Cracking The Code With 8 Best Pricing Strategies For Your Startup

Have you ever worked on creating a Startup for a product or a service? If yes, then the most important question you ask yourself during the MVP Stage is – What amount will I charge the customer? Trying to decide a Maximum Retail Price (MRP) of a product is one of the most crucial and confusing activity for any business, especially when there is so much competition and level playing field, along with dealing with a price sensitive customer base in India. Setting the right price using proper pricing strategies guarantees that you will make a profit, and keep the customer happy, thus attracting a relevant market by having an edge over your competitors.

Types of Pricing Strategies

Here are some practical steps to help you decide your pricing strategies effectively:

1. Analyze Your Own Costs First

We need to deeply ascertain each cost associated with manufacturing and supplying of our product, to get a basic idea of what our running costs are. This includes:

• Production Costs: Direct materials, direct labor costs, and manufacturing overheads.
• Operational Costs: Rates such as rent, salaries and electricity, water bills, etc.
• Distribution Costs: Margins derived from shipping, warehousing, and retailer companies.
• Additional Costs: Taxes, fees, and miscellaneous funds.

Knowing our total costs per unit enables us to determine the lowest feasible price, below which we would incur losses. We don’t want to start the whole business setup with a wrong foot.

2. Conduct Market Research

The market aka the customer is your best friend. Getting to know the price a customer is willing to pay is the most sensible and logical assurance we can get, when deciding their expectations and a fair price. Also research the market to gather insights about competitor pricing, as they have kinda already cracked the code for their revenue stream. You can also glance through these common points to get an idea about market research:

• Competitor Analysis: Determine the price points of similar commodities.
• Customer Preferences: Know what customers are willing and able to spend or as economists put it, derive utility from a product.
• Market Trends: Search for consumer demand and patterns, and cyclical economic characteristics and purchasing patterns.

This helps your Startup set an affordable price for the product, but also makes your product appealing to the target group.

3. Deciding on Winnable Pricing Strategies

Setting the right pricing strategies will help us in the long term financial goals, and even helps us in getting funding from VC’s. The strategies depends heavily on the business’s overall objectives and the product’s place within the market.

A few popular strategies include:

• Cost-Plus Pricing: Towards the total costs, attach a fixed profit margin.
• Competitive Pricing: Set your price closer to that of your competitors.
• Value-Based Pricing: Pricing should be placed depending on the perceived value of customers.
• Penetration Pricing: For the introduction, price the product low to gain market share and then recoup the costs later. (Not applicable in every business.)

Select your pricing strategies that best suits your type of product or a service, and helps you in creating a unique selling proposition (USP).

4. Account for Middlemen Margins

Even when you build a good product, it will not sell itself everywhere. You will always need good salesmen for you. They can come in multiple roles such as literal salesmen, retailers, distributors, influencers, advertisers, affiliates, customer referrals, etc. If these middlemen help you acquire additional customers, then we should be okay with sharing a bit of the profits with them as an incentive.

Some of the common practices to cover these costs include:

• Providing profit separated by percentage margins.
• Providing volume discounts.
• Evaluation of promotional motivation strategies.

But always remember, having a lot of sales through multiple channels doesn’t have to be on cost of making losses. Ensure that the final MRP is not raised to a level that deters customers from buying the product itself in the long run.

5. Test Your Pricing

Before finalizing the MRP for your Startup, test its effectiveness to avoid overcharging or even undercharging your product:

• Pilot Testing: Introduce the product in a particular region to feel the pulse of the market.
• Customer Feedback: Gather data about the importance and popularity of the product and its price, if it is too low/ high, or if people think it is expensive enough.
• Adjustments: Adjust the price forward as per the response and sales figures received by it.

Testing enables you to check your pricing strategy and avoid wrong decisions.

6. Leverage Psychological Pricing

Psychological pricing techniques have usually confused us all many a times, but they are still used because they work. BATA has been famous for using this strategy since decades. It does in fact influence the customer’s perception and buying behavior.:

• Charm Pricing: Set prices in such a way that they look lower as in – ₹99 instead of ₹100.
• Bundling: Take products and bundle them together to give a more attractive deal.
• Prestige Pricing: Round off the numbers for a better brand positioning, and customer remembrance, such as ₹1,000 instead of ₹1,173.

These pricing strategies help to increase the perceived value of your clients without diminishing the profit levels overall.

7. Adhere to Legal Requirements

You can have basic level playing field, but always ensure that your pricing complies with local regulations and standards, and do not have dark patterns:

Several of the recommendations are: 

• Ensure that the MRP is printed and made highly visible on the packages of the products.
• Never mislead the customers with pricing information.
• Comply with the consumer protection laws.
• Be genuine with your marketing and pricing, and avoid having hidden charges.

Transparency and compliance will go a long way in building a loyal customer base, and at the same time also reduces the risks of any lawsuits.

8. Reassess and Optimize

Pricing is not static. Even if you’ve made a mistake initially, there is always room for optimization and improvements. We can always pivot into having better pricing strategies, and see if we can make the process itself more efficient, and help us in revising our prices as per customer needs. You should continuously monitor the market conditions and customer behavior to keep your MRP relevant and up to date.

A few ways to track such changes are:

• Sales Data: Examine how your pricing affects your volume of sales and your profit.
• Market Changes: Standardize for inflation, changes in cost of production/raw materials/running costs, which are beyond your control or if there are any price changes in a competitor’s products.
• Customer Insights: Keep yourself up-to-date with customer feedback and wants. If they’re getting a better deal elsewhere, then try to re-work your strategy in finding why can’t you provide the same level of quality at a more competitive price.

It also makes it possible to always make the right decision on every price change, with an optimal balance for all the parties involved.

Customer Satisfaction With a Profitable Venture

Hitting that sweet spot of right pricing and also having customer satisfaction is a little bit of art and science combined. A company which cracks these pricing strategies codes usually taste success. You can be one of those startups too, if you can also experiment and make proper pricing and analysis concerning to costs, studying the market, and applying various pricing techniques. You can be in a position to fix a fair price that will sell the product while earning a profit, and keeping your customers happy too.

Remember that the main idea of an MRP is not only the coverage of your costs plus margin, but also the provision of value and the preservation of consumers’ trust.

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Understand the pulse of the market need and price your product/service accordingly, using good pricing strategies. Hope these above points help clear your doubts as a Desi Founder. Check out more insights about Startups here.