It’s not uncommon for successful entrepreneurs to shift focus from a released product to get to the next idea. When they do, they usually devise the startup pricing structure as an afterthought. It may be off the top of their head or a gut feeling.
An entrepreneur might also compare competitors’ pricing to try to come up with a price that’s in the same neighborhood. Another shot in the dark is to calculate their costs. Then add in a desired margin and fly it up the flagpole to see if anyone salutes.
Regardless of which body part one utilizes or whatever slipshod “calculation” one employs, startups frequently give very little thought about startup pricing. As a result, this critical component of a product roll-out may have a drastic impact on its overall success and revenue.
However, experts say there are more strategic approaches to startup pricing. They will help a startup sell its products and services at a price point customers will accept and that will turn a profit. Let’s look at three pricing strategies:
Startup Pricing Based on a “True Value” Comparison
Say that your startup provides a weight loss service. You have a list of prospects with whom you’ve been carefully building a relationship over several months. At this point, your company is ready to offer these prospects your first product. It is a six-month comprehensive weight loss regimen for individuals who want to lose at least 100 pounds. What should your startup pricing be?
If your prospects purchase this program and lose 100 pounds, what impact does this have for them? What is the value are being able to trash the XXL jeans and buying trendy fashions? And what is the value of feeling great, sleeping better, and not having constant pain when walking? Or other weight-related health issues, like high blood pressure? What price tag would they put on that?
If your startup asks these questions and talks with prospects about how they value this type of transformation, you can set a true value for your product as seen through the eyes of your target market.
Now the price you ultimately decide to set for your weight loss service will be just a fraction of its true value, but it’s likely much higher than what you originally believed you would charge. In addition, you now have gained some powerful messaging to use in marketing your weight loss service. Consumers must see uour startup pricing point as a bargain because the value you’re delivering is so much more.
We’ve all been to the supermarket or liquor store and seen the beer cooler with a variety of single bottles of beer. If you multiply the price of an individual bottle times six, it’s much more expensive that buying a six- or 12-pack. Perhaps there’s microbrew you’ve never tried and you want to sample it. But will you like it? Should you shell out $9.99 for a six-pack? No, instead you decide to buy just a single bottle for $2.99. That’s the safer bet because you won’t throw away 10 bucks if you hate it. Just like a brew, a startup may micro-price its product to introduce it to the market.
This can be a very worthwhile pricing strategy to employ with first-time customers because it reduces their fear of making a bad decision, and it allows them the opportunity to have a great first experience leaving them wanting more.
Premium Startup Pricing With Discount
A third pricing strategy is one that may be less desirable due to the fact that people usually use it unethically by puffing up a premium price (which no one would actually pay) and then offering a substantial discount—which winds up being the price a customer would expect to pay. But the strategy does work. And that’s why many big box stores use it. This can be a powerful pricing strategy because it generates significant customer traffic. However, experts caution to use it infrequently because it effectively conditions customers to never expect to pay full price again.