The Best Pricing Strategy

Consider this low (or zero!) cost pricing and differentiation strategy. This successful method is taken from the startup rulebook and can easily be applied to main street independent business owners.

The startup method: In designing a new product engineers tend to “over-feature” the product.

Think of a remote control for your TV – there’s a lot of features that you never use… The experiment for startups is to remove features and see if customers miss it.

Designers believe the product is perfected when there is “nothing left to remove”.

In the world of existing businesses, we observe a challenge which originates from the management’s desire to be all things to all customers.

They want to keep everybody happy.

It becomes impossible if they are only offering a “one size fits all” product or service to all customer segments. (So often, they don’t segment their customers… A perfect example is offering the same features and benefits to a commercial customer as a residential customer.)

Here is the best strategy:

Compile a list of all the features of a particular product of service. For example if you are selling furniture the features might be:

  • free delivery
  • most items are in stock
  • assistance with colour selection
  • assistance in matching furniture with your existing decor
  • 90 day payment terms
  1. Think of one customer segment that values one of the features you listed.
  2. Review the list to see if there are features that the particular customer segment doesn’t value.
  3. Create a special product/service offering for that customer segment with undesired features removed.

This process will help you discover if you have over featured your product and service offerings. Since providing each feature costs your business time and money, you can save money by creating products and service offerings by customer segments.

There is another benefit to providing more focused packages to specific customer segments: The marketing message gets more focused.

Instead of basically advertising:

“We can do everything for everybody!”

The message becomes :

“For this customer problem or need, we have a special product for what you value the most.”

As a good product designer, you goal is to give each customer segment what they value the most and remove the features they don’t value.

Let us know how it goes.



Author: Paul Foster
Paul's life’s purpose is to bring more cash, freedom and happiness to independent business owners. Paul wants to learn about your toughest business challenges and frustrations so he can help you tackle them.

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