Creative Product Pricing Handbook
Product Pricing Strategy as Differentiator
Attractive features, market fit, and branding are not the only ways to differentiate your Products. A Product can be also differentiated by Creative pricing.
Creative, not competitive price brands your Product
In the world of meter-driven Taxis, Uber won the hearts and the markets with pre-agreed pricing.
The heavy shipping charges world of e-commerce was drastically transformed by the Prime offering of Amazon.
The pay per movie models of theaters was disrupted by monthly subscription model of OTT like Netflix and others.
Among the Products that have created a history of succeeding through creative pricing strategies, the latest incoming is Twitter. The moves of the company are yet to be seen, but it is no secret that in an attempt to increase the sustainability of its revenues, charging a subscription fee is in the game. If it pulls off the move, it will be the lion in the sheep-dominated Social Media market.
The share of pricing as a role in the success of a Product becomes more critical in Software Products where each Product shares the advantage of near-zero fixed cost unlike its siblings in the tangible goods market.
It is also much profitable to diverge from the standardized pricing structure of the market and take a lead to create a new offering that later could be the new norm for the industry, or better yet create an entirely new market.
Innovative Products can be birthed from Creative Pricing alone
My Brush with Pricing
The market for Security and Surveillance products spreads wide and deep in this world plagued with crime. The market is also old, filled with pre-established behemoths of players dictating what the world pays to keep themselves secure.
Huge amounts paid per license for perpetual use would in totality not cost a lot sum to a company wishing to make their premises just a tad bit safer.
And yet, the benefit of these products was usually realized when the crime was over, the criminal was far far away. People would sit for hours at the end skimming through days and days of video in an attempt to find the evidence of breach trying to catch a single glimpse of the perpetrator and sometimes to be deeply disappointed.
What we brought to the table was a promise to flag incidences before they occur, and should there be a need to engage in forensic analysis provide an easy intuitive, and effective way to do so.
But how easy would you think was it, for a small startup claiming to be experts in Artificial Intelligence — the new kid in the town who everybody looked at with suspicious curiosity and fear, to command the kind of pricing that the biggies were claiming.
The below insights are derived learned, shared based on my experience of pricing our product, which went started on standard market pricing but took a roller coaster to find the right spot that worked for both, us and our customers.
The Polygonal Market
The primary objective of the vast majority, if not all Products and Businesses is to create a consistent and ever-increasing stream of revenue. While the majority of Products march on the default stream of revenue identified and set by the market, considering the deeper ecosystem of possible users could provide a powerful means of investigation.
The ever-evolving current market has graduated from a single consumer-driven market to two-sided and continues to change its shape to a polygonal where each edge defines an interested party to the market.
To quote examples from the current market terms, sellers and buyers might not be the only interested stakeholders in the grand scheme of Ecommerce.
The polygonal market could have other edges like people willing to rent out space for warehouses and godowns, regular riders willing to carry items between locations, people willing to take ownership of distribution in the neighborhood during unavailable hours of buyers, and so on.
The attempt to add to consideration and experimentation, the bigger ecosystem and the multiple edges of polygonal markets could lead to not only interesting and multiple creative pricing mechanisms for existing Products but lead to the conception of completely new business models.
Evaluating the picture of the value derived from charging one edge of the market against that gained by a declared “free” offering to the others often brings forth very interesting actionable insights worth deeper experimentation.
The success of each would of course depend on multiple external forces like the bargaining power of each edge, the dearth or the availability of related resources, and competitive maturity. Internal factors like the capability to execute, marketing expertise leveraged, and Product competence would be extremely critical to the success of these endeavors.
Value and the Cost
The acceptance of and adaptation to new innovative Product pricing strategies are reliant on the value that is derived from not only the Product but pricing as an independent entity. Out of the multi-pronged strategy of a Business, pricing can provide a strong leg to stand upon.
