The Price is Right: Essential Tips for Nailing Your Pricing Strategy
The Price is Right: Essential Tips for Nailing Your Pricing Strategy
From buyer personas to feature preference surveys, Price Intelligently Co-founder and CEO Patrick Campbell offers indispensable tips on how to get pricing right.
DEFINE YOUR CUSTOMERS
Perhaps you’re at a startup founded by people who’ve never handled pricing before or who are launching a product in a new market. Your first step is to begin by building quantified buyer personas, which are data-driven profiles of your target customers. The objective is to create categories of relevant and lucrative customer segments to determine the cohort that’s most important to deploy resources to pursue. Here’s how to begin:
Target 3-5 buyer groups to test. Especially at a company’s earliest stages, resources drive and determine decisions. “If you’re able to part with $20,000 to $30,000 to do a proper study of your market, skip to the next section. However, if that sounds like a lot to you, start small and pick fewer than a half dozen target buyer profiles,” says Campbell. “How do you do that? With an educated guess. In your early market conversations and preliminary prospecting, you’ve had an inclination that you’re selling to specific sets of people. Write down those groups, what you believe they value, what they don’t value and their willingness to pay. Note the group that you predict will have the most revenue-generating potential.”
Christen each buyer cohort with a persona. Campbell is a fan of buyer personas. His rule of thumb is to use an alliterative descriptor of each segment that follows this pattern: [group attribute] [first name]. “In the end, these are people, not numbers. Humanize your buyer cohorts,” says Campbell.
Assign descriptions — both demographic and behavioral — to each persona. Each target group should have succinct definitions that are relevant to your organization. For example:
- Startup Susan - She’s pre-revenue or hits $1M in revenue. She’s not sophisticated with her processes yet, and is mainly focused on her core product.
- Mid-market Malik - He’s a mid-stage company that's making $10M to $50M in revenue. He runs a team of 12 to 25 people.
- Enterprise Ernesto - He might generate $75M or more in annual revenue. He isn’t likely going to use the product personally, but will more often be a decision maker.
The bigger reason to establish this customer categorization is to begin to tackle one’s value proposition.
COLLECT DATA FROM POTENTIAL CUSTOMERS
Customer surveys get a bad rap in the startup world. Many dismiss them when they don’t return accurate or sufficient results, but that’s often due to faulty survey design. “If surveys don't generate good data, it’s often due to user error. There’s a lot we want to know, but we make missteps in how we ask. We end up with 25-minute surveys with 45 different questions,” says Campbell. “Without thought to incentive or user experience, it’s no wonder we get back bad results and lose faith in surveys as a tool. But, if done correctly, they can be very powerful.”
To start, Campbell recommends that you focus surveys to test two elements — features and price sensitivity — with a relative preference methodology.
Feature preference surveys: List a set of features to evaluate and hone in on the extremes. To test relative preference, ask two questions:
- Out of these five features, which one is most important?
- Out of these five features, which one is least important?
“In two quick questions, you get the pulse of what’s most and least critical relative to other features that may be on your list,” says Campbell.
Two Approaches to Launch Surveys
If that seems like a lot of work to release these two surveys every three weeks, there are other ways to gather this information.
APPLYING YOUR FINDINGS
All the personas and surveys serve to fine-tune one key area: your pricing page. How you showcase and justify your pricing is the culmination of all these efforts and the lever for customer acquisition. But to get there, you need to first grasp the price elasticity of your offering.
Plot out Price Elasticity
After you’ve collected your survey results, use the data to determine your price elasticity of your offering by persona. “Price elasticity is a function of what your conversion is going to do relative to your price. In other words, it shows the demand for your offering changes as your price changes,” says Campbell.
Behold, The Pricing Page!
Once you’ve mapped your price elasticity curve, you can now refine each buyer persona by their feature preferences and willingness to pay. “Now you have an updated sense of the value for and motivation to buy for each group.
When to Show or Change Your Pricing
Companies often ask Campbell if they should show their prices. “Early on, many startups don’t want to show prices — and that’s okay. Most don’t really know what they should charge, so they prefer to get intel by asking inbound customers some pricing questions,” says Campbell.
JUST GET STARTED
If readers take one note from Campbell, it’d be to get started now. Don’t wait for your product to be done to start sending out feature preference or price sensitivity surveys.