How aggressive can you be with your pricing strategy? Can you use premium pricing? Will that breed a perception of exclusivity and increase the demand?
I don't know.
I've been chatting to Ryan about my pricing strategy for PublicBeta & he encouraged me to write about it as part of this weeks' Startup Edition (which asks the question 'How did you choose your pricing model?').
So this is an attempt at putting some of those thoughts / considerations out there and doing some customer development. :)
When I started conceptualising PublicBeta, one of the challenges would be the value perception of what we will be offering. I knew I wanted to charge more (from Day One) rather than less and that marketing its value would be my greatest challenge.
PublicBeta offers two main benefits: the educational content and community of like-minded individuals.
To that extent, my elevator pitch for PublicBeta currently includes these two sales pitches:
- PublicBeta is a learning community for entrepreneurs; and
- PublicBeta is your more intelligent and more experienced co-founder. Plus you don't even have to give us equity.
Taking all of this into account, I think I can be successful in implementing a premium pricing strategy, which Wikipedia defines as:
"Premium pricing (also called image pricing or prestige pricing) is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price."
Whilst I don't necessarily agree with the "artificially high", the rest of the strategy makes loads of sense. If I had to define the value of PublicBeta, it's easiest described in either the absolute positive or the absolute negative:
- You learn something on PublicBeta that helps you increase your revenue by $1000. If you spent $100 on your PublicBeta membership, that's a 10x return on our investment; or
- You learn something on PublicBeta that helps you avoid a massive mistake that saves you $500 in sunken costs. So on your $100 membership, that's a 500% return.
On top of charging a premium monthly subscription (more like $100 per month and not $25 per month), I'm also entertaining the notion of making this invite-only. This would mean that you would either need to be referred by an existing PublicBeta member or you would need to apply for membership (which can either be approved or rejected).
That's a double-whammy in terms of premium right there. Both Svbtle & Quibb seem to have used this "velvet-rope" approach to differentiate themselves from being just another website.
As I mentioned at the very beginning of this post, I'm exploring a premium pricing strategy and I'm mostly curious if exclusivity breeds higher demand.
Luxury brands or exclusive experiences have done this successfully for ages. As a red wine lover, I know that French wine (as a collective) has managed in some cases to charge 20x more than their counterparts, yet I doubt that you'll actually get 20x more value. Yet consumer perception has fueled a bucketload of sales of French wine over the years. This study sums it up well:
"Our results show that increasing the price of a wine increases subjective reports of flavour pleasantness as well as blood-oxygen-level-dependent activity in medial orbitofrontal cortex, an area that is widely thought to encode for experienced pleasantness during experiential tasks."
The fact that only a small amount of people can afford or get something could drive higher demand, because it basically comes down to FOMO.
Beyond this though, I would honestly rather 1000 PublicBeta community members paying me $100 pm, than 1m customers paying $5 pm. For me this is about quality over quantity and maintaining a high resolution in all interactions within the PublicBeta community.
What do you think? Am I going mad? Or am I onto something? E-mail me your thoughts.
(Read more from other entrepreneurs and hackers about pricing strategy and decisions in this week's Startup Edition.)