The Price of Beauty: Navigating the Challenges of Building a Successful Brand

In the world of beauty and cosmetics, where trends evolve and change at a rapid pace, pricing can be a make-or-break factor for brand Choosing the right pricing strategy is not just about covering costs and making a profit; it is about standing out amongst your competitors, where differentiation is the key to sustained success. Here, we will delve into the many pricing challenges that beauty and cosmetic brands regularly face and introduce some strategies that can be used to overcome them.

What makes beauty products unique?

Beauty products are unique in various ways. First, they are very personal. They can help you represent yourself, connect with your values (e.g. using clean ingredients), and identify with a specific community. They are something you frequently put on your face and body for a purpose, permeating into your everyday life. 

As a result, these products hold a unique position in the market due to this intimate relationship with consumers. Because of the emotional connection between the consumer and the beauty product, purchasing decisions can become highly subjective. 

Furthermore, beauty products and brands are no longer simply owned by big conglomerates. They are more accessible to creators and brand-builders, making the industry even more competitive. Furthermore, this beauty marketplace is known for its trend-driven nature with constant innovations. This means that new ingredients, formulas, and technologies are constantly introduced, creating a continuous stream of new products and brands entering the market. 

Finally, more often than not, beauty products are not just products but experiences. They can be moments of self-care, indulgence, and transformation. This aspect adds value to these products beyond their obvious functional benefits, which allow brands to offer them as unique and memorable experiences worth paying for.

Challenges beauty brands face

Due to the unique nature of beauty products, there are many challenges that come with pricing them. 

First, there is increasingly more competition as both big brands and new entrants (some funded by institutional investors) fight over many of the same customer segments. So, it is even more difficult to stand out and differentiate your product from the rest of the competition. Brands often face immense pressure to price their products competitively to attract customers while ensuring that they can cover their costs and make a profit simultaneously. 

Second, it is more expensive to create awareness and willingness-to-pay. With the challenges that come with product differentiation in such a crowded market, many brands find it difficult to communicate their own unique value proposition to potential consumers. As a result, some brands may find it difficult to justify premium pricing and experience price wars with their competitors.

Third, the margins are thin within the beauty and cosmetic industry, not only due to this high level of competition but also many other costs accrued in order to stand out in such a crowded market. These can range from promotional costs to R&D costs to distribution costs, among many others. All of these costs can make your margins extremely thin and increase pricing complexity.

Fourth, while many beauty brands like to implement promotional pricing campaigns to attract new customers and drive sales, it is a balancing act because excessive discounting can devalue a brand. Furthermore, it can erode margins and make it difficult for some brands to achieve profitability despite gaining new customers.

Finally, consumers in this particular market have a wide range of price sensitivity. Pricing plays a role in defining the brand, and can be a factor in switching. Like any product category, a low or discounted price can not compensate for poor products.  Beauty customers have high expectations across price points and channels, so understanding this value exchange – product for a price – is critical for successful beauty brands.

How successful brands use pricing

Facing a wide variety of challenges, we have seen successful beauty and cosmetic brands  turn to pricing as a powerful tool to help them achieve their growth objectives. Pricing can play this crucial role by:

1. Building brand image

Pricing can communicate the brand’s positioning in the market. For instance, premium pricing can help create a perception of quality and exclusivity. On the other hand, value pricing can attract budget-conscious consumers. Retains your company’s overall number of accounts or subscriptions. 

2. Supporting differentiation

Within such a crowded market, pricing can help brands differentiate their own products from those of their competitors. Unique pricing models, such as personalized offerings, can help brands really stand out. And, with competitive pricing and the right promotions, brands can first acquire new customers and then focus on retaining them through their product quality and customer service

3. Creating pathways to sustainable growth and profitability

Nailing a dynamic and effective pricing strategy can really help brands improve their profit margins, so it is important to spend time and resources on developing one that can lead to sustained growth. Doing so can even allow many brands to then reinvest in other areas such as product development and expansion.

4. Building the right customer base

With the right customer segment in mind, pricing can help your brand attract the right customers who are willing to pay for your products. As you attract more and more of them, you can build up a solid customer base aligned to all facets of your business. Furthermore, using pricing strategies such as loyalty programs or discounts for repeat customers can encourage customers to make repeat purchases, ultimately building brand loyalty.

5. Expanding into new markets

When entering new markets and expanding, brands can adjust their pricing based on local market conditions, competition, and consumer preferences to maximize their chances for success. So, establishing dynamic pricing strategies can help maximize your brand revenue.

