How to Design High-Impact Pricing Strategies
We recently hosted HelloAdvisr CEO Ed Lee for an exclusive conversation on pricing with founders from M13’s portfolio. A growth consultancy working with startup leadership teams, HelloAdvisr draws on experience from industries including e-commerce/retail, software, and consumer goods.
Having previously held leadership roles with LG Electronics and Simon-Kucher & Partners, Ed shares a framework for designing high-impact pricing strategies.
Get Ed’s answers to some top questions about pricing and pricing models, or watch the full webinar for his comprehensive deck and insights:
How do you frame pricing as a startup?
Pricing is an exercise that requires a leadership team to be intellectually honest about how well you know your customer, your business, and your product. Pricing is an intersection of those three elements. How well we know those three elements is a reflection of how much work to put into pricing.
Questions to ask yourself:
- Are you helping your customers understand what the product or service is worth? Do you understand as a founder how to communicate value and price accordingly?
- Does your pricing need to adapt to reflect changes in the market? You need to understand the need for your product or service in the market, especially during a year like 2020 where consumer needs have shifted dramatically.
How can founders understand pricing and value in their target market?
Very rarely does a customer not connect a product or service to a price. More times than not, there is an association and contextualization of your brand to a price.
What you’re trying to do with pricing is really trying to unlock all levers available in order to capture more value in the market.
Finding profitability is about defined balance. It’s always helpful to understand customer acquisition costs, which are going up anywhere from 50-70% depending on the industry.
If you’re able to improve 1% in price, you can get anywhere from 3-5x greater impact on your bottom line. Pricing improvements go straight to the bottom line. It’s important to keep that in mind when thinking about the levers you have available to you.
How does the perceived value impact your business overall?
Pricing is integral in the feedback loop. Pricing isn’t siloed in your organization, but instead should interplay with different areas of your business.
Given that pricing influences marketing and sales, here’s what you’ll need to figure out:
- What kind of customers are you going after?
- What are the marketing assets you’re going to create?
- What kind of communication will be developed in the marketplace?
- What kind of elements of your pricing need to be modified when receiving feedback from the market?
Communicate with your audience to better understand the perceived value of your product or service.
What are the primary principles of unlocking value?
Pricing is about people. Before algorithms and models, pricing is about people—and a test for how well we know our customers and community. Listening and learning from your customer base allows you to unlock the value of your product or service.
Pricing is a series of decisions. The price itself is usually the last question because we’re trying to understand various dimensions.
- Why are we pricing the way we’re pricing?
- What is the pricing and decisions we’re trying to make today?
- What is that going to help achieve?
- Who are the targets?
- What is driving them to equate our product to their use case?
- When are we going to monetize?
Think about your pricing as something designed, almost like a product. Some questions to consider:
- What’s involved in getting your customers to go from one level to the next?
- What are people willing to pay, and how much loss are you willing to gamble for those who don’t want to enter into a higher pricing tier?
Defend your value and design your pricing with the purpose of defending the incredible innovation and creativity you’ve spent countless hours dedicating your life to.
Do pricing promotions have an impact on value?
Discounts can come in different forms. Discounting can go beyond price, like free samples for anyone on a mailing list during exclusive promotional periods. You can also create exclusive promotions on a time limit to show appreciation for your customers’ loyalty.
Not all promotions need to be discounted. Some companies will choose to increase prices and donate the excess to charitable causes, driving sales from a socially conscious perspective.
Set clear objectives for promotions. Promotions are expensive in terms of potential revenue loss and for the promotion marketing itself. However, 60% of startups feel their promotions and discounts are effective.
Armed with this pricing framework, we hope you’re ready to design—or update—your own high-impact pricing strategies. If you’re interested in receiving additional guides and resources on this topic as well as other effective strategies for building your business, please subscribe to our newsletter here.