How Beauty Brands Build Pricing Strategies To Grow

In our previous blog regarding pricing strategies for beauty brands, we covered the unique aspects of the beauty industry that can cause various challenges to arise and how some brands may utilize pricing as a tool to not only counteract such challenges but to grow and succeed. Here, we will delve deeper into some of the real challenges that come with pricing for beauty and cosmetic brands and then introduce a relevant case study to detail how exactly pricing can truly make a difference.

Delving into the challenges beauty brands face

Beyond what we have discussed previously, there are many unpredictable challenges that beauty brands may encounter as they formulate their pricing strategies. 

With numerous brands offering similar products, there is constant pressure to keep prices competitive. This can lead to pricing wars and margin erosion. At the same time, brands need to differentiate their products to justify higher prices. And, because consumers often associate higher prices with better quality in the beauty industry, brands need to carefully manage this perception while staying competitive. Finally, in spite of all of these other challenges, beauty brands will also have to deal with rapidly changing beauty trends, learning how to adapt quickly and making sure their pricing strategies align with these trends to remain relevant and competitive.

Furthermore, introducing product differentiation within such a crowded market can be very difficult. For instance, when a brand introduces a new and unique product, competitors may respond with their own innovations or price adjustments. So, brands must be prepared to adapt their pricing strategies accordingly. Furthermore, introducing a new, differentiated product often requires educating consumers about its benefits. This can be a costly and time-consuming process that impacts pricing decisions. And, differentiated products may require a different distribution strategy, such as being sold exclusively through certain channels. This can impact pricing decisions and channel relationships.

And, as we mentioned previously, the margins are thin for beauty and cosmetic brands due to the numerous costs they accumulate. This can include costs from investing in social media, establishing influencer partnerships, and more that can all eat into your profit margins. Actual product development costs are expensive, especially if you are investing into the research and development of new ingredients and formulas. And, because of the importance of brand image, brands typically incur packaging and presentation costs to appeal to customers who may be more willing to pay if the aesthetics of a product are attractive. Many brands will likely accumulate distribution costs trying to get their products into the hands of consumers, especially if they rely on third-party distributors or retailers due to their own limited distribution networks. So, these are some of the many different kinds of costs that brands will likely amass in trying to make their products stand out and appeal to their target consumers.

Case Study: Helping beauty brands achieve their goals

HelloAdvisr has worked with multiple brands within the beauty and cosmetics industry, accumulating experience and expertise with regards to how pricing can play such a crucial role in building for sustained growth.

For example, here we have a case study of our work with a fast-growing FemTech brand. Needing to assess their own approach and strategy to pricing, this brand realized that they were struggling with their product pricing because it was becoming increasingly complex as they expanded their purchasing methods (e.g. a la carte, bundles, and subscriptions). Furthermore, they were dealing with added complexity due to expansion plans into newer channels like retail. 

As a result, we helped leadership team transform their pricing approach in several ways:

  • Designed a custom pricing strategy workshop with the brand’s senior leadership team.
  • Assessed existing pricing portfolio – the prices and price combinations (including promotions and discounts) created and presented to customers.
  • Conducted data analysis of brand sales and select customer and product cohorts.
  • Reviewed the brand’s customer segmentation and value proposition.

Through our work, this brand was able to build a pricing strategy framework they could use for new and existing products. They also implemented pricing portfolio recommendations including discounts and bundles, which subsequently increased conversion rates. So, with these improvements, they continued to expand revenue growth and were well-prepared for the next round of fundraising. 

Final thoughts

Pricing in the beauty world is a multifaceted challenge that requires a deep understanding of market dynamics, consumer behavior, and brand positioning. By carefully navigating these challenges and staying agile in response to market shifts, beauty brands can find success in setting prices that resonate with their target audience while ensuring sustainable growth. It’s a delicate balance, but one that can ultimately lead to long-term success in this vibrant and ever-evolving industry.