Final thoughts

The world of beauty and cosmetics today is a tough one to navigate as challenges emerge daily that can disrupt your growth as a company. With such a competitive market that deals with such unique products, many startups find it difficult to figure out where to start with pricing, sometimes dismissing it altogether as something that requires their time and effort. But, dedicating resources to developing your pricing strategy is priceless as it can be extremely rewarding in the long run. The challenges within the beauty industry that we listed above are only several among many others that exhibit the true complexity of growth within this industry. So, it is important to have a detailed understanding of what challenges you may encounter and how you can counteract them as you grow your brand within this space.

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Enhancing Willingness-To-Pay: Lessons From Athleisure

athleisure yoga mat

Have you ever stared at your computer screen wondering if you should really spend $70 on a pair of Gymshark leggings or even $100 for a pair of Lululemon Align pants? 

This scenario is far too common for people looking to purchase workout clothes, most commonly referred to as “athleisure.” 

 

Athletics Meets Fashion

Athleisure is apparel that is meant for athletic activities but can also be worn casually. The idea is that this type of clothing fits inside and outside of the gym, and a person won’t look out of place wearing it on the treadmill or at social events. Some common athleisure items are yoga pants, leggings, tank tops, sports bras, jackets, and more. 

The rise in popularity pushed companies to begin researching and experimenting with the materials to make athleisure what it is: versatile. This meant a rise in production costs and thus, a higher relative price. 

Is it “worth” spending a lot of money on clothes you are meant to sweat through?  

How do athleisure brands enhance willingness-to-pay, perceived value, and loyalty? 



Trust The Process: Innovation and Category Creation

Consumers have to think about the process athleisure goes through to live up to its purpose. 

How are they made? What kind of technology is used? 

Part of the reason why Lululemon has been able to differentiate is because of their innovative process in experimenting with different materials (nylon, Lycra, spandex, elastane) in order to make something that is both functional and versatile. Interestingly, Lululemon has a “whitespace lab” in Canada which consists of exercise machines, humidity controlled chambers, and even dunk pools to test the durability of Lululemon apparel.

If you think about it, this is a good thing. You want your athleisure to hide your sweat, smell, and keep your internal body temperature balanced. The athletic brand, Vimmia, promotes something called “thermoregulation” which regulates your temperature depending on your surroundings. This technology and innovation makes athleisure versatile for any situation. This means you can comfortably walk into the grocery store right after your workout without looking (and feeling) out-of-place. The innovation, style and fit has created a new category of clothing with its own perceived value.

 

Building Pricing Power 

Part of the reason why athleisure is able to maintain its pricing power is because consumers find relative value that goes beyond just product features. 

Once you purchase high quality athleisure products you acquire a sense of status due to the brand recognition that goes along with it. 

Athleisure companies have built brands to connect with consumers through product and emotion. Instead of performance like traditional athletic wear brands, athleisure connects consumers with a lifestyle that is aspirational and self-aware. These brands have tapped into the emotional connect one finds in boutique fitness (think SoulCycle), sneakers (think Yeezy), and exclusivity (think Supreme). 

This brand identification has created pricing power for athleisure companies, commanding premium prices relative to traditional athletic clothing, but also tapping into new segments of the market.

 

Extend The Value Proposition 

Brands have begun to take the feeling of community to another level. 

For example, Gymshark specifically turned to social media fitness influencers. They converted many into something they called a “Gymshark athlete” which is similar to being a brand ambassador for the company. The athletes are responsible for posting on their social media to raise brand awareness by trying on some of the free products they’ve received, answering customer questions, and posting their workouts in their athleisure. This helps boost sales influenced by the personal connection between the consumer and brand. 

Gymshark went further by creating expos, or Gymshark meet-ups, where consumers could meet their favorite athlete. When the company expanded, they created an “expo world tour” where people could now buy tickets to see select influencers. This kept the idea of a community but added exclusivity in the mix by making it available to a limited amount of consumers. Not only that but Gymshark is great about posting free workouts to their social media as well as reposting consumers’ posts when they tag Gymshark. With this in mind, consumers feel valued making them more likely to continue to purchase from them. 



Find Market Gaps 

The rise of athleisure has created subsegments in the market that includes those that have different willingness-to-pay. These gaps in the market create opportunities for competitors to come in and address the needs of those consumers especially because of relatively low barriers to entry. 

