According to McKinsey and Co. and the WSJ, more than half of all startup-failures are due to pricing errors. By pricing errors, we mean that they set their prices too high to attract sufficient number of customers or too low to both attract sufficient number of customers and provide the company with the revenue needed to sustain and grow the business. Or that their pricing structure detracts from the value they provide to their customers and, therefore, willingness to pay decreases.
Why is that? In the vast majority of cases, startup companies simply guess what they should charge for their product or service. They may look at some competitors and companies with similar products or services to find out what their prices are and try to price similarly, but who says these competitors have the right prices? Furthermore, companies that are new to a market and have a unique product or service will generate a different willingness to pay than that of the incumbents.
PriceBeam changes all that. Entrepreneurs obtain precise advice on how to price their new product or service and, therefore, capture the unique value they bring to their customers, eliminating the risk of failure due to pricing errors.
Case Study - Microfiber Cloth Manufacturer
The company had invented a new and innovative product using microfiber cloth. They priced themselves on par with other microfiber cloth products that had been on the market for years and did not have any of the unique features this company had developed. Market adoption was slow, and margins so thin that the company could not spend much resources on marketing and sales development. Pricing research showed that those customers who particularly appreciate the innovation the company had bought to the market, where willing to pay approximately 25% higher prices than they were for the incumbent products.
Adjusting prices to match customers’ willingness to pay slightly increased the sales volume, but, more importantly, more than doubled the company’s gross margin, allowing ample resources to market the product and to develop their sales channels.
Case study - SaaS startup
The company provided a SaaS based management tool, with a gameified app for their employees, to help clients to manage ride share programs. Making it easier for employees to share commuting rides, and helping the clients to meet “green” goals. While the tool provided both clients and employees with value, the company had difficulty getting true traction in the market, and while being active in the market for only about a year, it was about to fold.
Research showed the company approached the wrong potential clients (those with parking issues) as opposed those with stated “green” initiative and had priced their tool so low that potential clients simply did not believe it would work both from a technical standpoint and from the point of convincing employees to share commuting rides.
Aligning marketing and sales to the appropriate type of potential clients, and aligning prices with clients true willingness to pay became a complete restart for the company and for the following 12 months almost tripled in size.