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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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Understanding the difference between what customers “ask for” vs. “want to buy”

Foundations Series

In the world of entrepreneurship, startups often find themselves at a crossroads when it comes to product development. While building something a customer explicitly asks for is an essential step, staying in this phase for too long can hinder a company’s growth. In fact, many early-stage companies (e.g. pre-seed and seed stage startups) sit and get stuck in this phase, eventually wasting time and resources that can be better spent elsewhere. 

Building something that a customer “asks for” should just be an initial layer of need and an important directional step in building a product and your company. As a result, there is a crucial difference between building something a customer asks for versus something they want to buy that all companies should be aware of. So, let’s take a look at the challenges early-stage companies face and the significance of transitioning from necessity to desire.

The Initial Layer of Need

When a customer asks for a specific product or feature, it marks the initial layer of need. This interaction is a crucial step for startups, essentially guiding them in the right direction as they seek to address real problems faced by their target audience. Many pre-seed and seed stage startups find themselves in this phase, diligently working to fulfill customer requests. So, a common example that illustrates the concept of this difference between want versus need can be something as commonplace as working out and going to the gym. While the initial “need” for someone who works out is likely to get healthy, the true “want” may be that they would like to look like their favorite athlete or celebrity, setting that as a concrete end goal to work towards.

Stuck in the Loop:

However, a significant challenge arises when companies get stuck in this phase. While addressing immediate needs is important, dwelling exclusively on building what customers ask for can create a loop, preventing companies from reaching their full potential. This loop can become a trap for early-stage companies, hindering their ability to evolve and adapt to the changing market demands.

Furthermore, do customers actually even know what they want? This question is even more meaningful for products and services in new emerging technologies and innovations. And, if you give customers what they want, will they still necessarily want it in a month or a year? Looking into the past, there are many case studies of products that companies developed taking into account what customers have “wanted”, only for the actual demand to be less than expected or last for a short period of time before these same customers moved onto something else. 

A relevant example of a product that did not meet expectations despite high initial customer interest is Google Glass. Introduced as a revolutionary wearable technology, Google Glass was a highly anticipated product that specifically offered augmented reality features in a wearable format. However, despite the significant hype and interest generated from the announcement, it failed to gain widespread consumer adoption, largely due to concerns regarding privacy, usability, and social acceptance. While the initial explosion of interest seemed to align with the idea that customers “wanted” a product like Google Glass, the actual demand for the product lasted a very short period of time until Google eventually stopped selling the product to consumers altogether.

Why Can’t We Get Out? Why Is This a Problem?

The primary reason startups struggle to move beyond building what customers ask for is a fear of deviating from the familiar. Founders may be reluctant to step out of their comfort zones, fearing that addressing a broader, more latent need might alienate their existing customer base. This reluctance to explore uncharted territories can lead to stagnation, inhibiting a company’s ability to innovate and grow.

Moreover, many startups take on the common belief that “the customer is king”. If you don’t give them what they want, then they will switch to someone or something else who can. As a result, this can intimidate many startups into simply trying to cater to the customer’s desires when they should really be determining what their customers need above all else.

From Need to Want: The Importance of Willingness to Pay

The transition from building what customers ask for to creating something they want to buy hinges on the concept of “willingness to pay.” Wanting to buy implies a deeper connection and a higher level of need—a product or service that customers not only find useful but are also willing to invest in financially. This transition is crucial for the survival, growth, and success of a company. Founders can get stuck in the phase working towards that initial layer of need based on what the customers “ask for” when they should really be building towards a higher level of need based instead on “willingness to pay”. Focusing instead on this higher level of need allows founders to set their companies up for more sustained success, necessary for their startups to survive, grow, and ultimately win.

For example, the Segway Personal Transporter was hyped as a revolutionary way to travel short distances. However, despite the enormous fanfare that it met when introduced, the Segway ultimately failed with production eventually halting in 2020 because the makers did not think about “willingness to pay”. More specifically, though it was an exciting piece of technology, it offered very little real-world utility and eventually failed due to its relatively high price, safety concerns, and limited practicality. Because consumers were unwilling to pay for a product that offered very little in terms of utility, it resulted in very little sustained success for the product beyond the initial excitement.

Why Is Wanting to Buy Important?