This competition give customers an alternative to more expensive brands. For example, the brand “Colorfulkoala” on Amazon has thousands of 4-5 star ratings. Interestingly this brand is classified as a “Lululemon dupe” because of the high quality but without the logo and price point. 

Another competitor, Fabletics, uses star power (the brand was founded by movie star Kate Hudson) and a different business model to differentiate from other brands. Fabletics is a subscription-based brand offering inexpensive athleisure with leggings selling for as low $40. Fabletics often runs sales where consumers can receive 2 pairs of leggings for only $24. 

The reason Fabletics is able to position its products at lower price points is due to its “no-waste” model. Since the brand is based on a subscription, the no-waste model means that only what is demanded is produced. Using the subscription to their advantage, members are guaranteed to visit their site monthly to purchase. Fabletics Vice President Felix de Toro claims that demand can be predicted with 95% accuracy. Fixed costs are reduced because of this, and Fabletics can consistently offer their members high quality products at affordable prices whereas their competitors markup their products to make up for waste they’ve produced. 



Final thoughts

Building a new market requires several key components, one of which includes understanding the drivers of price and willingness-to-pay. 

Athleisure brands have done an incredible job in creating a market valued at more than $155 billion globally. 

The expansion of the athleisure market has created growth opportunities for new brands to enter using differentiated pricing, business models, and value propositions (linked to pricing). 

While technology and innovation in the use of material has contributed to the value driver, athleisure companies have gone beyond to expand the value proposition – and the price opportunity – to connect and retain loyal customers. 

What has been central to the success of so many athleisure companies – and important lessons companies from other industries can learn from – is the keen understanding of their customers, what they value, and how to package product and pricing that resonate with them.

 

 

 

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HelloAdvisr In Oxford University Feature

We are excited to share a new feature by Oxford University about HelloAdvisr and our CEO Ed Lee. 

In the article we had a chance to share our journey, and our vision for how startups can build thriving sustainable ventures. We are grateful for all the support we have received for our work to see innovative builders close the value gap to grow thriving sustainable ventures that contribute to their communities and the ecosystems they operate. 

One important takeaway shared in the article is the introduction of our “value debt” concept. With our experience with hundreds of startups and companies around the world, one of the most common threads we see if the misalignment between value delivered and value received.

This value misalignment has significant impact for a fast-moving growth venture specifically in terms of their trajectory and resources required to achieve that path.

The most obvious is the impact on revenue traction and pathways to profitability. When a company under-values their product this leaves potential revenue and profit on the table. This should not be confused with revenue or price optimization. This is foundational and several steps before optimization. The challenge is in articulating value through a proposition and price. For too many startups, this is a step that is needed, but rarely taken. 

Value debt also impacts a company’s competitive positioning and utilization of resources. Lack of clarity around what is the value for the solution created, but equally what drives that value for customers puts pressure on a company’s ability to position competitively. We see this manifest in a feature race with competitors, without a more mindful appreciation of what creates benefits for customers and differences between them. 

Related, but separate is the associated costs for supporting value debt. One of the biggest areas is in acquisition costs. Less insight into customer segmentation driven by willingness-to-pay, pricing, and value drivers creates a gap in how acquisition costs are targeted and utilized. This also influences the acquisition strategy a startup can and should pursue.

Read the full feature using this link here. 

 

Updated: July 16, 2021

 

 

 

 

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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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Why Startups Need To Focus On Pricing More Than They Think

startups pricing deals

TL:DR

  • Your pricing is your startup’s hidden weapon to growth. 
  • Pricing enhances sales outcomes (read: revenue and profit). 
  • Your pricing will impact all parts of your startup from fundraising to finance, sales and marketing to development, so it’s vital to get this right now. 

Startups are increasingly under pressure to be not only product innovators, but to be sustainable businesses that can one day reach its profit potential. Yet many startups fall short of their potential because they have not focused time on their pricing – the critical component to their business model and sales. 

This has created a disconnect with how startups market to customers, what customers to market to, what elements of the product drive willingness-to-pay (or not), and how their pricing strategy will set their business on the right financial trajectory to help raise external capital to turbo-charge growth. 

Here are five reasons why startups need to focus more on pricing. 

 

Pricing power gives you added market power, which makes you desirable to investors, and makes your company more valuable. 

You created a product customers love. Through pilots, tests and real-life customers you have concluded you have product-market-fit, right? 

