Question

1. What would a potential new price/payment method be that could be revolutionary?
2. If a company is operating at a deficit, but has happy customers, what would the best strategy be to make money?
3. Why should a company’s pricing strategy reflect their core values ?
4. Should consumers make it a point to review a company’s core values before investing?

Product pricing is one of the most important determinants of company success. A product’s market price must account for numerous competitive factors, including research and development costs, target market size, lifetime customer value, marketing and acquisition costs, and competitive positioning. Yet for all the complexity involved in determining ideal pricing, a Chargebee and ProfitWell survey of software founders and executives found that companies spend an average of just 12 hours on their pricing. Not 12 hours for each product — just 12 hours total in the history of the company.

One reason for the disconnect between pricing’s impact and the time invested could be difficulty in understanding pricing strategies. As recently explained in a guide by Cobloom, the software as a service market employs a variety of pricing models (e.g., flat rate, usage based and tiered), strategies (e.g., free trials) and psychological pricing tactics that impact how buyers process pricing information. Such psychological tactics include tricks like charm pricing (featuring amounts that end in nine, such as $39 instead of $40) and decoy pricing that places an obviously less desirable option among three bundled packages to increase the perceived value of the other options.

While these strategies might seem obvious or purposefully deceptive, they continue to be used, because they work. Research has found that decoy pricing generates additional revenue. And if you think no one falls for charm pricing, guess again. A famous study by researchers at the University of Chicago and MIT found that an item of clothing marked $39 outsold identical items priced at $44 or even $34.

As CFO, I focus on developing pricing that supports customer acquisition and long-term fiscal stability. But as part of a purpose-driven leadership team, our product pricing is also viewed through the lens of our corporate values considering shared customer value and sustainability. While we are absolutely driven by revenue, we also gut check our decisions against core company values. Below are some of these values and how they can help your company’s own pricing strategy.

1. Put customer value first.

Many of the widely used technology pricing strategies focus heavily on company revenue and internal metrics rather than end-user value. As an example, many companies take the simplified approach of calculating their product development and production costs and then adding their desired margin, and they use that information to set pricing. Unfortunately, this model is based entirely on internal metrics that have no connection to customer preference, price sensitivity or even competitive pricing. Another widely used example is pay-per-feature pricing. This model relies on a core set of features to entice new customers and adds charges as users evolve and want more advanced functionality. While it offers companies a reliable growth channel, this kind of pricing tends to create resentment with users who are paying for a product and can’t access all of its features.

Putting customer value first requires an innovative, research-based approach to understanding how end users will be using your product, as well as flexibility in designing pricing structures to take into account different product usage rates and feature consumption between departments and locations. Some examples of innovation in pricing include companies such as Amazon Web Services, Uber or Airbnb with prices based on actual usage. The only drawback to this approach is it can lead to higher-than-expected bills when customers need to add capacity or service during popular or “surge” time frames. And while these strategies might work for the vendor, research indicates consumers and technology buyers prefer the simplicity and predictability of flat-rate pricing

2. Keep your pricing promises.

In 2011, Netflix lost 800,000 customers after an unexpected price hike and service change. Based on backlash, the company quickly reversed the change. Earlier this year, history repeated itself as new subscriber acquisition slowed and Netflix announced a new price increase, followed immediately by a stock price plummet and the loss of more than 126,000 subscribers. Customers usually don’t react well to paying more without a significant increase in features, usability or overall value — a lesson many freemium-driven companies are finding out the hard way. Although there are some success stories, such as Spotify’s impressive freemium-to-paid conversion rate, sticking with your pricing strategy in the long term can be as important as the strategy itself when it comes to customer retention.

3. Lead; don’t follow.

Most new companies founded today will enter a market with existing competition. As a leader focused on consumer value, I would challenge you to do your customer research and set your initial pricing based entirely on your unique offering and reason for being. Only then look at the rest of the market and determine how your choice will support or ensure success. When our company launched conference-calling services more than 20 years ago, there was significant competition in the space charging hundreds of dollars per month to deliver services to big corporate clients. Our founder looked at the market from the consumer point of view and found a way to deliver services for free while still generating revenue from carrying calls on our network. Other examples of pricing leadership include Slack, one of the pioneers of charging based on active users, and Creately’s albeit-short-lived “pay whatever you want” experiment.

No single decision can have a more far-reaching effect on company success than pricing. But pricing decisions should always be considered holistically as part of a long-term, value-based model. Pricing strategies that leverage who you are as a company and what you value create a foundation of mutual benefit that helps everyone from your customers and partners to your shareholders and employees.

Answer 1

1. The new payment method that could be revolutionary will be to use the point they have been accumulated from various shopping activities. After purchasing or spending money on buying cinema tickets one can earn points on a unified portal. Then using the point of the portal to buy additional stuff or making payments from the same.

2. If a company is at a deficit but the customers are happy, then the best strategy is to increase the cost of the service and add a few features that don't add additional costs to the company. This way the company can generate more revenue.

3. A company pricing strategy reflects its core values because pricing strategy alone reflects whether the company is customer-centric or they are just into earning more revenue.

4. It is important to review a company's core values before making investments into the same. This will help the consumer to attach or detach with the company easily.

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