Swati Chaturvedi is the CEO and founder of Propel(x). He defines a deep tech startup is a newly established business founded on breakthrough science or engineering. The term “deep technology” means identifying new businesses on the cusp of momentous scientific and technological breakthroughs. Hopefully, these breakthroughs will define the next century. Pricing can be an issue for such companies.
“Deep” means the expansive potential of technological innovations to impact the world we live in. Deep technology requires thorough testing. A company must fully understand the humanitarian and business implications not obviously related to the underlying scientific breakthrough.
The Next Web explains that this means the culture at a deep tech startup is usually all about the product. The founders and core teams typically don’t have an interest in or give even a thought to the company’s marketing and sales strategy. This laser focus can be a strength in product development. But it’s a problem when it comes to the important topic of pricing.
Effective Pricing Strategy
Forbes writes that a number of deep tech startups do not fully develop or consistently make use of an effective pricing strategy. This is true especially for first-time founders in their business’s early stages.
Deep tech products often sell in a business-to-business (B2B) environment. The enviroment has long-term enterprise sales cycles that require a finely tuned strategy. As a result, this can be a critical concern.
In contrast, startups that operate in a business-to-consumer (B2C) paradigm can easily determine a customer’s willingness to pay. They can compare what competitors are selling in the marketplace. But B2B startups don’t have that luxury. B2B startups are unable to directly access customers to discover their willingness to pay. Accordingly, the pricing of B2B deep tech products depends on two aspects of the product:
The literal value for a customer’s bottom line; and
The psychological value to the customer.
Determining Literal and Psycholgical Value
To determine a product’s literal value, a startup must look at how well a product can help customers reduce their costs or increase revenue. On the other hand, psychological value means how a customer feels a product will impact their business. This subtle distinction is significant.
We act on intuition and often make judgments with incomplete information. As such, understanding the psychological value of a deep tech product is really important, like adapting your approach to market conditions. A good first impression and making the initial perceived value of a product seem high is frequently the things that determine whether a sale may happen, instead of the detailed breakdown of efficacy on pricing. For this reason, it’s important to first correctly know your own costs for your product. A variable often overlooked is a startup’s internal costs. Running out of money is also the second biggest reason why many startups fail. Understanding where your breaking point for pricing is the initial task in understanding what your pricing should be.
The Most Important Aspects of Pricing
However, once you understand your own costs, the most important aspects of pricing for deep involves two things: a focus on perceived value and regular revisits.
A Focus on Perceived Value
Maximizing the deep tech product’s perceived value is the next step in the pricing strategy. In the B2B context, the best way to maximize perceived value is to make it easy for prospects to think about how a product will fit into their lives and the way in which it will continue to do so in the future. Hopefully, a customer can intuitively tie the product and its attached costs and benefits into their own ways of measuring progress and success. This requires the customer to use much less effort to understand it.
With B2B deep tech startups, the pricing strategy should link to the productivity model of a customer. Moreover, benchmarking prices relative to competitors should be undertaken. Price is used frequently as a stand-in for quality, so a deep tech should make certain to promote a higher price if it can suggest your product’s returns are correspondingly higher than a competitor.
A deep tech startup that can find a method to translate their novel products into something that can signal psychological value is often difficult. With that in mind, prices must have immediate emotional appeal to decision-makers, who often make a choice in a split-second. To encourage these decisions to be positive, prices should be easy to understand and something that can quickly be connected to a customer’s business model. Do this by setting prices that clearly relate their cutting-edge work to the operations of their prospective customers and adapting prices to the state of the market.