Yes, in part. The other part to this critical equation is whether you have willingness-to-pay for the product you’ve created, which is too often the missing component to the product-market-fit equation. By determining not only willingness-to-pay, but more importantly the pricing needed to establish and grow willingness-to-pay, you’ve enhanced your desirability for investors because not only have you checked off the product innovation and scale boxes, but you’ve also checked off the critical “can this be an actual business?” box. 

 

Pricing enables your business to improve cash flow, and it costs less to do than through traditional volume-based activities 

Pricing plays a critical part to accelerating revenue traction and trajectory, yet too many startups under-utilize this growth lever. Your ability to design and execute better pricing, will not only improve cash flow at little to no cost, but will improve the growth potential of volume-driven sales activities where so much of your startups growth capital is going towards. Put another way, with better pricing – model and level – you can get more for each hard earned sale and customer won. This helps improve cash flow because you were able to price better, in addition to capital and time spent winning customers.   

 

Knowing your product’s willingness-to-pay is a direct indicator of what customers care about, and ways to your product better to enhance customer demand. 

There is no greater source of product validation than when customer wants to pay for your product to have the product in their lives. This is critical for a startup that wants to build a viable business. Building a product without understanding willingness-to-pay, is a huge risk not only for monetization but also the development of the product. 

Focusing on pricing, means you know your customer better helping gain an edge on competitors.

Truth is most competitors don’t work on pricing. This means there is a vital insight missing when they invest in marketing and sales. Knowing your customers across all dimensions – including willingness-to-pay – helps you to engage, active and retain customers better giving you an advantage most competitors won’t utilize. 

There is such a thing as bad sales, and it usually includes poor pricing 

No sale is closed without a price (even when free). So when you win a hard earned sale (and for early stage startups, a potentially expensive sale), poor pricing means you’ve left money on the table for no reason than because you didn’t know it was there. For many sales is a volume/unit discussion, and that can get expensive very quickly. By balancing sales efforts with a focusing on pricing, you’ll get more mileage out of each sale – and this is eveb before any work is done “optimizing” pricing. 

 

5 Practical Steps Your Company Can Take Today

1. Weekly price reviews early on

Yes there is a lot for a startup to do in a week, but pricing must be one of the top activities and its starts with ensuring pricing is on your weekly agenda. These weekly reviews is more than understanding what are current prices. These weekly reviews are an opportunity to get all key people on the team together, aligned on the same strategy. This is also an opportunity to let everyone’s opinions to be heard. 

Pricing is a common bond between the different functional groups – finance, sales, marketing, product – so when anything changes in the pricing world, it affects all groups. These reviews not only identify friction points and conflicting views, but is an opportunity to create solutions. 

 

2. Create a pricing informational data bank  Make pricing the source of customer and market data ingestion.

Pricing is a process not an output. This means pricing needs to ingest, assess, and make decisions on information. Creating an information data bank collects data and insights from all teams from senior leaders to sales and marketing. The information data bank also documents information on how pricing decisions are made and why. 

This allows the team to know who was involved, what the thinking was at the time the decision was made, and what information was used to form the decision. This is not for audit purposes, but is also an evolving record for new team members to quickly decipher the company’s pricing philosophy and to identify ways to enhance pricing.  

 

3. Celebrate small wins – Pricing is iterative 

A startup’s pricing will change numerous times during its first few years. This can be due to changes in the product and range, competitive pressures, internal decision making, etc. What this means is pricing is evolutionary, rather than static; a truth the best and most disruptive companies understand. This makes it all the more important to recognize even the “small” pricing wins. 

This can be the increased revenue from a new pricing model launched for a specific customer sub-segment. It can be improved customer retention through the discount program for highly loyal customers. What is important to celebrate the efforts made to improve the company’s growth using pricing. 

 

4. Celebrate consistency and price discipline 

For many startups, the question of pricing quantitative and about what models to use. What is underestimated is the discipline required to extract the real benefits of great pricing. This is ensuring pricing reviews don’t happen once every three years. This means process-driven decision-making. This means defending your pricing because you know it’s aligned to willingness-to-pay. 

One of the hardest parts of pricing isn’t the modeling, but it’s the work and psychological hurdles startup executives face when having to make a pricing decision. The best models can say needs to be x or y, but it’s the leader that must decide, execute, and manage that decision. 

 

5. Encourage pricing creativity

A common question is “what is pricing “best practice” within an industry?” There are industry trends in terms of the types of models and levels used. But startups aren’t in the business of being like everyone else – they are in the business of solving problems that others are not addressing. This philosophy extends through to the startup’s pricing. 

