Pricing is perhaps one of the most important aspects of a Go To Market Strategy. Pricing is about setting a price high enough that users are willing to pay, be satisfied with the purchase, and generates a profit for the company. An incorrect Pricing Strategy can undermine all the efforts and the investments made up to the point of purchase.
The Moment of Truth is that pivotal moment when all your investments in customer research, market research, branding, and R&D have finally brought that one customer to you and he or she must decide To Buy or Not to Buy. If the customer buys, then congratulations! Your hard work and efforts have paid off. If the customer does not buy, then all your efforts and investments have been wasted.
Your market consists of all customers who need or want a company’s services/products AND who have:
ABILITY TO BUY
WILLINGNESS TO BUY
WILLINGNESS TO BUY AGAIN
ABILITY TO BUY:
Users may need access to cash or credit to make the purchase. Sometimes, the Buyer and the Payer could be separate — a key insight that is often overlooked.
For example, Facebook is free for users(Buyers) since advertisers act as users’ Payers. Parents BUY things FOR their children and teenagers. In India, weddings are generally paid for by the families and not by the bride and groom.
Strategically influencing a user’s Ability to Buy may also mean changing the method of payment. For example, instead of asking users to pay $100 upfront for a product, you can use a subscription(SaaS) approach augmented with a tiered pricing schedule. (Customers often perceive paying $9.99 per month for 12 months as cheaper than paying $100 upfront). Service fees, cancellation charges, cost recovery charges are nothing more than clever ways to influence the user to pay more — at an incremental level.
In B2B environments, buying decisions are often made through extensive committees and convoluted processes which must consider the interests of various stakeholders. Generally, the greater the cost, the more people become involved and making the process more complex and mired in internal politics.
One Go To Market strategy to influence a B2B user’s Ability to Buy is to avoid charging the full price upfront. Instead, charge incrementally over a time period. For example, instead of charging an upfront price of $50,000, you can charge an annual subscription of $10,000 with a min subscription term of 5 years. This strategy ensures that, since the actual cost is $10,000, the price is low enough that it doesn’t meet the threshold at which other stakeholders need to be involved. This way, only the local business unit manager need to make the Buy decision.
WILLINGNESS TO BUY and WILLINGNESS TO BUY AGAIN:
This is the most difficult aspect of a Go To Market Strategy. Branding, Marketing, and the entire Marketing Mix(Product, Price, Place, Promotion) to a large extent, attempt to positively influence this aspect of user behavior.
3 Pricing Strategies that may positively influence a user’s WILLINGNESS TO BUY and BUY AGAIN are:
1. Image Pricing Strategy
This is a strategy in which a company launches an identical or nearly identical product of an existing product but under a different name, brand, model number, etc. and at a higher price. The purpose is to create the perception of high quality and premiumness which serves to drive growth in customer acquisition(same product is marketed differently to different segments) and revenue(price differences attracts a greater array of buyers).
When reversed, this can become a Loss Recovery Strategy. When a company is losing customers to competitors who offer cheaper, value brands, the company can respond by launching its own value brand to stem the loss and reacquire lost customers.
Tellis, G. J. (1986). Beyond the Many Faces of Price: An Integration of Pricing Strategies. Journal Of Marketing, 50(4), 146–160
2. Gifting Strategy
Product Managers can use Gifting Strategy as a way to drive revenue growth and increase customer acquisition. A significant amount of research has shown that customers are generally willing to buy more and pay more — if the product or service is for a friend or family member. “Pay it Forward” programs are forms of Gifting strategies designed to increase customer buying frequency and customer acquisition(the gift buyer becomes a customer as does the gift receiver!).
Pay it Forward programs can be observed in coffee shops where individual customers can pay for a stranger’s coffee. Gifting strategies can also be seen during special occasions such as Valentines, Birthdays, wedding anniversaries, and Christmas.
Gift subscriptions, as an example, can be an excellent way of growing revenue and acquiring new customers — both from the purchaser of the gift and the receiver of the gift.
Jung, M. H., Nelson, L. D., Gneezy, A., & Gneezy, U. (2014). Paying More When Paying for Others. Journal Of Personality & Social Psychology, 107(3), 414–431
3. Identify Competing Products and Substitute Products
Product Managers often by default look to the competition when developing a Go To Market strategy especially when setting prices. However, Product Managers should also investigate what the user perceives as a substitute for your product or service. Sometimes, the competing product and the substitute product can be quite different. For example, for a company wanting to sell iPads to users who want to take notes in meetings, a competing tablet might be a Microsoft Surface Pro.
However, observing how users respond when neither option is available may reveal that some users may opt for a pen and notepad instead. In this case, a substitute good for an Ipad is actually a traditional pen and notepad.
This key insight can produce a strategy whereby a potential iPad customer can be offered a unique payment plan where the first installment is set at the price of a pen and notepad.
Deep user insights is only possible by relentlessly focusing on the user experience.
Grewal, Dhruv… [et al.] (2012). Marketing. Whitby, ON : McGraw-Hill Ryerson.
Hogan, J., Nagle, T., & Zale, J. (2011). The Strategy and Tactics of Pricing: A guide to growing more profitably. New York, NY: Pearson Education, Inc.
The content of this post is for informational, educational, and entertainment purposes only and is not to be viewed as recommendations or advice from the author.