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How can you gain a competitive edge with pricing research?

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Pricing is one of the most important decisions for any startup, as it can affect your revenue, profitability, customer acquisition, and retention. However, many founders struggle with finding the optimal price point for their products or services, especially in competitive markets. How can you gain a competitive edge with pricing research? In this article, you will learn how to conduct effective pricing research that can help you validate your value proposition, identify your target segments, optimize your pricing strategy, and test your pricing assumptions.

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Alfred Mugo

Marketing Director at Mount Kenya Villas Nanyuki
Mohsin Mukhtar

Corporate Finance | CFO | Advisor | Consultant

1 What is pricing research?

Pricing research is the process of collecting and analyzing data from customers, competitors, and industry trends to determine the best price for your offering. It can help answer questions such as how much customers are willing to pay for your product or service, how they perceive the value compared to other alternatives, how the price affects their purchase decision and loyalty, how it positions you in the market relative to competitors, and how you can differentiate your product or service based on price and value.

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Alfred Mugo

Marketing Director at Mount Kenya Villas Nanyuki
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For a startup to get ahead, it must lead the pack in being better priced, saving customer time and energy, and ultimately, being as effective as the surety of daylight. That's what we call disruption. That's where all pricing research should head towards. Pricing research isn't just about numbers; it's about understanding the heartbeat of your market, deciphering what makes customers tick, and unveiling the secrets to standing out in a sea of competitors

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2 Why is pricing research important?

Pricing research is essential for validating your value proposition, identifying target customer segments, and optimizing your pricing strategy. It can help you ensure that your price reflects the value you deliver and communicates your unique selling proposition. Additionally, you can segment customers based on their willingness to pay, price sensitivity, preferences, and behaviors to tailor your pricing strategy to each segment. Furthermore, exploring different pricing models and tactics, such as freemium, subscription, discounts, bundles, upsells, cross-sells, or referrals can help you maximize revenue potential. Lastly, conducting pricing experiments such as A/B tests, surveys, interviews or conjoint analysis can validate your pricing hypotheses and measure the impact of your pricing changes on key metrics.

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Aun Syed

Project & Product Management | Data Analytics | Driving Operational Excellence
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If you do not focus on this aspect, you will always fall behind your competition. Your competitors will take your customers and you will keep on wondering what went wrong. Spend time on pricing research, understand your changing industry dynamics and involve experienced professionals as well that can help you with this task. The sweet spot should be your goal to find and only you can do that with consistent effort.

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3 How to conduct pricing research?

Pricing research is an ongoing process that requires updates and iterations. To conduct effective pricing research, you should first define your objectives and the metrics you want to improve or optimize. Then, collect data from primary sources such as surveys or interviews, as well as secondary sources like market reports or competitor analysis. Next, analyze and interpret the data using methods like descriptive statistics or price elasticity analysis, and visualize the results with charts or graphs. Lastly, implement and monitor the outcomes of your pricing actions to measure their impact on your key metrics.

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4 What are the best practices for pricing research?

Pricing research is an art that requires creativity, intuition, and experimentation, though there are some best practices that can help you conduct it more effectively and efficiently. Start with your customers: understand their needs, problems, goals, motivations, and expectations. Ask them what they value most about your product or service, how they compare it to other alternatives, and how much they are willing to pay for it. Additionally, use multiple methods and sources to get a more comprehensive and reliable data. For example, surveys for a large sample size and general trends, interviews for a deeper understanding and specific feedback, and experiments to test and validate assumptions. Lastly, pricing is not static or fixed; therefore, you should test and iterate your strategy based on data and feedback. Experiment with different price points, models, segments, or tactics to measure their effects on key metrics. You can also use feedback loops to collect customer responses and make data-driven decisions.

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Inge De Dreu

Founder @ Playground for Entrepreneurs | Experience the power of games in Entrepreneurship for yourself! Check out the link to the free print-and-play game below.
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The often-used multiple choice questions or just bluntly asking what the customer would pay, doesn't accurately represent a valid pricepoint. A better alternative is to ask the customer: "Would you pay $X for this product?" X being a ridiculously high price. Most likely the interviewee will start to laugh and say no. Then follow up with this questions "Ok, so how much would you then be willing to pay for it?" This way the interviewee will mention their highest option.

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5 What are the common challenges and pitfalls of pricing research?

Pricing research comes with its own set of challenges and pitfalls, so it’s important to be aware of them and take steps to avoid them. When it comes to data quality and validity, you should make sure your data collection methods and sources are relevant, reliable, representative, and unbiased. Additionally, you should be mindful of common errors and biases such as sampling errors, response errors, measurement errors, or anchoring biases that can affect your data quality and validity. When it comes to data analysis and interpretation, you should select and apply the right data analysis methods and tools that are appropriate, accurate, robust, and transparent. Additionally, you should be mindful of common mistakes and fallacies such as overfitting, underfitting, multicollinearity or spurious correlations that can affect your data analysis and interpretation. Finally, when it comes to data implementation and monitoring you should ensure your data is aligned with your pricing strategy and business objectives in a consistent, coherent, and comprehensive way. You should also be mindful of common pitfalls and risks such as price wars, cannibalization, customer backlash or regulatory issues that can affect your data implementation and monitoring.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Mohsin Mukhtar

Corporate Finance | CFO | Advisor | Consultant
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Experience is key here. It is always recommended to take help from industry experts to get the price right. If you get it wrong, your competitor is waiting for you to drop your guard and take all of your customers. Finding the sweet spot is challenging but it is definitely worth working towards. Have an open mind, do your homework and reach the optimum price for your product or service.

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How can you gain a competitive edge with pricing research?

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3

4

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6

1 What is pricing research?

2 Why is pricing research important?

3 How to conduct pricing research?

4 What are the best practices for pricing research?

5 What are the common challenges and pitfalls of pricing research?

6 Here’s what else to consider

Startup Development

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How can you gain a competitive edge with pricing research?

1

2

3

4

5

6

1 What is pricing research?

2 Why is pricing research important?

3 How to conduct pricing research?

4 What are the best practices for pricing research?

5 What are the common challenges and pitfalls of pricing research?

6 Here’s what else to consider

Startup Development

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