Willingness to pay is a clear indicator of value. When customers are not just asking for a solution but expressing a genuine desire to invest in it, it demonstrates a product-market fit that goes beyond mere necessity. Companies that focus on building what customers want to buy are more likely to establish a sustainable business model, ensuring not only survival but also long-term success in the competitive market.

Final thoughts

While building something a customer asks for is an essential step in product development, it’s crucial for startups to recognize the limitations of this approach. Transitioning from fulfilling immediate needs to creating products customers want to buy is a strategic move that sets the stage for sustained growth and success. By understanding the concept of willingness to pay, founders can break free from the loop of building to need and unlock the full potential of their products and companies.

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What is MRR and how can companies improve it?

HA article MRR
Foundations Series

In the dynamic landscape of business metrics, Monthly Recurring Revenue (MRR) has emerged as a crucial indicator for the success and sustainability of subscription-based businesses. MRR is a metric that reflects the predictable and recurring revenue generated from subscription services on a monthly basis. In this article, we will delve into what MRR is and explore strategies that companies can adopt to enhance and optimize this key performance indicator.

What is MRR?

Monthly Recurring Revenue (MRR) is a metric used to quantify the predictable revenue generated from subscription-based services within a given month. In other words, it is the revenue a business expects to generate each month. It provides a clear picture of the company’s stability and growth potential by capturing the regular income generated from subscriptions, excluding one-time transactions.

There are several methods to calculate MRR. One way is to simply calculate the monthly revenue from each customer and manually find the sum of all revenues obtained from the total customers. 

The other method to determine MRR is by using the average revenue per account or ARPA. This is a particularly relevant metric to calculate and measure for businesses that have different subscription tiers for different levels of usage or access. Once you calculate your APRA, you can find the MRR by multiplying the ARPA by the total number of customers per month.

Components of MRR

MRR can be broken down into multiple components that show how exactly your revenue is earned. So, understanding each component is crucial for businesses aiming to improve this metric. These key components specifically include:

– New MRR (NMRR): Additional MRR generated from new customers subscribing to the service.

– Expansion MRR (EMRR): Additional MRR earned from existing customers through upsells, cross-sells, or upgrades.

– Contraction MRR (CMRR): The MRR lost due to downgrades in subscription plans or customer cancellations.

– Churn MRR (ChMRR): The MRR lost due to customers who canceled their subscriptions.

Strategies to Improve MRR

With a better understanding of MRR and its components now, we can explore strategies to enhance this crucial metric. We cover six different ways to enhance MRR. 

1. Focus on Customer Retention

What this is: Implement strategies to reduce churn rates by enhancing customer satisfaction, providing exceptional customer support, and continuously adding value to your product or service.

How this improves MRR: Retains your company’s overall number of accounts or subscriptions. 

2. Personalized Upselling and Cross-selling

What this is: Leverage customer data and analytics to identify opportunities for upselling and cross-selling. Tailor your offers to meet the specific needs and preferences of individual customers. (e.g. offering free subscription plans to attract new customers and upsell users on plans with features to entice them to level up)

How this improves MRR: As your customers’ usage increases, your revenue will concurrently grow organically. 

3. Optimize Pricing Models

What this is: Evaluate and refine your pricing strategy to align with market trends and customer expectations. Consider introducing tiered pricing models or value-based pricing to maximize revenue.

How this improves MRR: Introducing tiered pricing models or value-based pricing can help you maximize revenue.

4. Enhance Product Offerings

What this is: Regularly assess and update your product or service offerings to stay competitive. 

How this improves MRR: Introducing new features, improving user experience, and addressing customer pain points can help you attract and retain subscribers.

5. Incentivize Annual Subscriptions

What this is: Encourage customers to opt for annual subscriptions by offering discounts or additional benefits. 

How this improves MRR: Provides a predictable revenue stream and improves cash flow

6.Monitor and Analyze MRR Metrics

What this is: Utilize analytics tools to continuously monitor MRR metrics and identify areas for improvement. Regularly assess the performance of different components of MRR to make data-driven decisions. 

How this improves MRR: Remaining vigilant about monitoring your performance ensures that any insights you gain are put into action effectively. Detailed tracking and reporting are key to determining what is working and what needs improvement.

