The art of mastering your pricing policy

19/12/2024
Productivity
Article
5 min
Productivity
Article
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The art of mastering your pricing policy

"It's too expensive!" As a startup founder, you've probably heard this phrase many times. Whether it's a potential investor interested in your company or a customer hesitant to buy your product, the value attributed to your product always remains a topic you need to address.

But what's really behind a prize? 

To address this question, we had the opportunity to chat with Robert Goldberg and Matthew Sawyer from Rocket Market Development, a consultancy specializing in helping companies expand into new markets. They shared with us their thoughts on the right pricing policy.

In their view, determining the right price involves an interaction between Product Position, Competition and Customer Perceived Value.

For entrepreneurs, setting prices is a major challenge, as it shapes market perception and customers' willingness to pay. Moreover, price can dictate their market positioning. Setting up in the U.S. or another country adds a layer of complexity, as understanding the pricing system is no longer enough. You also need to understand the competitive dynamics of your target market.

Here are a few key points to bear in mind when defining a good pricing policy:

Understanding customers and their decision-making processes

Setting a price based solely on the costs and expenses involved in creating the product or business may seem straightforward. Similarly, analyzing the cost structure to get the best return on investment is an attractive option. However, limiting yourself to these aspects is only part of the equation. Fully understanding customers and the decision-making process they go through before making a purchase represents the other half of the challenge.

One of the most important decisions you need to make for your company is whether your product is aimed at the B2B market, the B2C market, or both. Clarifying this question from the outset will help you better understand your customer base and distinguish the subtleties of pricing for each segment.

Here are a few questions to ask yourself:

  • "What is the profile of my customers?"
  • "What is the financial capacity of my customers?"
  • "What did customers do before using our product or service? What was their alternative?"
  • "Does our product or service add value to what they're currently doing?"
  • "Who are our competitors and at what price are they selling? How similar is our product or service to theirs?"
  • "Who makes the purchasing decision, and what process do they follow to reach a decision?"

If you're thinking of expanding your business in the U.S., you may notice some peculiarities in consumer attitudes, particularly in terms of the price they pay and the value they place on a product. For example, in other countries, customers may be more inclined to pay for your product because of the comfort or simple pleasure it brings. In the USA, on the other hand, consumers may value your product based on the time they save by using it. Perceptions of value really do vary from one individual to another, and from one group to another. The best way to understand it is to engage in close dialogue with your customers.

Focus on product value 

To determine the right price for your product, focus on the distinctive value it offers. If your only selling point is price, it's time to define your intrinsic value. A competitor can always adjust its prices to match yours, but surpassing the value you offer your customers will require more time and effort.

By understanding the value you want to deliver, you can start by identifying the type of product you have. According to Matthew and Rob, there are three types of new product:

  • Supplementary or additive - these products complete the customer's value chain. They are designed to be used alongside customers' current activities. For example, Streak is a software product that integrates CRM functionality with Google Mail, making it possible to track correspondence with customers. Hunter MailTracker is another outstanding product (and a free web extension) that informs you when your e-mails have been opened by customers.
  • Replacement - products that will be used instead of what is currently in use. For example, phone cameras, which have replaced hand-held compact cameras.
  • New - products that customers need to be educated about, and may be skeptical about their value from the outset. For example, IBM Watson AI, software that integrates AI into all aspects of the sales process.

Once you've determined the type of product you're offering, it becomes easier to communicate its value and position it according to your customers' needs.

Communicate your price right from the start

To take this step, some startups may initially offer their products free of charge, in order to increase their attractiveness, and then consider invoicing at a later date. This strategy can work in two ways: either the customer has become so accustomed to the free product that the switch to payment becomes a barrier (anchoring bias), or the customer has fully appreciated the value of the product and is now ready to pay. 

The pricing decision 

According to a study by OpenView, procrastination is a common error in pricing decision-making, affecting up to 50% of companies. They tend to delay these choices until the time of product launch, and even when these decisions are made, they may lack solid data. It's essential to approach these decisions with rigor, and to test them as much as possible. Even if prices can be adjusted later, eliminating assumptions as early as possible brings many advantages.

Ultimately, improving pricing decisions starts with a thorough understanding of added value. From the very start of your business, devote time and attention to analyzing your competitors and understanding and interacting with your customers.

