How to Price Your Product

Speaker: Chad Jardine

Pricing is a critical aspect of any business strategy, affecting your revenue, profitability, and customer perception. Chad Jardine, an experienced CMO and pricing expert, shares his insights on effective pricing strategies in this presentation. With a background in CMO roles and venture capital, Chad has launched a fractional CMO firm called "CMO Zen" to serve the diverse marketing needs of businesses. In this article, we'll explore Chad's insights on pricing strategies, including the Van Westendorp pricing model.

The Significance of Pricing

Chad starts by emphasizing the importance of pricing and how it can significantly impact a company's revenue and bottom line. Pricing isn't just about setting a number; it's about understanding customer behavior, willingness to pay, and market dynamics.

The Van Westendorp Pricing Model

Chad introduces the Van Westendorp pricing model, a method to understand customer willingness to pay. He presents four key questions:

• What price is way too expensive, you'd never consider purchasing?

• Which price is getting expensive, but you would still consider it?

• What price is a great deal, and you'd buy it right away?

• What price is too cheap, making you doubt the quality of the product?

These questions help you map out customer perceptions of your product's price.

Case Study: Applying the Van Westendorp Model

Chad shares a case study from his experience. The challenge was pricing a video coaching tool for higher education. They used the Van Westendorp model and collected responses that formed a pricing band based on customer willingness to pay.

The findings revealed that their existing price of $19 per student per semester fell well below what customers were willing to pay. The Van Westendorp model indicated that a price increase to $29 wouldn't deter a significant portion of their customers but would increase revenue substantially.

Analyzing Responses

Chad goes on to analyze responses and highlights how you can use customer data to find the price point that maximizes revenue. By identifying the sweet spot where potential customer churn is balanced by higher pricing, businesses can significantly boost their profits.

Conclusion

Pricing is a dynamic aspect of business strategy that requires data-driven decision-making. Chad Jardine's insights on the Van Westendorp pricing model and the case study showcase how understanding customer willingness to pay can lead to more effective pricing strategies. By leveraging tools like the Van Westendorp model, businesses can make informed decisions that positively impact their bottom line.

---

Q&A

Q1: What is the key to handling price changes effectively?

Price changes should be transparent and well-communicated in advance. It's often a good practice to grandfather long-standing customers at old pricing, especially when they represent a small portion of your customer base.

Q2: How do you structure survey questions to avoid bias?

The wording of survey questions should be carefully crafted to minimize bias. Small wording changes may not significantly impact results, but larger sample sizes can reduce the impact of minor variations.

Q3: When should a startup consider lowering prices to gain market penetration?

The decision to lower prices for market penetration depends on the startup's goals and pricing strategy. It's essential to align your pricing strategy with your business objectives. There's no one-size-fits-all answer, but generally, startups may opt for penetration pricing to build their customer base.

Q4: Does the source of a customer's funding affect their willingness to pay?

The source of a customer's funding may impact their willingness to pay. Different funding sources, such as grants, venture capital, or personal budgets, can affect the price a customer is willing to pay. Understanding these dynamics is essential for effective pricing.

Q5: How do you transition from surveys to focus groups?

The transition from surveys to focus groups depends on the complexity of your product and your budget. Surveys are typically more cost-effective and scalable for collecting initial data, while focus groups are useful for in-depth discussions and qualitative insights.

Q6: How often should you reevaluate pricing?

The frequency of price evaluations depends on your industry, market dynamics, and the maturity of your business. It's advisable to revisit pricing whenever there is evidence that it might be off or when it's a low-hanging fruit that can significantly impact your business.

Q7: How do you set an initial price when starting a SaaS business with no data?

When starting with no data, you can gather insights from competitors in a similar market segment. Define your pricing strategy (e.g., value maximization) and make an educated guess about the initial price. Start with a hypothesis, then gather data from potential customers and be ready to adjust based on their feedback.

Q8: Any tips for handling price changes as a startup or small business?

Price changes should be carefully communicated and ideally grandfathered for long-standing customers. Transparency and effective communication are key. Consider the nature of your business, the scale of changes, and your customer segments when making pricing decisions.

Q9: What are the common pricing strategies?

Common pricing strategies include skimming (maximizing profit per transaction), penetration (lower prices to gain market share), and value maximization (finding the optimal price point based on supply and demand). The choice of strategy depends on your business objectives and market dynamics.

Q10: How can you gather initial data for your startup's pricing strategy?

In the absence of data, create a list of potential customers and make educated guesses about your initial pricing. Start with surveys and gather insights from potential customers. Be willing to test and adjust based on feedback and actual customer responses.