Let’s talk about how the choices you have made for business strategy (for my previous few blogs) will affect your pricing strategy. Let us assume that your start-up has figured out some way of being different and better in the eyes of customers. Either your product itself is better (i.e., product strategy), or it has better features (i.e., feature strategy), or is somehow delivered to the customer in a better way, (i.e., delivery strategy) or the company delivers better customer service (i.e., service strategy), or something else. Once accomplished, you now have two choices for a pricing strategy to consider:
- Sub-Strategy 1: Premium Pricing: You price your product higher than the competition. You argue that customers will see more value in your product and thus will be willing to pay more for it.
- Sub-Strategy 2: Comparable Pricing: You price your product in line with the competition’s products. When customers compare your product and the competitor’s side-by-side, they see two products at the same price, but your product will stand out as clearly superior, and thus will provide more value. As a result, you will achieve more volume and thus higher market share.
The above extracted from my latest book, Will Your New Start Up Make Money? Buy your copy at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE.
People conceive of business ideas in many different ways :
- Perhaps the most common is: You have thought of a new product. Although this is the most common scenario, it represents “a solution in search of a problem.” Most successful businesses are successful because they address a clear and compelling pain that a group of potential customers feel. If you think of your business idea as “selling some new product,” that is okay, but you should quickly spend quality time addressing what pain (or “need”) is felt by customers that would cause them to want to buy this product. The reason for this refocusing is that it will be easier to convince most people you are going to interact with (e.g., potential customers, potential investors, potential business partners) if you lead with the customer pain instead of the solution. Key to a product being successful in the market is that customers see it as a better solution to their pain than alternatives offered by competition. I use the word competition here in the broadest possible sense, including companies that are directly competing with your company (e.g., Avis if you are Hertz), companies that are indirectly competing with your company (e.g., bus companies if you are a rental car company), and the status quo (e.g., people who are not traveling because of the lack of transportation options). Better can be mean lower priced, or more convenient, faster, cleaner, greener, more exclusive, more reliable, and so on. These latter qualities are called differentiators.
- Another is: Selling an existing product in some new way. For example, your business idea might be to offer the identical product that your competitors are offering, but you are providing your customers with a new (and better) way for them to purchase it. For example, books that Amazon sells are identical to books that Barnes and Noble sells (and that Borders once sold). But its founders envisioned a new way for customers to purchase books. Of course, one could argue that what Amazon did to the retail book industry was to provide an entirely new service to the market.
- Yet another is: Selling an existing product to an entirely new market that has not had this product before. Perhaps your business idea entails a product that your competitors already offer, but you are bringing it to a market that has never had that product before. For example, bottled water was a well-established industry throughout Europe but was new for North America in the early 1990’s. Nestlé (assisted by its acquisition of Perrier), PepsiCo, Coca-Cola, and Danone all entered this new market at roughly the same time.
- And another is: Identifying an unmet pain within a market. You might stumble upon a problem or you might discover a problem as the result of doing research about some market. For example, in your reading you might learn that in the West African country of Niger, a “woman stands a 1-in-7 chance of dying in childbirth,” and you want to create a company that helps solve that problem.