Hi there -
Here is this week’s “1 principle, 2 strategies, and 3 actionable tactics” for running lean…
1 Universal Principle
“Pricing is one of the most underutilized levers for growth.”
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Too many founders choose to lower versus raise their pricing, creating a race to the bottom.
2 Underlying Strategies at Play
I. Pricing is a choice.
Pick any product category, like bottled water, cars, or chocolate. You’ll find low-end and high-end pricing orders of magnitude apart.
Your pricing model determines your customers, positioning, packaging, channels, and margins.
If you don’t choose your pricing, the market pushes you towards average. If you chase average or commodity pricing, you become a commodity.
Don’t leave your pricing for others to determine.
II. Your price determines your business model viability.
If you can double your price and not lose more than half of your customers, you still come out ahead. While you make the same revenue, your operating costs go down, and net profits go up.
Have you ever tried doubling your price? It costs nothing to run such an experiment because you only have to change your pricing page.
3 Actionable Tactics
I. Setting a fair price
Pricing against your product (solution) is cost-based pricing. It’s backward because customers don’t care about your solution or cost structure but their problems and outcomes.
A better approach is value-based pricing. This is where you anchor your pricing against your unique value proposition (UVP) and the cost of existing alternatives.
But even this may not be enough.
It’s possible to set fair pricing for your product but still fail to build a viable business model.
This is why I advocate setting business-model-based pricing before value-based pricing.
See: When and How to Set Pricing for Your Product.
II. Explicitly anchor your price
Many founders assume their customers are sophisticated enough to determine a product’s value. While that can happen, there’s too much at stake to leave this to chance.
It’s not only your job to set your pricing but also to communicate your value story.
See: How to Pitch Pricing Without Getting Butterflies in your Stomach
III. Periodically test and raise your price
Your pricing is not set in stone. For a business model to work, you need to create more value (even perceived) for customers than you capture back (what you charge them).
- As you better understand the value of your product, consider raising pricing.
- As you increase the value of your product, consider raising pricing.
That's all for today. See you next week.
Ash
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P.S.
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