Start-ups: Dare to price this way?

While there are innumerable inputs that one can give an entrepreneur on how to price a product or service, the one piece of advice that never shows up is: asking customers how much they would pay! Sounds strange to you as a start-up? Are you wondering if it will look crazy? Do you think they will under quote and cheat you? If you are saying any of these to yourself upon answering the question, please wash your face and re-think again.

Everyone wants to practice value pricing. But the trouble is we are not sure about what ‘value’ means. Hence it gets really difficult to identify the right price. But won’t it be easy to show case your product to chosen users and seek inputs on what exactly is their benefits or perceived value? Won’t it better if you hear from the horse’s mouth, what the potential benefit is, in tangible terms? Are they saving money as you assumed or it is that they are actually saving effort? Are they buying because it is faster and more stylish or are they purchasing because it is lighter and has longer battery life? Hearing from the user about what they value can provide valuable insights to pricing product and services.

You will be surprised at how gracious customers are. While some are mean and want to break you down by negotiating hard, most people are fair and want you to continue providing the service at fair price. They understand that their vendors cannot survive without making money, and hitting them hard is not good for them too.

Asking customers what the price should be is a daring practice. May be we need to ask them about their benefits, perceptions, etc.,. rather than price directly. But in any case, they are the best people to give us indications of what the product or service should cost to them. In fact the rational that they give for pricing should be treated with great care as it will give a start-up enough information to price at the optimum level.

This practice is worth exploring simply because, most start-ups under price themselves and stay stuck at that level. They simply cannot rise out the lower gross margins with which they start. Using all other strategies does not work, once we are perceived wrong by our customers. Pricing has a tremendous effect on perception.

Try experiments in pricing and use them as potential tools for creation of buzz! How often have you found a company asking you to decide how much you want to pay?

Think about it!

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Interesting Links This Week: 16-February-2014

I have always enjoyed the writings of Roger Martin and A G Lafley individually. When they team up to provide some advice you bet I would not miss it. I have in fact written about their book (Playing to Win) earlier on my blog. They have simplified the answer to the question “What is Strategy?” via the book. It helps me while I work with entrepreneurs and small business CEOs in India. Here is a short thought piece on why strategy is actually not creating a plan! Read more here – Link: http://blogs.hbr.org/2013/02/dont-let-strategy-become-plann/

 

Another interesting take on why plans are history. Considering the fact that things are changing so fast, the best laid plans are dated by the time they are prepared. So should companies stop planning? No! They just have to change their approach. Here is one such perspective. What is the Bayesian method? How can it be used in making strategic decisions? Some examples of how it has been successfully used in the past? Read more here – Link: http://www.digitaltonto.com/2013/bayesian-strategy/

 

Everyone wants to achieve more during the year, but effectiveness and efficiency have always been a challenge. While there are numerous approaches to planning your annual goals and achieving them, I found this method of the “12 Week Year” an interesting one. You should check it out! I have used variations of this in my consulting and coaching engagements and found them to be effective. Personally I love to plan only for a quarter, while keeping the larger goal in mind. Read this and you might gain a tip or two in making yourself more effective. Read more here – Link: http://www.inc.com/minda-zetlin/how-to-increase-your-effectiveness-by-400-percent.html