To illustrate in terms of our very favorite innovative Product Uber, the on-demand cabs and pre-agreed pricing both form independent and almost mutually exclusive offerings to a rider who was, in the absence of the Product, plagued by the uncertainty of hailed cabs and the unknown routes determining heavy charges.
The pricing, very much like the enticing and well-designed product features deserves its own phase of discovery, experimentation, and iteration. It should be built upon the strong base of targetted users, their habits, and pain points to enable one to evaluate the value it brings to its intended user base and customers.
From Known Strategies to Innovative P&Cs
The relationship and the disparity between the pricing strategy, which determines how the business charges its consumers, and the customer offering must be well understood because while the two affect each other they could be from a lens looked at very differently.
Looking at both independently often brings to light new ideas.
Looking at the pricing mechanism independently from the object of the price (product feature, service, etc) could lead to interesting permutations and combinations that could provide leg to your fresh ideas.
The parameters of distinction of pricing mechanisms could be in terms of frequency (daily vs weekly vs monthly), the magnitude of price, pricing model (perpetual vs per transaction vs subscription vs fixed pricing).
The above considered and experimented permutations combined with the variety of offering its coupled with, evaluated against the valued derived by the users can lead you to the winning combination that can help differentiate a product.
Existing Market Expectations
Currently prevailing user expectations in a market can be a big factor in determining the success or failure of a new Pricing strategy. Needless to mention, while the perception of price reduction is welcomed with both arms, it’s extremely difficult to manage the justification of increased price with or without the promise of extra delivered value.
Any big alterations in the well-defined existing market pricing often need to be accompanied by not only a uniqueness in the offering accompanying the price but also well-designed marketing and brand campaigns to mold user perception to accept the change.
The case can be better understood and illustrated by the example of Twitter, a big player in the Social Media market which has been predominantly known for its seemingly free offering to its users. Any change in the pricing structure is expected to create a strong backlash accompanied by possible extreme dips in user activity and a number of loyal users.
In the already established and successful “free” pricing mechanism in the industry, Twitter is attempting to charge its users for a variety of offerings.
The rapid diversion and disruption of pricing in Social Media by Twitter can backfire very easily unless packaged with suitable offerings that the users see as valuable and strong marketing that leverages the current pain points of users, a few of them being haunted by advertisements and use of personal data.
The change, even for a behemoth like Twitter is more easy said than done, becomes all the more difficult for a smaller player in a big established market unless one uses the lack of existing market share to one’s advantage.
Product peer pressure is a real thing!
A Disruptive Pricing for a Disruptive Offering
A new offering in the market, new Product or not, brings with it the added advantage of fresh eyes, lack of embedded classification into an established market, which gives it all the more legroom to grow and set its own terms.
An existing Product pivoting or additionally entering a new market also earns and enjoys the advantage of being covered by the umbrella of the new offering.
Software Products usually enjoy the advantage of thin market demarcations and it falls upon the branding and marketing of the company to declare which one it stands and fights in.
Google can be looked upon as a business in a multitude of industries, the most common ones being search and advertising industries.
Not commonly associated industries could be a digital library or knowledge repository, or even eCommerce aggregator industry. Aligning and sticking with the brand image of a particular industry allows the freedom to develop one’s own terms and conditions.
The market tends to have less inertia towards innovative pricing with new offerings, pivoting products, and startups aiming towards market disruption.
A Creative Pricing strategy can differentiate your Product as much as an innovative feature.
It is recommended that you should consider and be cognizant of the following factors which will help conceive and implement a new and disruptive differentiating pricing for your Products.
- Identify and evaluate the relation between the different edges of and the Polygonal market.
- Design a pricing strategy that adds value as an independent entity to one or more edges.
- To generate more innovation decouple, while designing, the pricing strategy from the offering it is being implemented for.
- Stay aware of the style and the magnitude of strength in established market pricing expectations.
- Market positioning of Product heavily influences and determines the success of a new pricing practice in the industry.