Final thoughts

In conclusion, MRR is a key metric that reflects the financial health and sustainability of subscription-based businesses. This seemingly simple metric is driven by many different components of your business – from customer retention to pricing. By understanding the components of MRR and ways MRR can be improved, you can choose improvement strategies right for your company. This can create new opportunities to  pave the way for long-term success in the competitive subscription economy.

For more resources including metrics checklists and worksheet visit our resources page.

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Power of Loyalty: Unlocking Willingness-To-Pay

Loyalty
Foundations Series

In today’s hyper-competitive market, customer loyalty has emerged as a crucial factor in determining a brand’s success. Not only does it secure repeat business, but it also has the potential to influence the willingness-to-pay among consumers. However, cultivating loyalty is not as simple as it may seem – it involves creating an emotional bond, nurturing relationships, and being genuinely invested in your customers’ experiences. This article explores the intricate dynamics of customer loyalty and how it can enhance the willingness-to-pay, along with strategies to harness its potential to drive business success.

Recent data further underscores the importance of customer loyalty in the U.S. market. According to one study in 2021, 36.4% of consumers say they are more brand loyal than they were a year ago, and 90.1% of consumers reported that they’re equally or more brand loyal compared to last year. The Accenture Strategy Global Consumer Pulse Research found that U.S. brands are losing approximately $1 trillion in revenues annually to their competitors due to lack of loyalty, highlighting the competitive nature of the market. This further emphasizes the importance of harnessing loyalty strategies to gain a competitive edge.

Why is loyalty important to willingness-to-pay

Loyalty is key in any business. When people are loyal to a brand, they’re more willing to pay higher prices for the products and services it offers. But how do you unlock the power of loyalty so that customers will pay more? In this blog, we discuss some strategies you can use to increase your customers’ willingness to pay.

Steps to starting building loyalty 

The first step is understanding what motivates customers to be loyal in the first place. Loyalty isn’t just about offering discounts or rewards; it’s about creating an emotional connection with customers so that they feel like they have a vested interest in your company and its success. Consider providing personalized service, timely feedback on requests, and investment into customer relationships. You want to make them feel like you care about their experience, which will lead to a higher level of loyalty.

The second step is recognizing that loyalty doesn’t come overnight; it takes time to build and nurture relationships with customers. Consistency  – not just when you have something to promote – and switching up the type of engagement  shows your customers that you’re invested in them and value their opinions. You can also look for opportunities to surprise and delight customers with thoughtful gestures, such as sending them gifts or messages recognizing life milestones.

Next, consider creating a customer-focused rewards program that offers exclusive perks and privileges to loyal customers. This type of program allows companies to reward their most valued clients by offering discounts, priority access, or VIP experiences. It’s important to keep in mind, however, that rewards should be tailored to individual customers; a one-size-fits-all approach is unlikely not yield the desired results.

Finally, don’t forget about the power of the word-of-mouth and referral marketing. Loyal customers are more likely to spread the word about your brand and products and recommend it to others, so make sure you’re taking advantage of this powerful form of free advertising. Consider creating compelling content and engaging with customers on social media platforms to encourage them to share their positive experiences with friends and family.

Final Thoughts

Unlocking the power of loyalty can help increase willingness to pay – but it requires an investment of time and resources. What matters most is genuine effort towards building relationships with customers that reflect mutual respect and trust. When customers feel like they have a vested interest in your company, they’ll be more likely to pay the prices you ask for – and that’s what it takes to unlock the power of loyalty. Your customers will be able to answer why your products are “worth it”. 

By focusing on customer relationships and creating a rewards program tailored to individual customers, companies can unlock the power of loyalty and increase willingness to pay. Not only will this help them earn more revenue, but it will also create a loyal base of customers who are excited to support your company. With these strategies in mind, any company can make progress towards unlocking the power of loyalty that leads to increased willingness to pay.

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How Subscription Pricing Transformed the Business Model

Foundations Series

Subscription pricing plays an important  role in the history of pricing evolution. It  has transformed the way companies do business over time. It has enabled businesses to offer more flexibility and convenience to their customers, while also providing them with greater predictability in terms of revenue streams. 