Whether desired or not, a startup’s pricing is part of the brand and identity. So encourage the team to think of creative solutions to how the company can and should price. The one caveat is any business case that is made for new pricing ideas are backed by research and testing. 

 

Final Thoughts

All startups understand they need to price – especially when they are trying to make a sale and accelerate revenue. What can get overlooked is the need to focus on pricing, and the impact it has on all facets of the business – from raising capital to marketing and branding. So it’s vital to start on the work of pricing and making pricing literacy a core competency of your startup. 

Start by learning what you need to know to form the best pricing decisions – strategic and tactical. Start by aligning the team around a unified pricing strategy. Start by integrating pricing during the weekly standups. Taking these first steps will help you get on your way to improving how to think more strategically on the pricing process and objectives; ultimately driving the most impactful decisions.

 

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How Entrepreneurs Can Sell More Effectively

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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.

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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. 

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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 at: contact@helloadvisr.com 

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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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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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The Core Principle Good Companies Miss In Their Pricing Strategy

The most successful pricing strategies are rooted in the pursuit of understanding people.

This is the starting principle I always emphasize to companies, founders, and executives. If you treat pricing like a discovery process of people, not only will it open opportunities on how to design your prices, but how, when and to what groups of customers you should sell.

This isn’t easy. As anyone who’s built a successful relationship with another human being –personal or professional – can attest, this takes time, dedication and focus. Many leaders are hesitant and often not excited to invest time and resources to customer discovery. But the results, when done right, can be material and high-impact.

 

Know The Unknowns Of Your Customer

I met with a fast-growing social analytic platform with millions of users globally who wanted guidance on their pricing strategy for their newest product. Early in the assessment one of the first questions I had for the CEO/co-founder is to tell me who is their customer and why.

This question seemed to surprise the CEO, especially as his focus was about pricing. We continued along this line of questioning to discover that his customer was loosely enterprise customers, but what was still unknown is why these customers were right for his product, what value these customers would gain, and what pricing, sales and marketing is needed to win these customers. It was a difficult discussion, but necessary to identify the known unknowns and how much of the surface has been scratched.

Lack of specificity, like this social analytics company faced, is problematic for several reasons. Let’s look at three.

 

  1. Pricing: Without a clear idea of who the customer is, any pricing decision becomes increasing generalized. The best pricing is designed for willingness to pay, which varies from customer-to-customer or at least at sub-segment levels. The closer you move to generalized pricing, the more generalized the offering will become; losing opportunities to capture and defend your value.
  2. Product development: It is unclear what customer problem the company is looking to solve. Lack of understanding of the customer makes prioritizing certain development difficult; requiring the company to guess what features or functions their customers value most.
  3. Use of resources: Because this company didn’t know who they are making their product for—at least initially, building a sales process and the marketing assets needed to sell to the customer is challenging. Consequently the company will expend time and resources building untargeted assets and campaigns for vaguely defined customers.

 

Pricing is a supercharged force that drives revenue, profitability and customer acquisition when it resonates with the values of the right customers. With this in mind, before asking “should the price be lower or higher”, the question entrepreneurs and business leaders should start by asking “who is my customer?” and “what do they value most in my product or service and why?”

Industry-defining companies like Apple and Amazon are able to thrive because they are focused on building a customer-centric pricing process. To get to this level, you have to value understanding your customer with as much precision as you value getting to a price point.

So what steps can you and your company take to kick off the customer discovery process? Here’s some things to get started today:

 

1. Build: Compile key hypotheses around your customer

Go beyond demographics and dig deep. If you walked past a group of people on the street (or companies at a trade show), can you identify your customers?

Customer discovery is BOTH an internal and external activity for your team. At this stage, your team is compiling hypotheses about the customer and identifying which hypotheses your team must test and validate. Leave nothing on the table.

Make this stage an inclusive exercise. Collect input from any team or individual that must engage with customers – customer success to finance, sales to marketing. Each will have a unique perspective on what makes a customer, your customer.

What type of information should you collect from your team? To start, you want to understand the descriptives – who are they? Where are they located? What do they use?

You then what to compile assumptions your team is making on behavior, specifically around how customers assess and decide on what products and features to try, use and recommend. So this can include questions like: What parts of your product will customers value most? Why? What is the benefit derived? How do they assess the benefit? Is there a monetary value to that benefit?

The goal at this stage is to build a list of ‘operating knowns’ teams and individuals have been using to make decisions about and for customers. This means the answers to the questions your team builds is actionable.

