What’s the right price?

There are a number of fundamental questions in business, and one of the most fundamental ones to any business is the one of what to charge for your product?

Clearly there is not one 100% correct answer for that question as it always depends on a lot of different things. And yes, pricing is a science in itself and super hard to get right. But there are a few simple considerations to at least get you started.

They are: Cheap But Expensive, Optimum and Expensive For Good Reason.

The Cheap But Expensive option is the starter option. Yes, it will cost the customer less than the other ones, but in reality it is priced in a way to ensure, (1) you get your starting costs covered and (2) there is every incentive to upgrade to a more expensive solution.

Think of this as the small but overpriced ice cream cone that really just screams you were too cheap to get a bigger one.

The Optimum price point is where the offer makes financial sense compared to the value you’re getting as a customer. Yes, you pay, but you also have a pretty good understanding of why you are being asked to pay what you’re being asked. It can be a super hard point to reach and get right, but this is where you want to be also for the sake of customer retention.

Going back to the ice cream cone example from above this is where the ratio between price and the scoops of ice, you get makes sense, and where you think the value is good enough that you also with a happy heart buy for your friends and family.

The final price point – the Expensive For Good Reason – is the where customers demands more of you, and you basically say “Ok, but it’s going to cost you then”.

This is a scary point for startups because it’s usually here where pilot customers, who haven’t really paid that much (if anything), and which the startup needs to prove its case to investors, reside; putting huge demands on the team for promised service, support and updates for very little if any return.

This is the price point where it’s ok to be greedy as a startup and consider that if a customer is asking too much, you can do the same in terms of asking for more money. Yes, you risk losing the customer, but if it was essentially making a loss, you’re in 99,5 % of all cases better off without it anyway.

At the ice cream vendor this is where you as a customer just want an obscene amount of ice cream in your cone, and you’re just billed accordingly. A totally fair exchange of value.

So in summary: Getting pricing right is super, super hard, but if you have more price points than one, you will want 3 price points:

A low price point that covers as much of your cost as possible and provides a clear upgrade incentive,

A middle one that scales well (“Most Popular Option”, as it’s often called),

And one for special requirements, where you basically ensure you get very well compensated for going out of your way to satisfy a very needy customer with their special needs – without getting distracted from your strategy and roadmap to support it.

(Photo by Angèle Kamp on Unsplash)

Beware changing models

Can you start out with one type of business model and then transition to a new one without facing huge challenges?

The question is a valid one. And the answer is probably “No” in most cases. And it is worth exploring a bit further, as it’s often a topic that comes up when I meet with founders.

The issue with wanting to change the business model is that what I need and want as a founder and business owner is not necessarily the same as my customer needs and wants.

Let me a simple example from my own life as a customer:

When I order a case of wine from my preferred ‘wine pusher’, I expect it to be an interesting wine from a wine maker, I would otherwise never have heard of and at a reasonable price. Like I am used to.

I do not expect to get an offer for a wine they have produced themselves together with a chef, I have never heard of (even though it probably says something bad about me that I don’t). As I got the other day. And immediately decided to decline.

Why?

Because it broke the fundamental ‘contract’ I have with my regular supplier: You find regular wines from little known places that I can then get a good offer on. That’s the model, I have signed up for. You DON’T try to introduce your own brands into the mix, because that deviates from our ‘contract’.

Could I be more forgiving here and just try it out? Absolutely. And I fully expect that many of their customers do so. Otherwise they probably wouldn’t do it. But I think it goes to show how challenging it can be to make changes to your fundamental value proposition and business model.

I think you need to be very aware of this. Because while it may be tempting to try to change your business model to introduce new revenue streams, cut costs, increase sales, boost your bottom line or whatever, you won’t succeed in it if you’re out of sync with what your customers are expecting.

Don’t ever take even your loyal customers for granted.

(Photo: Pixabay.com)

Rest In Peace, IE

It’s been in the cards for ages, but now it’s official: Internet Explorer (IE) will be retired in June 2022.

Most people have long since moved on. And for good reason(s). But many businesses still have some legacy tools that for some silly reason loves IE more than anything else. They will now need to find a new object of their affection.

The reason why I wanted to briefly touch on it here is not for what is happening now but for what IE has meant to the world, to Microsoft – and to me.

For the world, IE was the first way many people got on the internet. Yes, you could argue there were always better, more sexy options. But the inclusion of IE in the Windows operating system effectively made it a no-brainer for consumers to use the browser. Which could again be seen by it’s market dominance for years.

Love it or hate it. There are many ways to make your mark. And IE certainly did that with millions and millions of people.

For Microsoft it also had tremendous importance – if for all the wrong reasons. It allowed the company to steam (late) into the digital era, and it was also the most important source of the anti-trust case filed by DOJ that out then CEO Bill Gates through his most excruciating interview ever (and no, he did not do well in that), and almost broke the company up.

How’s that for impact, huh?

For me personally, IE also played a pivotal role in my professional life. When I started out at MSN.dk in the autumn of 2000, our homepage was the standard homepage in IE and as such, we got a lot of traffic from it.