Given the significant impact subscription pricing has had on businesses – particularly technology-enabled companies – and  on consumer behavior and expectations, we thought it was insightful to reflect how this pricing approach has become what it is today and how companies have leveraged it to bring new products to market and grow.

Evolution of the Business Model

The history of subscription pricing dates back to the 17th century when regular publications like magazines and newspapers started offering annual subscriptions to their readers. Subscription pricing has become a popular business model over the years where customers increasingly demand speed and convenience. Companies have had to come up with innovative ways to meet their needs. Subscription pricing is one way of achieving customer satisfaction while also creating predictable revenue. This pricing strategy is not just limited to digital products but is also used in other  industries such as healthcare and manufacturing. Fast forward to today, and we have subscription pricing models for everything from software to meal delivery services. It’s a testament to the effectiveness of this pricing strategy, and how it has expanded across industries and use cases.

The subscription pricing model also offers companies the opportunity to build strong, long-term customer relationships. Not only does it provide recurring revenue for businesses, but it also allows customers to experience a hassle-free, convenient way of accessing or consuming goods or services. The evolution of the subscription model has been driven by customer needs and expectations as well as technological advancements that enable businesses to offer more personalized and flexible subscription plans. Today, companies are finding new and innovative ways to incorporate subscription pricing into their business models, thereby increasing their bottom line and satisfying their customers. One study by KeyBanc found that 90% of software companies using a  subscription pricing model were able to achieve a gross profit margin of at least 60%, with more than half achieving 80% or more.

How Technology Enabled New Business Models With Subscriptions

Technology has played a significant role in enabling subscription pricing models. Online digital payment platforms, unbundling of products and services, and lower technology costs (e.g. cloud) has supported the adoption of subscription pricing. Subscription pricing has now become the norm across various industries, including membership programs, streaming media, and software. Subscriptions have revolutionized how businesses operate, making it less risky for them to introduce new products and services since there is greater predictability of revenue. Rather than customers waiting for access new and potentially costlier services, they can now access services without the risk of long commitments. Faster access has also helped companies to enhance product development speed and quality.  

Impact of Subscription Pricing on Consumer Behavior and Expectations

As this type of model becomes more prevalent across various industries, consumer behavior and expectations are undergoing a significant shift. Consumers now tend to view products and services as an ongoing experience rather than a one-time purchase, and they expect to receive a consistent and high-quality experience in exchange for their subscription fee. Additionally, the convenience and flexibility of subscription models have made it easier for consumers to try out new products or services without committing to a long-term purchase.

However, with this shift toward subscription pricing comes a greater responsibility for companies to maintain high standards and constantly innovate to retain subscribers. The companies that can successfully navigate these changes will not only see increased customer loyalty but also a positive compounding  impact on their bottom line. Successful entrepreneurs have touted the benefits of subscription models, noting that they align with modern consumer preferences for convenience and customization. By embracing subscription models, businesses can position themselves as innovative leaders in their respective industries, poised for long-term success.

Challenges Managing a Successful Subscription-based Business

Running a subscription-based business can be a daunting task, with its own set of unique challenges. One of the most significant hurdles that leaders  face is determining the right subscription pricing model. Should it be a flat rate for all customers, or should it vary based on usage? Finding the right balance to keep customers engaged while ensuring that the business remains profitable can be tricky. It requires leaders to think beyond just the metrics and numbers and also focus on creating value for their customers. Successful subscription-based businesses understand the importance of establishing long-term relationships with their customers and continuously improving their offerings to keep up with the changing market. It’s a tough road, but with the right mindset, strategy, and execution, it’s possible to overcome these obstacles and thrive in the industry. As Seth Godin says, “Be remarkable, be generous, create art, make judgment calls, connect people and ideas–make change happen.”

Companies that have effectively implemented this model include Amazon Prime, Netflix, and Adobe Creative Cloud. These companies have leveraged this pricing model to create a sense of loyalty and customer satisfaction that is unrivaled in their respective industries. These examples serve as examples that the subscription model is a mainstream practice that helps companies to create  sustainable businesses to invest in delivering more value for customers.

