4 Essential Pricing Strategy Tactics to Boost Revenue

4 ESSENTIAL PRICING STRATEGY TACTICS TO BOOST REVENUE · Vertical differentiation · 1. Target Untapped Customer Personas · 2. Soft skills (Design, ... Wejustlaunchedengagementdata! product blog Guides SubscriptionStatistics ReducingChurn PricingOptimization FreemiumStrategy Shows PricingPageTeardown ProfitWellReport ProtecttheHustle Tradeoffs RecurNow aboutus Login MostRecent PricingPageTeardown recurnow profitwellreport protectthehustle AllBlogPosts   4ESSENTIALPRICINGSTRATEGYTACTICSTOBOOSTREVENUE VivianGuo UpdatedOn:August16,2021 No Iremembermyfirstmicroeconomicsclass.Thelessonwasonsupplyanddemandcurvesinaperfectmarket.I’llspareyoutheyawninducingdetails,butweweretaughtthatahigherpricecorrelatedtolowersupplyandgreaterdemand,andalowerpricetotheopposite.Yet,nomatterthemarket,thepointatwhichthetwocurvescrossedwasknownastheequilibriumprice,theperfectpricepointforthatparticularmarket.Soundslikewonderful,balancedbliss,doesn’tit? Well,asmanyofyouknow,therealworldofpricingdoesnotoccurinaperfectmarket,atleastonethatwecanseesincewedon’thaveperfectinformationatourdisposal.Ifwedid,pricingstrategieswouldbeexceptionallyeasyandprofitable.Thequestionthenbecomes,howcanyoutakeadvantageofworkingwithinimperfectmarketforces?TheanswerexistsinthemaindifferencebetweenaMicroeconomics101textbookandtherealitiesofdoingbusiness:Productdifferentiation.   Productdifferentiation:It’sallaboutbeingauniquesnowflake(oratleastappearinglikeone) WhydoyoudrinkSnappleandnotMinuteMaid?WhydoyoubuyshoesfromNordstromandnotfromSears?ItmightbebecauseSnapplehascoolfactsontheircaps,andNordstromhasemployeeswaitingonyouhandandfoot.Theseareallformsofproductdifferentiation:theabilitytomakewhatyouselluniqueamongtheplethoraofsimilargoods.   photocredit:J.Star Thegoalistoenticeconsumersandcreatetheperceptionthatthereisn'taperfectsubstituteforwhatyouofferthroughpricedifferentiationandpricebundling.Forexample,Icouldbuyacupofcoffeefromalmostanywhere,butthebigcomfycouchesandgorgeouslatteboyattheoffthebeatenpathcafédrivemetotheirlocationoverthelocalStarbucks.Eventhougheitherwouldprobablydothetrickofmymorningjolt,thosesimpleadditionsmeansIwon'tswitchbrands.Onlywhenproductsaredifferentcantherebevaryingprices.Insimplisticexamplesofaperfectmarket,themainassumptionisthateveryproductisaperfectsubstitutionforanother.Ifthatwerethecase,consumerswouldsimplyswitchsellerswhenoneraiseditsprice.Perceivedoractualdifference,however,iswhatjustifiesstickingwithsomethingeventhoughitmightbealittlemoreexpensive. Morespecifically,howdoyoudifferentiate? Verticaldifferentiation Therearetwotypesofproductdifferentiation:verticalandhorizontal.Verticaldifferentiationisbasedonsuperiorversusinferiorgoods.Themarkersforthiscategoryincludecharacteristicslikequality,durability,reliabilityandservice.Thereisameasurablescaleforverticaldifferentiation:it'spossibletoquantifyifBrandXoftireswilllastlongerthanBrandY.Verticaldifferentiationisalsomarkedbyapositivepricecurve.Ifyou'regettingabetterqualityproduct,itmakesmoresensetopaymoreforit.Sothistypeofdifferentiationsegmentsthemarketintoconsumerswhoarelookingforabargain,oneswillsettlefornothingbutthefinest,andthemultiplegroupsinbetween. Horizontaldifferentiation Horizontaldifferentiationisaseparatecategorybecauseitsmethodsofdifferentiationcan’tbemeasuredthroughthesamelens.Thisgroupmainlyincludesthingslikestyle,taste,andpreferenceoffunctions.Imaywantafuchsiacellphoneinsteadofablackone,orImightlikeBen&Jerry'sChunkyMonkeyicecreambetterthantheHalfBakedflavor.Thatdoesn'tmeanthatanobnoxiouslybrightmobiledeviceissuperior,orthatHalfBakedisaworseconcoction.Horizontaldifferentiationismoreaboutpersonalpreferencethanstrictmeasurementofquality.  