One side result of this exercise is the identifying where misalignment within the company exists and to what extent. This is not the time to make corrections (yet) or to make judgments on any team. The goal is the bring the company into alignment to make pricing, sales and marketing decisions based on proof points, not assumptions, to defend those things matter most for your company.

Here are 10 questions your team can use to kick off the discovery process. You’ll not only create an initial description of who your customers are, but you’ll also find different perceptions – subtle and direct – within your own team.

  • What brands do your customer most associate with?
  • How would your customer use your product or service?
  • How would your customer assess and decide on whether or not to use your product (or something similar)?
  • What problem(s) would your product solve for your customer? What are the benefits?
  • Would your customer pay $1 to have the problem solved with your product? Why?
  • What would prevent your customers from adopting your product?
  • If they didn’t use your product, what else would they use?
  • How do your customers connect and communicate with new brands and companies?
  • What are your customers top three favorite existing companies? Why do they love them?
  • What companies do they not support? Why not?

 

2. Test: Validate what you believe is true about your customer

 After your team begins to fill in the blanks of what describes and drives your customer, now comes the fun part – test! It’s time for you and your team to validate which elements of the customer profile are true, what is missing, and what doesn’t align with your company’s objectives.

Here are 3 low-burn ways to start testing your hypotheses about your customer:

Go wide: Online surveys

Online surveys generally attract a broader audience than a focus group would, but is extremely useful in understanding a broader group of respondents

Online surveys are easier to design and launch, but because respondents will have a shorter attention span the questions asked must be precise and relevant to your test. Asking nice-to-know questions or launching surveys or 30+ questions will not only affect response rates, but also the quality of answer you receive.

Go deep: Focus groups

Focus groups provide a great opportunity to actualize who you imagine your customers are while collecting feedback. You’ll have an opportunity to not only ask pointed and detailed questions, but also observe reactions to questions and collect nuanced feedback.

The key to success with focus groups, is inviting the right cohort of participants through the screening process. Because the focus group will include a small number of participants – usually between 5- 10 people – you need to be talking to the right people, otherwise the results will not be actionable; wasting precious time and resources. Rely on the customer definition that you and your team decided on in the “define who your customers are” exercise.

Get out there: In-field testing

In-field testing provides the opportunity to learn about your customer based on location driven research such as in front of certain retail store, events or neighborhoods..

It’s important to note that the consumer data collected from this research strategy is time intensive and actionable insight is dependent on the quality of questions asked. This research strategy is advised when you’re looking for immediate results and directional insight that informs what to test next.

 

3. Assess and Actionable Decision making

Now that your team has tested core hypotheses about your customer, it is now time to translate the insight into action.

There is, unfortunately, no set formula on what items to prioritize first, but a good place to start is to focus on high impact items that move the needle on your company’s objectives.

Remember, the purpose of this customer research is not only to better understand who is your customer, but to better serve them by building products they value, design pricing – structure and level – that align to their willingness to pay, and go to market with sales and marketing activities that defend and excite the right customers about your product.

 

Final Thoughts

The steps outlined here allow for identifying and testing one of your single most important hypothesis: Does your product have the market fit with the customers you believe it does? And if so, what is driving value for your customer?

It is never too early to start this process, whether your company is just starting out or your company has reached a level of maturity. Customer discovery and the insights that come from the process, are critical inputs to make better decisions on how you’re going to market with your pricing, sales and marketing, but also how you’re allocating and using resources for product development.

Treat the process of learning and understanding your customer as an evolutionary process, because it will continually change. Your competitive advantage will come from the systematic process you build to proactively identify shifts and make high-impact decisions for your product and company.

 

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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 at:contact@helloadvisr.com 

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Our Latest Guest Article on Gust Launch Community Blog

Gust launch community blog_article pic

HelloAdvisr, a Los Angeles based growth consultancy, and pricing and monetization specialist, was excited to be asked to share our pricing expertise with the Gust community of founders, entrepreneurs and angel investors. Our guest article introduced five key concepts founders and entrepreneurs need to know to start building a high-impact pricing strategy.

To read the full article on the Gust Launch Community Blog, click here.

To read more growth insights from HelloAdvisr, visit www.helloadvisr.com/blog or click here.

About Gust Launch:

Gust Launch is a cloud-based platform to help entrepreneurs and founders easily incorporate, run, and grow their company like a seasoned entrepreneur—designed by experienced startup founders, investors, and lawyers to help you from launch to exit.

To learn more about Gust Launch visit www.gust.com/launch