startupi

It’s the end of the year, and the holidays are approaching. Consumption surges at this time of year. There are excellent opportunities for businesses to buy and sell.

Among the many attractive promotions, each one advertising its advantages, which should you choose? The cheapest? The one that comes with all the bells and whistles you don’t really need? Is it worth discounting or lowering prices?

“Your clients can pay more - how to value what you do.” This is the title of a book by the New Zealander Ian Brooks (a doctor and business administration consultant) wrote in 1997. The main argument was certainly different from “Free: The Future of a Radical Price,” by the Wired magazine editor Chris Anderson, published in 2009. That was a follow-up to his 2006 book “The Long Tail: Why The Future of Business is Selling Less of More.”

The world must have changed a bit in the twelve years the separate those books, the one recommending not lowering prices, the other recommending not charging clients. What hasn’t changed between “Your Client Can Pay More” and “Free” is the logic behind how the consumer recognizes value and advantage.

At the beginning of his book, Brooks clarifies that the problem in the market is not price, and explains why you shouldn’t get into price wars. Lowering the price, according to his examples, is the only option when the consumer doesn’t see the advantages of your product. Anderson doesn’t question this, because we live in a reality controlled by scarcity and are immersed in abundance - hence the importance of setting the value of your company, product or brand wherever - even at free - to attract the greatest number of potential consumers.

Getting the world to recognize the value of your product is not the same as traditional advertising, which tries to convince the consumer of how good the product, brand or business is. Today, according to Anderson’s examples, each action a business undertakes is an example of the value they provide, and how good it is to be involved with it and shows the excellent qualities and services it offers.

For startups, the competition can be global

Many CEOs of startups - and even some from established businesses - adopt a freemium business model: offering free versions of their products, or some of their products, to create satisfied, faithful consumers; then offering paid products with premium features. This mix (or complement) between free and premium relates to the long tail strategy, in terms of results.

In the long tail, which is not in opposition to freemium, but provides a context for it, customers have at their disposal a vast array of products and services - the “infinite shelf.” Virtual stores like Amazon.com or Buscape.com are some of the best examples of positioning a business to offer, for example, thousands of products, even if only a few are very lucrative.

The simple fact of offering all this makes the store into a point of reference, and in some cases the prices don’t need to be lower. This is the case with Amazon, which has become a favorite, and also with Grupo Buscapé, which consolidated a marketplace between users, developers, advertisers and publishers.

Myths about pricing, by Ian Brooks - (avoid thinking and acting like this):

• 1)  price is the problem
• 2) the market sets the price
• 3) you have to match your competitors’ prices
• 4) you have to lower prices to attract customers
• 5) you can win a price war
• 6) discount stores do well because of their lower prices

Truths about pricing, by Ian Brooks - (try to think and act like this):

• 1) price is an important factor
• 2) low prices have their place
• 3) performance affects price
• 4) the simpler the better
• 5) you are going to have to sell more
• 6) the clients are going to pay more
• 7) price is not a fixed point

Zones of value for the customer, by Ian Brooks  - increasing perceived value and price paid:

• 1) the comfort zone: the basic solution
• 2) the bronze zone: choice, speed, convenience, full service, personal attention, trust, information
• 3) the silver zone: functionality, support, special offers, known brands, long usable life, fun, reward, security, recognition, adventure
• 4) the gold zone: care taken with environment, personalization, innovation, greater self-esteem, natural and organic, specialization, support for social causes
• 5) the platinum zone: prestige, scarcity, exclusivity

In whatever form, if you feel affected by the crisis and worry about positioning yourself in innovative ways, the Kauffman Foundation (for education, innovation and entrepreneurship) shows that some of the biggest businesses you recognize (GE, Microsoft, banks, multi-nationals) took on innovative methods during times of crisis. Don’t be afraid, but plan and pay attention to the market so you can change your plans (survival of the fittest).

There is a rule that says if you will do well if you can offer two of these three things:  quality, deadline, or price. That is, it will be hard to offer the best quality on time for the best price. Figure out how to act and help your clients make decisions. And we never got around to talking about social media in business - indispensable! - but it can wait for another post.

Basic model of pricing (Institute of Financial Studies)
Thanks to Maffalda for reading this and advising me of mistakes and offering a suggestion which I used. I am proud of our involved readers!