Fourwaystodifferentiateimmediately  Animportantnoteaboutproductdifferentiationisthatperceivedvaluedifferenceiswhatisimportant.Theredoesn’treallyhavetobeahugedifferenceinfunctionorqualitybetweenyouandyourcompetitor,butconsumersneedtohavethatperception.Ifyouwanttodoevenbetter,thentakealookatyourcompetitors’offerings,crossreferencethemwithyourtargetcustomer’sneeds,andbuildwhatyourcustomerswantthatyourcompetitorsdon’thaveintheirarsenal.Ofcoursethattakessometime,buthere’sagoodbreakdownofwhattoattackforproductdifferentiation:  1.TargetUntappedCustomerPersonas Remember,thereareentirespectrumsofcustomersthatwantorneedyourproduct.ManycompetitorswillfocusonthepremiumpricingcustomerswithCadillacofferings,whileotherswillfocusondiscountcustomerswithfreemiumandinexpensiveofferings.Therearethousandsofpocketsofcustomersinbetweenthesetwogroups.Findthemandbuild,market,andselltothem.Veryfewindustrieshaveabehemothcompetitorbeingeverythingtoallpeople.  2.Softskills(Design,service,etc.)goalongway Largebusinesseshavedifficultyprovidingindividualizedservicetotheirtargetpersonas.Alotofcompaniesbigandsmallhavetroublelookingprettyandkeepingdesigntopofmind.TakeadvantageofthisandbetheTwilio,Wistia,orHelpScoutofyourindustry.Allthreeofthosecompaniesareinfairlycompetitiveindustries,butthey’vetakentohigh-classservice,design,andbrandtocarveouttheirniches.  3.Alittlebrandinggoesalongway,too Youdon’tneedtobeCokeorPepsi,butputtinganafternoon’sworthoftimeintodevelopingyourbrandcangoalongway.Whoareyoutowhatgroupandwhy?You’dbesurprisedathowmanycompanieswecomeintocontactwithcan’tanswerthatquestion.Assoonasyoucan,usethemessagetounifyyourmessagingandgoaftertherightmarket. 4.UnderstandyourcustomersandDifferentiateyourfeatures Wealludedtothisabove,butfigureoutwhatyourcustomersneedorwhattheydon’tneedandshapeyourproducttowardsthoseneeds,ratherthanthoseofyourcompetitors.HelpScouthasdonebeautifullywiththisapproachbybringingtheworldanexceptionallysimplehelpdeskwhentheircompetitorshavebeendevelopingFrankensteinmonstersofproducts.It’sgottensobadthatHelpScouthasbeenabletosuccessfullyusethetagline,“Ahelpdeskthatdoes99%less.”Theyknowthattheirtargetcustomerwantssimplicity,sothey’vebuilttheproductfortheminthatmanner.Productdifferentiationiscrucialforanybusiness.Mostlikely,giventheeaseofstartingabusiness,youareenteringintoamarketthatalreadyhasstrongcompetition.We’vealreadydiscussedtheprosandconsofcompetitorbasedpricing,andwhycompetingonpriceisapoorstrategy.Productdifferentiationandvaluebasedpricingisthehealthiestalternativetoboostrevenueandgrowyourbase.Justkeepaskingyourself:whatcanyouofferorbuildthatotherscan’t?  Tolearnmore,checkoutour PricingStrategy ebook,our PricingPage Bootcamp(it’sfree!),orlearnmoreaboutour priceoptimization softwareandsolutions.We'reheretohelp!   Tags: pricingstrategy JoinOver50kSubscriptionOperatorsGettingTheseInsightsWeekly SubscribeforMoreInsightsLikeThis Recommendedforyou   Guide:Howtooptimizeyourpricingstrategywithdata ThecompleteguidetoSaaS&subscriptionstatistics WebreakdownthepricingpagesofZoom,Netflix,Slack,andmore TheAnatomyofPricingStrategy Anin-depthguidetounderstandingandoptimizingyourrecurringrevenuepricingstrategy GETYOURFREEBOOK