Pricing Strategy: Value, Not Costs

Determining Price and Price Sensitivity

Pricing your products appropriately is critical to optimizing lifetime value and attracting the right customers. Price says a lot more about your brand than just the cost. Price is how you position yourself in the marketplace. Price is the value of the product to the consumer. It’s imperative that you have a scientific process behind your pricing. If you’re just shooting from the hip, your price will fail your product and if you shoot low, it’s hard to justify price jumps to existing customers.

I have a process that I want to share that has been extremely helpful for figuring out product pricing for OptiMind. It is not perfect but it’s a good start.

This post is how we choose to initially price products. Future posts will talk about initial pricing vs. lifetime value pricing optimization so keep an eye out for those.

The initial dollar amount in the price primes consumers for perceived value.

Research says that consumer’s respond better to prices ending in “.99″ than “.00.”

Let’s touch on the psychology that goes into pricing a product first. There is a well-known study showing that numbers such as $39.99 elicit a better consumer response than $40.00. The idea is that the lower the first dollar number is, the less expensive it’s perceived by the consumer even though it’s only a penny difference. This has to do with priming. The same prime can be applied to dates where 1999 at first glance gives a more archaic vibe than 2000 does.

I have a personal association with prices ending in 99¢ and 95¢ though. They remind me of Wal-Mart and Target-like stores of the world. Those prices feel disingenuous to me even though they work.

When we priced OptiMind, we let consumers tell us the perceived value in prices for optimal sales and revenue. Price should not be created from cost. Price should be created from value.

Pricing Strategy

The first thing that you need to do is determine the minimum selling price for your product. It’s different for every business and every product. Consider the bare costs to run your business and produce your product profitably. Next, determine the maximum reasonable price that you’d buy your product for. Think about what you already spend on similar products.

Now it’s time to look at comparable products currently on the market to get a baseline idea. Don’t just look at direct competition though. You need to also examine secondary competition. With OptiMind, we considered coffee in our pricing strategy, not just other nootropics and supplements.

With that baseline, think about what position you want to be in. How much value does your product bring in comparison? Some of this pricing strategy is intuitive. Ask yourself, am I creating a better product than them? Is it perceived as a better product?

If you want to get quantitative about it, you can map out the bell curve of market prices with standard deviations. Set specific market positions for yourself and of your competitors.

Once you have the maximum and minimum prices, you’re going to choose five prices in that range.

Pricing strategy is critical for finding the ideal price on a new product.

Use this flow to guide you through the pricing strategy for finding the best price for your product.

Costumer Price Sensitivity

When picking the prices to test, we used a specific pricing strategy. Specific pricing involves choosing an exact price like $43.31. Notice that $43.31 is highly specific whereas a price like $43.00 is not. Essentially, you want the number to reflect the thoughtfulness and built-in logic that went into choosing the number. This exact number signifies a fairly calculated price. When we priced OptiMind, we also combined specific pricing with a gut-bias theory on odd numbers. Here are the rules for picking the prices:

  • Only odd numbers in the decimal places
  • No 9’s
  • Choose specific numbers
  • Make the numbers look and feel “pretty”

Perceived Value of a Product

Google Consumer Surveys is a great service that I have written about before. For $50, you can ask 500 people anything. Once you have 5 prices to test the market with, you can launch 5 different surveys and find out which price people will go for most often. Here’s one of our surveys:

This service is a great way to test the market and determine consumer price sensitivity.

Google Consumer Surveys is an excellent service that can be used for a variety of reasons whether naming or pricing a product.

We gave everyone the same brief description of our product and then asked if they’d buy it for X amount. Each survey said the exact same thing, but we changed the price to test consumer sensitivity.

While looking at the survey, consider who your target buyer is and play with the sidebar that contains the demographic information. You can toggle between age ranges, sex, income, and more. This can be enormously powerful. Keep in mind who the actual buyer of your product will be and not just your targeted consumer.

