Pricing: Sensitive, Scary, and Crucial
Pricing is one of the most powerful yet under-appreciated levers in business. Good pricing has the power to increase Customer Lifetime Value, make unprofitable businesses thrive, and completely change Brand perception.
Done poorly, it can doom quality products to failure, tarnish reputations, and really piss off customers. Customers are sensitive to even tiny changes in price, and the consequences impact a company’s survival. What a fun topic!
In this Edition we’ll take a look at Pricing in the following ways:
- Strategic Prices — How Pricing Tactics fit into your Strategy
- Psychology of Pricing — Tactics and Tricks that Companies use
- Case Studies of Successful Pricing — What works and who’s winning
Remember that the effectiveness of these ideas is radically different by Industry and Product. We’ll cover lots of different examples — it’s up to you to decide which are applicable to you.
How Pricing Complements Strategy
The curious thing about pricing is that it’s impossible to do perfectly. In most cases, the best we can hope for is ‘not completely terrible.’ The reason for this is the tension between the obvious goal of Pricing (Profit Maximization) and the non-obvious goals (not piss off your customers or diminish incentive to purchase, and grow the business).
How WhatsApp Won it’s Market — Smart Pricing
To know which factors to optimize for, deeply understand your business goals. For a messaging app, the most important thing is to grow and own the market. Charging new customers was a barrier that would impede growth. WhatsApp knew exactly what it was doing when it committed to charge $0.99 per year for their service, with the first year free.
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