"It's too expensive!" As a startup founder, you've probably heard this phrase many times. Whether it's a potential investor interested in your company or a customer hesitant to buy your product, the value attributed to your product always remains a topic you need to address.

But what's really behind a prize? 

To address this question, we had the opportunity to chat with Robert Goldberg and Matthew Sawyer from Rocket Market Development, a consultancy specializing in helping companies expand into new markets. They shared with us their thoughts on the right pricing policy.

In their view, determining the right price involves an interaction between Product Position, Competition and Customer Perceived Value.

For entrepreneurs, setting prices is a major challenge, as it shapes market perception and customers' willingness to pay. Moreover, price can dictate their market positioning. Setting up in the U.S. or another country adds a layer of complexity, as understanding the pricing system is no longer enough. You also need to understand the competitive dynamics of your target market.

Here are a few key points to bear in mind when defining a good pricing policy:

Understanding customers and their decision-making processes

Setting a price based solely on the costs and expenses involved in creating the product or business may seem straightforward. Similarly, analyzing the cost structure to get the best return on investment is an attractive option. However, limiting yourself to these aspects is only part of the equation. Fully understanding customers and the decision-making process they go through before making a purchase represents the other half of the challenge.

One of the most important decisions you need to make for your company is whether your product is aimed at the B2B market, the B2C market, or both. Clarifying this question from the outset will help you better understand your customer base and distinguish the subtleties of pricing for each segment.

Here are a few questions to ask yourself:

  • "What is the profile of my customers?"
  • "What is the financial capacity of my customers?"
  • "What did customers do before using our product or service? What was their alternative?"
  • "Does our product or service add value to what they're currently doing?"
  • "Who are our competitors and at what price are they selling? How similar is our product or service to theirs?"
  • "Who makes the purchasing decision, and what process do they follow to reach a decision?"

If you're thinking of expanding your business in the U.S., you may notice some peculiarities in consumer attitudes, particularly in terms of the price they pay and the value they place on a product. For example, in other countries, customers may be more inclined to pay for your product because of the comfort or simple pleasure it brings. In the USA, on the other hand, consumers may value your product based on the time they save by using it. Perceptions of value really do vary from one individual to another, and from one group to another. The best way to understand it is to engage in close dialogue with your customers.

Focus on product value 

To determine the right price for your product, focus on the distinctive value it offers. If your only selling point is price, it's time to define your intrinsic value. A competitor can always adjust its prices to match yours, but surpassing the value you offer your customers will require more time and effort.

By understanding the value you want to deliver, you can start by identifying the type of product you have. According to Matthew and Rob, there are three types of new product:

  • Supplementary or additive - these products complete the customer's value chain. They are designed to be used alongside customers' current activities. For example, Streak is a software product that integrates CRM functionality with Google Mail, making it possible to track correspondence with customers. Hunter MailTracker is another outstanding product (and a free web extension) that informs you when your e-mails have been opened by customers.
  • Replacement - products that will be used instead of what is currently in use. For example, phone cameras, which have replaced hand-held compact cameras.
  • New - products that customers need to be educated about, and may be skeptical about their value from the outset. For example, IBM Watson AI, software that integrates AI into all aspects of the sales process.

Once you've determined the type of product you're offering, it becomes easier to communicate its value and position it according to your customers' needs.

Communicate your price right from the start

To take this step, some startups may initially offer their products free of charge, in order to increase their attractiveness, and then consider invoicing at a later date. This strategy can work in two ways: either the customer has become so accustomed to the free product that the switch to payment becomes a barrier (anchoring bias), or the customer has fully appreciated the value of the product and is now ready to pay. 

The pricing decision 

According to a study by OpenView, procrastination is a common error in pricing decision-making, affecting up to 50% of companies. They tend to delay these choices until the time of product launch, and even when these decisions are made, they may lack solid data. It's essential to approach these decisions with rigor, and to test them as much as possible. Even if prices can be adjusted later, eliminating assumptions as early as possible brings many advantages.

Ultimately, improving pricing decisions starts with a thorough understanding of added value. From the very start of your business, devote time and attention to analyzing your competitors and understanding and interacting with your customers.

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