For example, if the product is likely to be purchased as a gift, the end consumer will not be making the purchase. The sex or age of the buyer may differ than the targeted consumer. With OptiMind, our product goes straight to the consumer, as opposed to being sold in retail stores, so we knew exactly what they were willing to pay based on the survey.

Profit Maximization

At this point, you can calculate which of the best-surveyed price points will increase your profits the most.

Maximizing profits requires testing the market.

Grow your profits by determining the best possible price for your product.

Here’s the spreadsheet file where you can input your own results to see the percentage change in terms of revenue. With the change in revenue, you can calculate the affect on your business’ profits.

If you want to optimize a product’s price, then you need to ask the people who will be buying it. This is fundamental. You need to test consumer price sensitivity for an equilibrium price. If the percent increase in price is less than the percent decrease in demand, then you should raise the price. Yet, this is only true up to the point of profit maximization because, in the real world, expenses change based on quantity and scale.

The Golden Rule in Pricing Strategy

The age-old tale that you can never raise your price, but you can always lower it is completely true. Raising prices has ruined businesses. That’s why it’s the foundation for this golden rule: When in doubt, go with the higher price.

Tools for Pricing

  • Google Consumer Survey – online survey allowing for market testing with specific demographic information ($50 for 500 people).
  • Spreadsheet – calculate change in revenue based on responses to price survey.

This is my recommendation based on my own experience. Feel free to leave your comments below to discuss your own experiences. However, if you’re trolling without constructive criticism, then please kindly go to Reddit.

Note: The information in this article is specific to fist time purchase intent pricing. This is completely different from lifetime value pricing. Just because a customer buys the product one time at a certain price, that doesn’t mean he or she will continue buying it at that price over a lifetime. I will share my experience with lifetime pricing later.

Brand Strategy: How to Name a Product

Name your product or business with strategy.

Finding the perfect name for a product or brand can be an agonizing process. When we were rebranding Alleradd to OptiMind, it took more than a month of debating, searching, lawyering, surveying, and second-guessing ourselves before we had a quality name picked out. I learned a lot during that experience and developed branding strategy that I guarantee will save you stress. Let’s just jump right in.

How to Market a Product? Start with the Why.

A brand's promise represents the company's culture.

What does your brand promise? You need to know this to strategize effectively.

Branding and marketing are distinct, but they go hand-in-hand. Your brand name should capture the promise that your company is making to the customer. That’s how you will market to most consumers. Find out exactly why your business exists and use that as the centralized theme behind creating a brand name. Follow this simple process to identify your brand’s promise.

Recruit Creativity

Naming a product starts with brainstorming.

Creativity is essential in choosing the best name. Luckily, you can pay for it.

You’ll need your brand’s ‘promise’ for the next step. But now, it’s time to get a list of names together. Compile a list of 10-100 names. Don’t worry if you’re creatively stumped because you don’t need to have a brainstorming session to get the list together. Websites like Naming Force and crowdSPRING give you the ability to put up a “bounty” for commission to the person who submitted the best name. Essentially, you can buy creativity.

Name a brand or product with Naming Force.

Naming Force is a fantastic resource for generating names for a new product or company.

Does the product name represent the brand's promise?

Does the name represent the promise of the brand?

Now that you have a list, use the following process to refine your options. Once you have a refined list, we can start asking if any can be trademarked and what the competition is like for search engine results.

Check Google Adwords, Moz, and Namechk before choosing a product name.

Before you invest too much in a name, research the market to project future business.

Can You Obtain a Trademark?

Launching into the trademark begins with visiting the United States Patent and Trademark Office (USPTO). On the right hand side is a quick links drop-down; click on “search trademark database,” and then click “Basic Word Mark Search.”

I know what you’re thinking. It’s too soon. This might seem a bit unnecessary, but trust me: you want to do your due diligence on this.

Now, you would think finding a name you can trademark would be easy. Just type in the name you’ve chosen, and if it hasn’t been trademarked, then you’re good to go. Well you thought wrong.

