I have written before about the challenges new businesses face as they try to get established in the market and build revenues. In one post, I compared new businesses to annoying little gnats flying around in the face of the market.
At the heart of early success for a new business is identifying a compelling value proposition that you can offer to the market.
Your marketing mix, that is the combination of your product positioning, promotional plans, and pricing strategies, all need to reinforce the value proposition you are offering to your customers.
Andrew Gregson explains how pricing reinforces the value proposition in a post at StartupNation.
The most popular pricing strategy for startups and small businesses is to follow the lemmings and charge what everyone else charges or to calculate the costs and target a certain margin. Both are disasters. Following the pack leads to average profits at best. Marking up from costs leaves money on the table.
Even though getting pricing right is tough, it is critical to put in the time to ensure your pricing reinforces your value proposition.
This article was so helpful when coming up with a value proposition for my venture planning project. I love how the author was saying that being in the market with average prices will only get you average profits.
Gregson’s intersection of imagination, innovative thinking, and economics is powerful and practical. Dr. Cornwall’s reposting makes it clear that recognizable, differential value is necessary unless you really just want to be a member of the pack. Even if it’s the strongest pack, you fall short of being an entrepreneur. I might liken it to the decision to build one’s own business or buy a franchise – one generally requires significantly more goldilocks.
If I were to start a business, it would be incredibly enticing to simply set my price at the market price or simply just a bit more than my costs. However, as I learned in my Foundations of Entrepreneurship and Principles of Marketing courses at Belmont, a business’ price reflects much more than just a price the buyer must pay. It reflects deeply on how the business views itself and the value that it could give to its buyers. I especially love the part where it says that “Following the pack leads to average profits at best.” This is true for pricing and life in general. Great post!
This article highlights how important a value proposition is for new businesses. It does not matter what you do if there is no one willing to buy it.
At first glance it seems like the type of pricing that Gregson talks about in this article is only possible in a service industry – like the example he gave with the renovation company. But the more I think about it in other industries, such as the coffee industry, there are still ways through customer discovery that a rising entrepreneur could narrow down to those essential things that matter to your customer, even if it’s not quite as hands on as the example that was talked about in this article. It might not be as easy to truly know what matters when it is dealing with much smaller prices, but I think that with enough time and by talking to enough people you could definitely begin to see and identify the trends that happen.
This article was eye opening to using pricing as a reflection of the value proposition. Pricing can reveal to you, and the customer, what is important to them. Gregson uses the example of the customer who was unhappy with the renovation price. This signaled that some of the materials weren’t of value to them. Our perception of value can differ from our customers’ and pricing can be used to uncover that.
In school we talk a lot about creating companies. In almost every class we work through creating a company “on paper.” Every class I think a lot of people struggled with their value proposition. How do you stand out from the competition and while creating the business you want? Often the answer was “we will be better and cheap while making more profit.” This article put into words why this is not the best or realistic idea.
Many customers associate pricing strategy directly with the value of a company, especially a startup. It is simple to just price your products the same as everyone else in the market. However, it is worth it to find the perfect strategy for your specific business. As stated in the article, following the pack leads to average profits at best.