At our recent Founders @ Plexal meetup, we were joined by Sophia Sunwoo, founder of Ascent Strategy, a consultancy that helps startups grow and become profitable. Sophia shared her advice for startups on how they can nail their pricing strategy. Here are some of the top takeaways from our event.
You must first know what your “lowest conceivable price” is. This figure should factor in discounts. You then need to understand your highest conceivable price, which is the maximum price your market can bear. To figure this out, look at what your competitors are charging. When you have these figures, you can use them as guardrails when adjusting your prices.
Sophia says it’s helpful to visualise a thermometer when gauging how customers feel about various price points. She suggests you collect feedback from your customers or people in your target market through surveys, filtering out the opinions of well-meaning friends and family who don’t resemble your target customer.
Sophia also suggests you think about how affordable people think you are as a spectrum. “You generally want your prices to be in this sweet spot between prices that are somewhat affordable, and prices that are very affordable,” she said.
If your product or service is perceived as being high-quality, don’t be afraid to charge a bit more so you’re not “leaving money on the table”. This is where knowing exactly who your target customer is and getting feedback from them – and only them – is so important. “Do not take criticism ever if that person isn’t in your specific market, because the moment you do this, you actually betray your ideal customer,” Sophia said. “Your ideal customers want to pay your prices because they know the worth behind it.”
Sophia said that in her experience, startups are often guilty of trying to appeal to everyone in the early stages: “Rather than thinking about their customers as 20 people in a small room they think about the world. They think about scale a little too soon.”
Sophia warned that lowering prices can become a crutch that actually makes people trust the service or product less. Price is often used as an indicator of quality and durability.
And if you become too reliant on discounts, they may only buy from you when there’s a sale. Worse, it could send the wrong signals to the market about what your brand stands for. “Pricing is really, really sacred because it tells you who your customers are,” Sophia said. “Fussing with your pricing too many times tips the scales and can leave you without an identity and without customers that are the specific target of customers you want. So I really challenge you if you are in this place, don’t put all of your weight on your pricing as a strategy to get customers to the door. Actually, see it as a sign that you’re doing something probably a little off on the marketing and branding side of your business.”
Citing the example of Apple and the way in which people are willing to pay more because they feel a connection with the brand, Sophia reminded us that people have an emotional response to prices and products.
Although surveys and customer conversations are a great initial starting point to collect pricing feedback, a live sales environment will show you how customers will really react. Sophia recommends using a platform like Instagram to soft launch a product for a short period and review the initial sales figures.
And you shouldn’t be afraid to get it a little wrong when testing the waters. “Don’t marry yourself to a number, pricing is really a learning process,” Sophia said. “I don’t want you to get caught in the fear of your pricing having to be perfect first time, you can always lower your price.”