Pricing a product correctly can be difficult in any industry. While a product needs to be priced competitively to attract buyers, especially for companies that are relatively unknown, a price that’s too low can undervalue the product in the eyes of consumers. Worse, it could make a business unprofitable.
The latter is especially dangerous in hardware. Margins on hardware have plummeted so much in recent years that it’s not uncommon for some companies with the means to sell devices at a loss to hook consumers. That may not be the best strategy.
“In order to grow a company today, you can’t just rely on acquiring customers,” Price Intelligently CEO Patrick Campbell told a Startup Launchpad audience in October. “You have to be a lot better at not only monetizing those customers… but you also need to be able to retain those customers through repeat purchases as well as through maybe having some sort of software element to your actual hardware product.”
Fortunately for startups, customer loyalty isn’t reliant on price. On the contrary, 94 percent of U.S. internet users say a “good customer experience” is their primary reason for brand loyalty, according to a Blackhawk Network survey. Only 57 percent cited “regular lower prices” as a reason, which wasn’t even among the top five responses.
This is good news for innovative but cash-strapped startups. Consistently undercutting competitors is a losing proposition, but young companies willing to put in the work can still win loyal fans.
Even so, prices do matter. As Campbell noted at the conference, companies say they are facing more competition today than they did five years ago. As a result, companies are increasingly losing leverage on customers, even companies with innovative products.
There’s no perfect way to price a product, but there are some good practices for getting an idea of what customers care about and how much they’re willing to pay for those features.
Campbell is a big fan of surveys, something his talk relied upon heavily. Revealed consumer preferences in the market are important, but surveys are the only way to gauge consumer tastes for differentiable features before going to market.
Differentiable features are the key. These are the features that consumers want and will pay for.
Good surveys are critical in finding which features are differentiable features, who wants to buy them and how much they’ll pay for them. This is why surveys should have questions on demographics based on features that could change a consumer’s or business’ willingness to pay. This might be gender and age for a consumer or seniority and team size for a business.
When asking about product features, respondents should be forced to make a decision. Ask people to rank features or point out which is the most important aspect of a product. Over time and many surveys, a startup might find that their core business is different from what they thought it was. In addition to helping a company readjust its focus to better align with its consumers, it can result in better pricing because a company will better know what its product is worth.
From this data, companies can start building consumer profiles to better target their products. By separating consumer profiles into what features people like and how much they want to pay, a company can make better decisions about future pricing strategies and product differentiation.
For a more in-depth look at this, watch the Campbell’s full talk in the video above. The advice is applicable for all kinds of companies and should be part of any startup’s strategic toolbox.
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