Final Thoughts

Subscription pricing has become an integral part of the modern business landscape, and businesses have begun to recognize its potential to foster customer loyalty and generate reliable recurring revenue. By understanding the benefits and challenges associated with this model, as well as examples of successful implementations, companies can make informed decisions that will position them for long-term success. A subscription-based business model is a powerful tool for achieving sustainability and profitability in the current market and should be taken advantage of appropriately.

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Why You Need to Invest in Long-Term Strategies to Grow Lifetime Value

Foundations Series

To formulate an optimal pricing strategy, there are many key metrics you have to keep in mind. One vital metric is customer lifetime value (LTV), which refers to the net present value of profits a customer generates for a business over their lifetime. To grow LTV effectively however, you need to be patient and invest in long-term strategies. Taking all the steps to do so will take you and your business on a direct path to sustained growth and success. 

Benefits of Investing in Long-Term Strategies

Investing in long-term strategies offers numerous benefits for businesses seeking to boost customer retention and drive profitability. One of the most significant advantages is increased customer loyalty and retention, which can lead to improved word-of-mouth referrals and reduced customer acquisition costs. By taking a strategic approach to customer experience and satisfaction, companies can create a positive feedback loop that reinforces their brand and drives repeat business. In addition, implementing retention-driven tactics can allow businesses to achieve higher profitability and ROI, as loyal customers tend to spend more over time. Overall, investing in long-term strategies is a key factor in building sustainable growth and success for any business.

In fact, a study by McKinsey & Company found that loyal customers tend to generate more than two times the profits of non-loyal customers. Furthermore, companies can expect a 20–40% return on investment when implementing customer-centric initiatives such as loyalty programs and targeted marketing campaigns. Investing in long-term strategies for increasing LTV is thus an essential part of any business strategy, as it helps to drive growth and profitability in a sustainable way.

Moreover, investing in long-term strategies not only increases profitability but also leads to a better understanding of customer needs. By engaging with customers and collecting data from interactions, businesses can gain valuable insights into customer preferences and behavior. This information can be used to create tailored offers, promotions, and services that meet customers’ individual needs. Companies can use these insights to further improve customer experience and satisfaction, creating a cycle of continuous improvement that enhances both sales and loyalty.

Strategies to Invest in for Growing LTV

Investing in specific strategies to grow customer lifetime value (LTV) is essential for businesses seeking long-term success. One key strategy is offering personalized promotions and offers to customers. By tailoring promotions to individual customers’ interests and buying habits, businesses can increase the likelihood of retention and repeat purchases. Another possible strategy is implementing loyalty programs and rewards that incentivize customers to continue to do business with the company. These programs can help build a sense of brand loyalty and increase LTV over time. Additionally, cross-selling and upselling services or products to customers can increase revenue while also providing a better customer experience. When done with a focus on meeting customer needs and preferences, investing in these retention-focused strategies can lead to long-term growth in LTV.

For example, a company that invests in long-term strategies for growing customer lifetime value could offer personalized discounts and promotions to regular customers. This approach of personalizing offers helps build loyalty and encourages customers to return over time. In addition, the company could also implement a rewards program where customers can earn points or cashback when they shop at the business. By creating a system of loyalty for their customers, the company can increase customer retention and ultimately boost LTV. This type of strategy is key to achieving long-term success and sustainable growth.

One example of a notable and successful loyalty program is Apple’s Apple Card. Through the Apple Card, customers can earn cash back on every purchase they make with their card. The more customers shop with their card, the more rewards and discounts they can accumulate. Additionally, users are also given access to exclusive offers and promotions that are tailored to their shopping preferences. This type of loyalty program is an effective way for businesses to retain customers and grow LTV over time.

How to Measure Your Success?