If you’re a startup, the quickest way to bankruptcy is to choose a name that leaves you even slightly prone to a suit. If there’s an opportunity, then someone will sue, especially if you become successful.

It’s like the “if you build it, they will come” adage from Field of Dreams, but with lawyers and bankruptcy. Searching the name in Google and reviewing the first five pages of search results will help to reveal non-trademarked names, dead trademarks, or similar names. All of these are potential liabilities!

Even if the name isn’t trademarked, the individual or organization using the name may still have a claim to the trademark. A really, really good trademark attorney is crucial in the investigation. If you’re even thinking about cutting it close by using a name similar to one that’s already trademarked, research how litigious the trademark holder is in its trademark defense.

For example, we almost chose the name “Achieve,” but when we investigated similar names, our attorney pointed out “Aleve.” Bayer, the trademark holder for “Aleve” is extremely litigious so we dropped the idea.

I cannot emphasize it enough: do your homework!

Your product name is the last one left after this process.

These are the final branding strategy process to name a product.

Branding a Name

A name of a company or a product carries a lot of weight in terms of your success. There are pros and cons to different types of names with each influencing the branding associated. Here’s a chart on how to brand strategically between a standard word like Dove, a misspelled word like Lyft, or a totally made up word like Facebook.

Types of Brand Names

 

Pros Cons
Standard Words
  • Instant recognition of word
  • Quicker connection to product
  • High chance of trademark infringement
  • Low chance of good legal defense
  • Very competitive SEO
  • Very expensive SEM brand exposure
  • Unlikely available on social media
Misspelled Words
  • Familiarity of a common word
  • Easier SEO
  • Less expensive SEM optimization
  • Social media availability
  • Difficulty associating name with product or service
Made-Up Words
  • Less trademark constraints
  • Easier SEO
  • Less expensive SEM
  • Social media availability
  • Lack of familiarity from customer perspective = higher marketing costs (because you have to build familiarity!)
  • Difficulties expressing the brand ‘promise’

As you can see, each name type directly influences your branding and marketing. Search engine optimization (SEO) is critical for diversifying your traffic for long-term success. Search engine marketing (SEM) is the very basis for marketing products or business in our plugged in society. Social media is the future of marketing where prominent social media strategies are critical for profit.

It’s clear why so many new startups are using made-up or misspelled words. The pros outweigh the cons. However, that doesn’t mean that the cons are an easy obstacle to overcome.

Social Media Strategy

Namechk.com is an awesome website that allows you to check a variety of social media platforms to see if your potential name has been used. It tells you what it’s associated with and how it’s being tagged. You can even reserve the name if it’s available.

This step can be done earlier on in the process too. It can help give you an idea of the “trademarkability” of each name. However, this isn’t a reliable tell if you can obtain a trademark.

Search Engine Optimization

Moz offers a free trial and the site gives ratings for keywords based on the competition for that word in search engine results. These types of search engine results are referred to as “organic.” On Moz, if the metric is high, then it will be more difficult to get your product in the top search engine results. This site will give you some tangible metrics that can really assist in narrowing down the list of names.

Google Trends is another great tool that tells you how often a keyword is searched for on Google. This can be helpful in gauging the potential difficulty in getting a high “organic” search result. If the keyword is searched for a lot, most likely it will be difficult to secure a top result. You’ll want to factor this into your decision making process.

If you have a Google account, then you can take advantage of Google AdWords Keyword Planner. This will tell you the search volume for keywords as well as the SEM competition bids (PPC/CPA). Your brand’s keyword bid will help estimate the cost of buying ad space on Google. By seeing how much you would have to pay for a Google ad, you should be able to narrow down your potential names even further.

You should always bid on your brand’s keyword.

(Note: If you’re name is trademarked, Google usually honors the idea that others can’t use your trademarked term in their ads.)