I honestly can’t count the number of times, I have received abuse and pointed remarks from competitors about the unfair advantage, they thought we had, and how we – in their eyes – ‘cheated’.

Of course we didn’t, and the only effect the criticism had on us was to motivate us to do even better and go and create some of the most popular content verticals on the Danish part of the internet, IRRESPECTIVE of the IE homepage.

We managed to build leading verticals within entertainment and lifestyle for both men and women with great local partners. And with that and more most certainly the most profitable display driven advertising business in the Danish media market with margins, our competitors couldn’t even dream of.

It was good times.

So for me, IE was a net positive. It helped me discover the internet, it provided an opportunity to join one of the coolest companies on the planet (which I am eternally grateful for), and it allowed our team to build a digital media business that was second-to-none in it’s time.

Rest In Peace, IE.

(Photo: Pixabay.com)

The crisis test

Do customers flood you with support calls when your service is down? Or is it more or less quiet?

If it’s the latter, you have a problem. Because then all indications are that your product doesn’t really mean much to your customers; they can easily do without it. Maybe they don’t even realize it’s not there anymore.

If on the other hand it’s the first, congratulations. Not on having issues but in having created something important enough for customers to register when it’s not there anymore and even complain about.

It is probably one of the best indications that you have achieved Product-Market Fit.

Of course you can’t rest on the laurels when you’re in a situation, where you product is not performing as it should. But while your struggling to get it back up and working again at least take some comfort from the fact that you have achieved something:

You have created something that matters to someone outside your immediate circle of family and friends.

Congratulations.

And now get it back up and working again.

(Photo: Pixabay.com)

Control the effort

The world is such a complex place with a gazillion moving parts that you cannot ever claim that you have got things under control.

Because how things turn out will per definition be outside of your control and sometimes for the most odd reasons.

This makes your job as the one who has to get things moving, get customers, secure sales and drive the business forward super, super hard.

Much harder than actually building the thing, which is a much more controllable process based on having the necessary skills and experience.

So in the absence of control out there, what can you ‘control’?

The effort.

What you put in.

Quick example: If you know that making one sale happen takes about 10 meetings with different leads, you can totally control that you get those 10 meetings set up, and that you get there on time and pitch the living **** out of it.

Same with partnerships, recruitment and everything else; put the required effort in and your chance for success vastly increases.

But don’t just do a lot of random stuff. Have an approach, a system of some sorts, based on always learning and adapting. Refine your approach. Plan ahead. Think it through – but don’t overthink it.

No matter what people might say having a well thought through plan and approach and spending the time on improving it over time will serve you well.

Combine that with putting in the effort, and you might get where you aspire to go.

(Photo: Pixabay.com)

Better is better than cheaper

It is always interesting reading the newsletter of Benedict Evans, former Partner at Andreessen Horowitz. Especially his essays.

One of the latest, ‘News by the ton’, about the challenges of legacy media has an enlightened graph based on Google Trends that shows that over time, internet searches has moved from looking for ‘cheaper’ towards increasingly looking for ‘better’.

It is significant in more ways than one.

On a banal level it shows precisely why traditional advertising as a model is f*****. The value of the message of ‘Get it with 20% off over here’ is just fast eroding and is close to zero. Traditional advertising has reached junk bond status.

On a more strategic level it shows that gunning for ‘better’ is more inline with the expectations and needs of your customers than gunning for ‘cheaper’.

Of course there will always be scavengers looking for a bargain, but as long as you deliver value above and beyond what you charge, you’re in a fundamentally good place.

And more importantly you’re in a more sustainable place business wise. Because you made the commitment towards being ‘better’ and always push for that – and not just prostitute yourself on the cheap.

(Photo: Pixabay.com)

What’s your Easter Egg?

Easter is upon us (if you subscribe to that religious belief) and with that also the hunt for Easter eggs.

If you have got any time off, now may be a good time to spend some time away from it all and contemplate what the Easter egg of your business is; that hidden gem that – when exposed – delights and fascinates your customers.

What do you have buried somewhere that you can surface just about now and put your business into another gear after Easter. A gear that will help you get through all of this?

Since you’re not going to any Easter celebrations in these lockdown times anyway, spending time pondering and getting clear on that is time very well spent.

Happy Easter!

(Photo: Pixabay.com)

Corona thoughts, part 5

Jeffrey Katzenbergs new mobile streaming service meant for the commute, Quibi, has finally launched. And is getting killed by the reviewers. You can be excused for thinking that the timing couldn’t be worse when no-one is commuting right now, but in general the service seems to be a product looking for a problem, where there is none.

The fate of Quibi might suggest that now is the time for ‘The Great Sanity Check‘; the time where you look hard at what you do and use the opportunity to really ask yourself the hard question: All fanfare forgotten, does what I am trying to build really make any sense at all?

Can you see a path to a real business? Or – perhaps better yet – can you see an accelerated path to becoming a real business utilizing what you now know from the corona outbreak as things to factor into your plan? Can you adjust to life post-corona and come out on top? It is worth spending some serious time thinking about because in all probability it is going to be your reality, whether you want it or not.

(Photo: Pixabay.com)