Choosing Your Pricing Model

Figuring out the right pricing for your startup is a challenging, yet crucial, part of building a successful company. The way you price your product or service can make or break your startup. So, it’s important to understand the pricing landscape of your market and how your company fits into it to get your startup’s pricing right.

“Pricing is both art and science.” 

General Principles to Follow

To harness the various pricing tactics available into an effective strategy requires following a few key best practices and principles.

  • Be Different. Establish a different price point from your competition, even if it’s only slightly different. Research says identical pricing tends to discourage sales.
  • Keep it Simple. Research published in the Journal of Consumer Psychology found that prices with more syllables look and sound higher to consumers. For example, $1,500.00 looks more expensive than $1,500, and $1,500 looks more expensive than $1500.
  • Focus on Perception. Consumers make pricing decisions based on the perception of how gain outweighs pain. An $84 monthly subscription sounds less painful than a $1,000 annual subscription, even though they come out to about the same amount over the course of a year. Similarly, the context of an offer can affect price perception. People will pay more for a multimedia course than an article even if the content is the same.
  • Bundle. Bundling items, emphasizing free offers or adjusting sales copy can also influence perceived value and pain.
  • Don’t Emphasize Bargains. While this may work for some brands with superior logistics capabilities like Amazon or Walmart, for most companies, it will create a perception of lower value, along with diminishing return on investment.
  • Associate with Experiences. Memory associations play a role in perceived value. Ads for beer brands try to associate their products with good experiences such as social gatherings and watching sports events.
  • Use Price Anchoring. The first piece of pricing information consumers see affects or “anchors” their perception of subsequent items. This means that contrasting a premium product with other products can help enhance its perceived value.

No single strategy is appropriate for all situations. Selecting a pricing strategy that fits your business requires knowing your company’s target market, accurate market data analysis, knowing your your production costs and capability and logistics and understanding your capital.

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