Measuring success can be a daunting task, especially when attempting to quantify the impact of your business. However, tracking certain metrics can enable you to gauge your progress and determine areas in need of improvement. For example, retention is a key indicator of success, as it reveals the loyalty and satisfaction of your customers. Monitoring customer feedback and reviews is another useful strategy, as it enables you to understand how your offerings are perceived and identify opportunities for improvement. Finally, analyzing the overall profitability of your investments provides a comprehensive picture of the financial health of your business. By diligently measuring these factors, you can ensure that your efforts are on track and take action to address any areas of weakness.

Furthermore, with the right tools, measuring success can be made easier. Analytical and tracking software such as Google Analytics and Salesforce can provide insights into customer engagement, retention rates, and overall profitability. Additionally, surveys and questionnaires can help gather direct customer feedback on products and services. By utilizing these types of metrics in tandem, businesses can gain a better understanding of their progress and take the necessary steps to drive long-term success.

How to Make Adjustments?

Making adjustments along the way  is an important part of the process when attempting to grow customer lifetime value. It’s important to be open to feedback and take a proactive approach to addressing any areas that are in need of improvement. When making adjustments, it’s important to focus on the customer experience. This means improving communication and providing support in a timely manner. Additionally, by providing personalization and customization options, businesses can better meet the needs of their customers.

Final Thoughts

Investing in long-term strategies for growing customer lifetime value is essential to building a successful business. By understanding customer preferences and implementing the right strategies, such as loyalty programs and personalized experiences, businesses can increase customer retention and boost their LTV. More specifically, companies can grow their customer base, improve loyalty rates, and maximize profits. Ultimately, investing in the right strategies for growing customer lifetime value is a smart decision that can pay off greatly over time.

But, doing so requires commitment and dedication. Nevertheless, it’s worth the effort for businesses looking to build a sustainable future. With the right tools and strategies in place, businesses can ensure that their efforts are paying off and take action to adjust as needed. The key is to focus on the customer experience and provide personalized options for customers to enjoy a seamless experience each time they interact with your business. With this approach, you’ll be well on your way to building a successful business with long-term customer lifetime value.

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How To Set An Effective Promotions Strategy

The promotions come in quickly and often.

Express interest in a service, signup for a loyalty program, or glance over a product page on your social feedback, and the promotions start to come. You couldn’t open your inbox, social media, or almost any website without getting sales and limited time offers that tempt you to shop (and for the companies and brands hopefully often). Mindful of consumers’ hesitancy to spend due to macroeconomic conditions, retailers and brands-alike are rethinking their promotions strategy, and looking for ways to win new customers through new promo tactics and establish a competitive edge.

For example, as part of their winter holiday strategy, Walmart launched a “Holiday Guarantee” that allowed customers to return items curbside from October through December. Walmart+ customers received the extra perk of scheduling returns right from their doorsteps. When we take a closer look at Walmart’s promotional strategy, we found that they had actually initiated their promotions in the summer. At the time, they introduced their top toys list along with a new budget-friendly category, a strategic bonus to their back to school sales, and announced they would continue releasing thousands of more “rollbacks” until the end of the year.

Companies are coming up with a variety of promotional strategies to tackle business challenges such as inventory surplus, reducing customer spending concerns, and increased competition from other brands and retailers. In addition to addressing challenges, their strategies attempt to manage rising marketing costs and unintentional consequences such as value reduction or in some cases value debt.

There are ways companies can take a structured data-driven approach to their promotions strategy – and avoid some of the pitfalls and challenges that poor promotions strategy can have on the company and its financial results. We set out to take some ambiguity out of the process to help you decide how best to tackle promotions. Let’s first begin by breaking down the fundamentals of a promotional plan.

Effective Promotions Fundamentals

Establish clear goals

Promotional strategy is intended to create differentiation from competitors and give your company optionality based on market conditions, customer needs, and business requirements. To achieve success in your promotional strategy, it is important to identify the key goals you want your company to achieve through your promotions. This can include goals such as accelerating revenue growth or increasing new customer acquisition. It can also be to take market share from your competitors or reduce associated costs from existing inventor. Establishing clear goals will make it easier to design and implement the right promotions strategy.  

