What does optimal pricing look like for companies? Our guest author Christian Wirth from optimal price knows how important this topic is for startups and offers tips on pricing. After all, prices have a strong and direct impact on profits, revenue, and customer satisfaction. Customers' purchasing decisions depend on price to over 50%.
Startups should definitely consider these three points when setting their prices.
1. Don’t just focus on price point when pricing
Many startups focus heavily on the price point when setting prices. Questions like "Can I sell my product for €120 or €140?" take center stage. It's easy to forget that there are over 30 pricing tools that can be used to increase willingness to buy and pay. Among the most well-known tools are "price differentiation" and "price bundling." These tools alone can increase profits by over 30 percent.
To maximize revenue, startups should structure their prices modularly and apply different pricing models (e.g., piece, hourly, and fixed rates) depending on the module. Such a pricing structure creates more room for negotiation during sales discussions and thus improves the negotiating position.
They should also "bring prices into play" as late as possible. The more familiar customers become with the product during the conversation, the higher their price acceptance.
2. Utilize the potential of differentiation
Startups often focus on developing and marketing a single product or service. In doing so, the revenue potential of differentiation is easily lost. Price differentiation addresses the different desires and needs of customers. This allows you to reach the maximum number of customers and exploit their varying willingness to pay.
Particularly effective are quantitative (e.g., small and large packaging units), qualitative (e.g., standard and premium quality), temporal (e.g., day and night rates), and geographical (e.g., country-specific prices) differentiation. In practice, the selling prices of Varians of the same product often differ by a factor of ten or more.
Differentiation doesn't have to be complicated: For example, a well-known manufacturer offers its sweetener in two 1TP1404 inks: "Classic" and "Gold." The price of the 1TP1404 "Gold" ink is a considerable 37 % more than the 1TP1404 "Classic." However, the layperson cannot distinguish between the two 1TP1404 inks in terms of effect and taste.
3. Communicate services and benefits clearly
Startups often market innovative products and services, leveraging innovative business models. Their customers lack experience, and other important references, such as comparable competitive offerings, are lacking. Since customers always evaluate prices in relation to the product's features and benefits, startups must be particularly careful when presenting their features and benefits.
It's worthwhile to present your portfolio, products, and sub-products and add-ons in a structured and easy-to-understand manner. The better customers understand the services and benefits, the higher their willingness to buy and pay. This simple rule applies not only to advertising but also to communicating prices on a price list or in an offer.
Guest author Christan Wirth
The pricing and marketingExpert Christian Wirth advises companies on setting and optimizing their prices. In Germany, he is heavily involved in the Munich startup scene.
On 5 July 2016 he will be at the Innovation Café of the Strascheg Center for Entrepreneurship with his lecture “Maximize your success with the right price.”
