earned value before you have a chance to stake out your position in the market. As Blue Apron and other companies have seen, it’s more difficult and costly to move up the value chain than down. Taking the time to develop a thorough strategic plan for what happens after you seize market share can truly pay dividends in the future.

The market share strategy might be simple in theory but in practice, it can be very difficult to execute. The strategies that work in securing your market foothold (underselling your competitors, frequent discounts, etc.) actually make it more difficult to move up market. You may sell a lot of units as the low-cost option, but that perception may linger with customers long after you’ve decided to move up the value chain.

If you need help working through these issues, there are great pricing consulting and small business marketing consulting firms in Los Angeles that can help your company develop a foundation for future success.

 

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

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