Start Up Blog

How to price your product

Posted in entrepreneurship by Steve Sammartino on December 2, 2009

Pricing is a difficult thing to get right in the marketing mix. Often we get all other 3 P’s (product, place promotion) right and that wrong…. and instead of revisiting it, we mess with the product.

There is no hard and fast answer on how to price a product in a startup or a web service, especially as it pertains to pricing models. But there are two simple pieces of advice I can give.

1. If there is an established pricing method which is accepted and liked in the market, go with it.

2. If consumers generally despise how things are priced in the category you are entering, change the model, and let everyone know about it.

In the first example the ethos is this: It’s hard enough gaining cut through with our product without adding unnecessary complexity to the decision making process. Especially when you have a new and untested offer.

In the second example the ethos is this: The pricing model becomes the main feature. It’s the reason for the switch to you, other parts of the marketing mix will then require far less innovation to gain the cut through a startup needs.

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4 Responses

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  1. Nigel said, on December 2, 2009 at 11:50 am

    Interestingly I was thinking about this in relation to the start-up school you ran recently. Compared to traditional training and particularly university courses the course seemed to offer great value for money and yet you appeared to struggle to fill the 20 places despite having a hugely popular blog with 500,000 views this year and great publicity. Do you think this was a pricing issue or something else?

    • Steve Sammartino said, on December 2, 2009 at 12:12 pm

      We filled the Melbourne places easy, it was a sell out. Sydney was also filled, but the timing being close to Xmas made it difficult for some people, so it has been pushed out to early Feb. Qld also has 10 people ready and waiting for the course….

      That said, I priced it at what it was worth in terms of my time and expertise. I would only do it at that price, or for me it wasn’t worth it. I knew it was a big ask at $1000, but I just would not do it for less than that if the demand wasn’t there. So in many ways I priced it at what i thought was fair, and worth my effort, but didn’t expect people to knock my doors down trying to get a ticket – it is a big ask. It was priced to make it exclusive on purpose.

      Steve.

  2. Andre Sammartino said, on December 2, 2009 at 2:44 pm

    You do need to be careful with choice 2.

    Is the shift in pricing method expected to build a sustainable advantage? Surely competitors can replicate reasonably quickly.

    If the argument is that it simply gets you some eyeballs and first custiomers (crucial for the startup), then I buy it, but it is dangerous to assume that such pricing innovation will still be an advantage/attraction in the medium term.

  3. Steve Sammartino said, on December 2, 2009 at 4:16 pm

    Andre, I would contend that changing a pricing model is not as easy to change as people think. Especially when it has become a large source of revenue for industry incumbents, or a form of obfuscation to hide the real cost of something.

    Two examples I’d provide would be:

    1. ING internet banking launch into Australia with their simple no fee saving account model. It took the local banks a long time to respond to their move offering higher interest rates, and yet ING still has more than a 50% share of this particular market segment almost 10 years later.

    2. Mobile phones. If someone was to enter the market with an easier to understand model for example $50 a month for XX minutes talk time, the contractual arrangements of current network access providers would stymie their ability to respond quickly to the new player, at which time a presence and share could be built of pricing strategy alone.

    Pricing innovation has proven again and again to be a form of innovation, especially when coupled with slight adjustments to the supply chain cost structure.

    Steve.


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