Blog

Pricing Strategy for Startup: As a startup, pricing strategy is one of the most important decisions to define your startup roadmap. A solid pricing strategy can not only help your marketing communication but also your investor conversations. A well-defined pricing strategy for startup can help you provide clarity for both your teams and investor board.

In this discussion, we talk about the most common strategies and how you can use it to manage your startup. We also talk about common tips such as:

• It is easier to start high and then reduce
• Pricing should be comparable with your existing market
• Your price is compared with competitor, customers will compare you to your competitors to understand your value
• Cheap doesn’t give you the best deal. The point is about perceived use value rather than just a tangible value.

To define your pricing strategy for startup, you need to follow key parameters such as:

• Defining customer profile
• Competitor profiling
• Value proposition
• Managing costs for your startup

For more details on pricing strategy for startup, continue reading below. It will be great to hear your thoughts to discuss this further.

1.0 Pricing Strategy for startup: Defining your Customer Profile

This is a key starting point of your pricing strategy for startup. If this is the first-ever product or service you are selling, start with defining your customer type and profile. It is good to have as many details as possible for this pricing strategy. Important details you will need about the customer are:

B2C or B2B strategies

If your target is B2B, you are usually looking at enterprise models or business level conversations that are markedly different in approach. You cannot look at a mass market for this sale. Instead, this sale is for a high value, high price segment.

2.0 Identifying Key Competitors to understand pricing profiles

It is not just enough that you look at your customer and come up with a guessed price. You will need to research your customer. Which segment are they targeting?

Competitor/Market Segmentation

There are typically 4 segments a competitor can target – High-value high price, high-value low price, low-value high price, and low-value low price. (Related: Using competitor segmentation for pricing strategy)

Decide which segment your key competitor lies in. Your pricing cannot be marginally different from that of a competitor unless you can prove a marked difference in your product.

The key advantage in looking at your competitor pricing is that you will get a clue of the market preparedness for this price range. Ideally, it is good to set yourself close in pricing to your closest competitor.

3.0 Defining Value Proposition to justify pricing strategy

The value proposition is your key deliverable. You cannot stray away from this no matter what pricing strategy you follow. Remember, the price you publish sets a message on the quality of your product. Be mindful of this when you plan this price and explain this very well to the target customer.

Your value proposition largely defines your pricing strategy. It explains why your price is high or low. It also gives the customer an indication of the value of their money.

A typical rule of thumb is to express 4-5 solid business advantages a customer can have through your solution. Be mindful not to copy your competitor’s words. These are your words and should have your own originality to them. (Related: How to create value proposition)

4.0 Managing costs including labour and resource allocation

In a business environment, costs play a tremendous role in your pricing strategy. They provide you with an idea of the revenue generated, the number of customers you need to reach to realise your goals.

The costs also tell you how much money you must make to sustain your business. They will also tell you when you can achieve a breakeven point so that you can plan your resources around them. There is a fine balance between high price and low price businesses. The difference lies in economies of scale.

The pricing strategies you follow for both of these segments are tremendously different. You cannot apply the same rule for all pricing strategies.

Summary: Pricing strategy for startup

• Don’t set your price too low, it is always harder to increase your prices than reducing.
• Be prepared to explain your prices to customers, suppliers and anyone who asks. This explanation should be in the value you can offer.
• Don’t spread yourself too thin. You cannot satisfy every customer, hence you must define your ideal customer segment. You will have fringe customers, but not at the cost of your core customers. You cannot afford to disappoint your core customers.
• Sales and prices take more time to stabilise, don’t be too eager to change prices at the drop of a hat or else you will appear too eager to please

These are some key thoughts on pricing strategies for your business. Join our discussion through your comments/questions below to discover strategies apt for your business.