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One Practical tip on Startup pricing

One Practical tip on Startup pricing

Pricing is one of the most critical definitive startup success factors. It means a lot to startup entrepreneurs. Top of that, it is an intricate decision. A well considered and strategic pricing can make your access to market trouble-free and survival easy. In deciding what kind of pricing strategy is appropriate, it is known that, one should consider bouquet of factors together. However, the simple rule for startup pricing is: don’t charge lower than your competitors. Charging lower price than competitors is suicidal and can even bowl you out of a market where competitive response is intense. (this rule can vary based on situation and product type but normally you can apply).

Hypothetically think that, you are in a market where there are some other competitors who are strong and have quite noteworthy market share. And you entered into the market setting after a lower price than that  of your competitors’ are charging. What will happen? The most easy imaginative answer can be: your competitors would also reduce their price, even sometimes at a level that you could not afford. And as they could afford, they could reduce at a rate that would enough to make you to leave the market.

Given with the example; before setting your price consider following issues:

  • How price sensitive are your competitors?
  • How price sensitive are your customers?
  • How strongly your product is different from your competitors?
  • Is your product falls in luxury category?
  • Is it something innovative that your competitors cannot afford so easily?
  • What other areas where you can focus over price?
  • How easy, for customers, to compare prices among competitors?

Entering into a market where competition is tough, pricing strategy plays a great rule in determining your success. Regardless of condition, one pricing strategy can help start-up to stay in game and that is: Charge higher (Comparatively). See explanation:

  • Set a price a bit higher than your competitors.
  • To support your price, change your packet size (size of offer). Say for example, if there is a packet size of 100 gm in market which costs customer BDT 120, you launch a packet a bit smaller like 80 gm and charge BDT 110.
  • Never focus on price as long as you can compete with other things.

This strategy is not appropriate for all products but it generalizes the pricing strategy for a typical startup brand. The best is, if you consider, to study market and your competitors and act accordingly.

Why higher price:

  • It sets non-price competition and any one can play better here
  • As long as you can manage your product quality you’ll be in market
  • It does not give opportunity to competitors to play dumping game with you. No competitors   now can afford to throw you out of market just by giving low price rather it open up fair competition.
  • Customers often associate higher price with higher quality.

Over to you:

Do you think this strategy is appropriate for startup pricing?

Do you have any suggestions regarding startup pricing?

Mohammad Ruhul Kader is a Dhaka-based entrepreneur and writer. He founded Future Startup, a digital publication covering the startup and technology scene in Dhaka with an ambition to transform Bangladesh through entrepreneurship and innovation. He writes about internet business, strategy, technology, and society. He is the author of Rethinking Failure. His writings have been published in almost all major national dailies in Bangladesh including DT, FE, etc. Prior to FS, he worked for a local conglomerate where he helped start a social enterprise. Ruhul is a 2022 winner of Emergent Ventures, a fellowship and grant program from the Mercatus Center at George Mason University. He can be reached at ruhul@futurestartup.com

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2 comments on “One Practical tip on Startup pricing”

  1. From traditional pricing theory aspect, Your suggestion is right. But economics proposes that market forces will determine the price and correct it, if there is any discrepancies, to optimum price level where demand and supply matches.

    from a humanistic point of view, a supplier/marketer/businessman can serve the customer not only by product/service, but also by charging right price and forcing other illogical prices to come to optimum level.

    So, I think there is no single answer that could fit all the situations.

    1. Thanks for reading. However, in my post I accepted that, strategy can vary based on situation and product type. Top of that, as you said market forces ultimately define right price for a particular product by eliminating illogical prices but as we have been seen till today, this economic theory exactly does not work in market. Rather, producers whatever way, they charge a price and provide us with some logic that ultimately sustain (debatable). Just think about Mobile phone companies pricing strategy in BD: GP charges still higher than any other operator and they are still market leader, although they claim GP provides best network, however, i doubt their claim, but it works.

      Regardless of condition what I have tried to say is to set a non price competition by focusing on quality what ultimately gives a better edge to fight. 

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