Anand Srinivasan is a digital media consultant and the author of the book " how we it 100 entrepreneurs share the story of their struggles and experiences of life " He also runs a small newsletter for entrepreneurs, the spirit of enterprise Daily
price of your product is always a tricky business. high price and you run the risk of not being accessible to the majority of your customers target. While the low price, it can help you enter a crowded market, you could potentially start an all-out war of prices that would break even absolutely difficult. So how does a startup entrepreneur go about this?
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During the writing my book , I had the opportunity to ask successful entrepreneurs thoughts and their lessons in price of their product. Here are some ideas I learned to talk to them.
Create unique positioning
Customers compare the price of your product with the competition when there are few or no difference in value between the two.
One way to thwart a price war is to offer a differentiator or unique positioning that separates your product from the competition. For example, if your products are manufactured in the US, you could market this fact to justify the higher price.
Add additional value
Depending on the industry you operate, creating a unique positioning is not always possible. In such cases, business owners can try to pack extra value in their product to justify the higher price.
An example of this model is Fiverr. In this market, the base price for all concerts is $ 5. However, sellers generally offer more value for a higher cost which makes for low cost base.
very high price, then bring it
The price of your product can always be changed. But it is always much more difficult to increase, compared to the decrease.
As thumb rule, the price still higher your product that your desired price point in the early days. Then you can gradually reduce the price to its sweet-spot.
A very good example of a company that practices this strategy is Apple. Every time a new iPhone is out, there is criticism about the high cost of the product. Once early adopters are, Apple falls then the product price to a more reasonable level. The first to adopt Apple products are willing to pay the premium, while others that can wait will buy when it is affordable.
Know your costs
Every industry has a typical ratio of the cost of the product and the selling price detail. For example, a founder I talked to is in the business of manufacturing and selling pillows. In its sector, the ratio between the needs of cost and price to 1: 5
In its early days, the entrepreneur sold his pillow at a price that was much lower than this ratio. The result: he almost on the verge of bankruptcy
.The point here is that you understand all the costs that go into the supply of raw materials, manufacturing and distribution so that they can sell the product at an appropriate price.
Split-testing different price points
Sometimes the only way to get the best price point is by testing against real customers. If you have an online sales channel, you can create separate landing pages for all different price points and levels that you want to test. In this way, the landing page that converts not only the best but also provides the maximum acceptable revenue stream could be chosen for all future transactions.
A common point, I fell in my conversations with each contractor is the need to justify the price of your product by offering great value. Although there is always a market for alternatives to low cost, we must adopt this strategy when all other strategies do not work.
Otherwise you could be triggering a price war, as history has shown, always ends by large companies killing their competitors. As a startup entrepreneur working on a tight budget, it's a scenario you do not want to fight in.
How do you get to the right price for your products? We want to hear your thought process in the comments below.