No Embarrassing Translations

This won’t be an issue if you never plan to go international. However, in our highly globalized world, you should be prepared to go international at some point. Moreover, never limit your potential as a company because you didn’t account for the possibility of taking your company to the global stage. So, make sure that the name of your company doesn’t translate poorly in other languages (especially Spanish).

A great example of a poorly translated name is the Ford Pinto. Ford didn’t do their homework on this one. ‘Pinto’ is actually Brazilian Portuguese slang for a small penis. When Ford started selling the Pinto in Brazil, their sales were far less than expected. This isn’t the only case of a poor translation either. It would be terrible for your business’s growth to be stunted by a poorly translated name. Just do a little research, be sure to check for slang words, and you’ll be fine. You can even use Google Translate.

Survey the Market

At this point, the names that have made it this far are pretty thoroughly vetted and one of them may be your final choice. So, let’s test the market’s response to the top 5 names. With Google Consumer Surveys, you can literally see which name elicits a better response from each demographic. So, if you know that you’re targeting males, ages 18-24, why not ask them which name they think is best? Well, that’s exactly what this allows you to do. It costs $50 to ask 500 people. That cost is well worth it to be able to feel out a market before launching. You can also utilize this tool for testing logos, colors, packaging, etc.

Before we created this vetting process, we wasted a lot of time considering names with a trademark or undesirable association. Luckily for us, Google Consumer Surveys helped us catch some of loose ends. For example, we considered the name “Intellence” while rebranding from Alleradd. It turns out there there’s actually an HIV medication by the name “Intelence.” We didn’t even realize it until a consumer surveyed and thought of HIV when he heard the name. So obviously, it’s a taken name, which means it’s trademarked and if not, there’s more competition. Regardless of trademark, people reported associating Intellence with HIV, which isn’t an accurate association for a nootropic supplement. Consider asking the question, “what does the name remind me of?” Ask others about their associations with the names too. You may find that the name reminds people of something negative or undesirable for your branding.

Google Consumer Survey allows you to test the market.

This is a screenshot of Google Consumer Survey results from when we rebranded Alleradd.

You can also describe your product first, and then ask which name the surveyor prefers. That’s what we did (see screenshot). Take the most favored name from the Google Consumer Survey and hire a very, very good trademark attorney to run a soft search on the name. A soft-search is the attorney going through the trademark database and/or other legal databases. The attorney will be able to see potential issues with the name where you may not have. Trust me, it is worth the $150-$200. From there, it could go to a “hard-search” depending upon his or her legal opinion.

Keep in mind that in choosing a name, there will always be tradeoffs. It’s highly unlikely that you’ll be able to check every single box along the way. When we took “OptiMind” through the process everything checked out, but www.optimind.com was an unavailable domain name. We went with www.getoptimind.com and accepted the tradeoff because it had a great market response and no trademark issues. DO NOT mess up the trademark parts of the process; there’s simply too much to lose with that kind of legal risk. However, if you strictly adhere to this process, you’ll end up with a great name that works for what you want.

Best of luck on your entrepreneurial journey! Thank you for reading and check out some of my other posts for helpful along your journey.

Tools

  • crowdSPRING – crowdsourcing platforms for creative names, designs, logos (base price (100 – 200) + bounty).
  • Naming Force – crowdsourcing platform for product or brand names (starting at $250).
  • 99Designs – crowdsourcing platform for logo designs (30 designs for $299).
  • Namechk – searches among hundreds of social media sites to see if name is being used. You can also register your name across social medias (Free to search).
  • Google Adwords Keyword Planner – allows you to estimate the cost of buying ad space on Google.
  • Google Trends – see how often a keyword is searched in Google (Free).
  • Moz – allows you to assess the competitiveness of a keyword for organic searches (Free Trial).
  • Google Consumer Survey – online survey allowing for market testing with specific demographic information ($50 for 500 people).

This is based on my own experiences. Please, leave your comments below for more discussion. But if you’re simply trolling without constructive criticism then go to Reddit.