Make it measurable

Once your company has established its promotional goals, the next steps is to set clear measurable objectives that will help the company track and adjust promotions as required. If your promotional strategy is not measurable, it is difficult to determine whether strategy has generated the desired outcomes, what actions to do more (or less) in the future, and calculating the investment required to product the outcomes. Start simple. In the beginning, is important that even basic promotional measurements are captured. Examples can include an increase in the number of new trial users, increase order or basket size, or increase in quarterly revenue from A to B. Whatever your goal, make sure it is measurable.

Select promotional tactics 

Next, you will need to design the promotional mix that will be implemented to achieve these objectives and address company challenges. One must keep in mind that not one size fits all, so extensive research on your target market and competition will set your company up for success in the short-term, but most importantly in the long-term. A poorly planned promotional strategy will lead a company to not reach their maximum potential, but even worse it may bring unintended consequences.

What does the research suggest?

Studies on promotional tactics may help guide your selection of promotions, however, beware that the findings may not be fully applicable to meet your objectives. 

For example, researchers found that consumers perceive price reductions in dollar terms as more significant than percent for high priced products, and vice versa for low priced products. Yet, both don’t seem to affect purchase intention due to perceived costs and value reduction. 

Similarly, one study by Graffeo et al. found that consumers with low numeracy skills perceive percent discounts as more attractive than money off discounts, but this effect diminishes when presented near one another. 

Many different variables can lead to different outcomes which is why hyper-focus and specificity will be pivotal for the success of your promotional plan.

Execution

In order to avoid any unintended consequences, you must be meticulous in the execution of your strategy. Don’t underestimate how much time it takes to launch even a seemingly “simple” promotional campaign. This includes creating marketing assets, timing, identifying cohorts, backend setup including pricing, channel setup (e.g. web vs. IAP), etc. 

Starting early will be critical for conducting the necessary research and tests that will make your promotions effective and error proof. An early start will also give you the opportunity to find the competitive advantage necessary for this holiday season, or for any future marketing campaigns. Set measurable timelines for each of your steps so you don’t risk wasting time or falling behind.

Common Mistakes Companies Make

Imprecise Goals

Many companies don’t have a clear idea of what “success” looks like when they launch a promotional campaign. Having measurable objectives will remove ambiguity on the performance of your strategy, and this also applies for your overall company pricing strategy. If you don’t have clear data beforehand to determine the goals of your upcoming promotional campaign, it’ll be difficult to properly measure and execute your plan. Equally, whether your strategy succeeds or doesn’t meet all your objectives, continuously collect data to further improve your future promotions.

Balancing Short-vs. Long-Term Gains 

Are the customers you win through a promotion, customers you can nurture and increase loyalty? Or will you be spending good money for little return? The promotional mix you employ will influence how your consumers will perceive your brand. What may have seemed as an effective strategy in the short-term may lead to drawbacks in the long run such as high returns or early subscription cancellations after free trials. Many companies inadvertently overextend themselves with their offers and deals, putting the company at risk of value debt. Your campaign should still highlight your value, and not be perceived by your customers as a failing company’s attempt to stay afloat during a downturn.

Poor Timing and Planning

By not starting early enough on your promotional plan could lead you and your team to rush through the process and potentially leave room for error and unintended consequences. What you may have discovered in your market research may no longer be applicable to your promotional strategy. If you don’t precisely lay out each step you may run the risk of missing opportunities to maximize revenue from your campaign, and timing is especially vital if the majority of your sales depend on seasonality.

Final Thoughts

Your promotions is a powerful growth driver if done thoughtfully and strategically. With increasing pressure and competition for customer attention and acquisition, an effective promotional strategy is even more relevant for companies. 

It is essential for companies to set the right goals and be surgical in their execution in order to gain the greatest outcomes from their  promotional plans. It takes a lot of time to research and narrow down the promotional mix that may be the right fit for your brand and overall goals – but with the right preparation a lot of long-term pain can be avoided.

Therefore, to manage the numerous aspects of a promotional campaign and address any issues that may arise, you must start early on your planning so your campaign will be successful and devoid of unforeseen errors.

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Why Figuring Out Your Worth Is So Hard

Rejection is hard. 

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

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

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

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

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

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

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

Do these look familiar to you? 

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

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

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

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

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

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

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