Pricing Strategy: A 4-legged Stool—It’s Hard to Recover from a Wobbly First Impression
By Tara Kinney on February 9, 2016
For many entrepreneurs, pricing is a tricky endeavor. However, you may feel better to know that pricing parameters elude even the largest of companies. Startups unfortunately lack the financial or human resources to recover from pricing mistakes, but it is often those same constraints that lead to pricing missteps.
Atomic Revenue maintains a wealth of proprietary data on pricing strategy which is available through workshops or 1:1 counsel with business management teams. We work with company leaders to break down pricing strategy into its four core components and balance the need for pricing stability across all four parameters.
- Price calculation–mathematical determination of costs of goods sold, cost of sale, margin requirements, customer acquisition model, and other key factors required to set a maximum and minimum price range.
- Competitive price evaluation–considering alternatives available in the market place, whether those are direct or perceived competition, consider how calculation of price fits within the market framework and if the company brand statement matches that market position.
- Price Positioning–evaluating how a target customer is used to purchasing similar goods and services as well as their cash flow and usage parameters, we can position pricing in a way that pre-handles potential sales objections.
- Price Presentation–most companies have pricing options as well as a preference for which option a customer will choose, price presentation is the visual and contextual presentation of price options to give customers a choice but influences buying decisions toward a company-preferred alternative.
Just like a four-legged stool, you can get three of these parameters exactly correct, but by neglecting the 4th element, your incomplete pricing strategy will struggle to withstand your revenue goals.
Many startups, or even larger companies launching new products, fall under the misconception that if they don’t get pricing right the first time, they can simply keep changing the price until they hit the target at which customers are willing to buy. That strategy may work for fresh prospects, but all of your prior marketing and sales efforts will have been wasted by exposing your wobbly stool as a first impression. Those companies who didn’t see the value-price correlation the first time they heard about your solution will be very expensive to attract a second time around and that audience subconsciously questions your company stability because of your pricing instability. In addition, companies who change price in this manner often price low out of desperation to sell which affects both company image as well as profit margin.
To launch a viable product that sustains any level of business operations, your pricing strategy must adequately account for all four elements. By doing so, your business can address the revenue operations requirements for sales and compete in the marketplace on the merits of your strategically defined differentiators instead of price.
Don’t disable your revenue platform with an incomplete pricing strategy. Join us to learn how to avoid this common pitfall and get pricing off to a good start in your startup.