Your profitability is crucial to your long-term success. This is an area to which early stage companies must pay extra attention - even when they have abundant initial investment. Particularly, if you're planning to go-to-market with penetration pricing and launch for rapid market adoption, make sure that you have a plan for graduating your entry-point buyers to becoming full-price customers.
If you're planning to go-to-market with penetration pricing and launch for rapid market adoption, make sure that you have a plan for graduating your entry-point buyers to becoming full-price customers.
Penetration pricing can be an effective product launch strategy when applied correctly and only for a limited time. There are a number of things to consider to execute a penetration price strategy successfully.
Have a longer-term mobilization plan
Make sure to structure your pricing plan to maximize your retention once you begin applying full price.
Determine how you will align the value delivered with different plans and how you will mobilize buyers from lower priced tiers to higher priced tiers. Find the balance between too much value and not enough value in your free or trial plans. Test different sets of fences, caps, and triggers to influence the buying behavior, during your beta period. Frequency distribution of your key engagement and adoption metrics might give you great ideas about the cut-off points of your fences, caps, and triggers post-beta. See an example of a pricing structure below.
Establish the value of your product early on
One of the goals of penetration pricing is to acquire sufficient number of early adopters so as to translate their experiences into the benefits for mass adoption. Identify your key pricing metrics carefully, determine how you'll infer price sensitivity from the adoption behaviors, and quantify, quantify, quantify!
Plan for your transition to full-price carefully
Increasing your price position doesn’t imply that you have abandoned meeting the needs of your price-sensitive buyers. It may, however, mean that your value proposition or your offer structure mismatch the perceived value by certain types of customers. This type of mismatch signals that perhaps it's time to take a closer look at diversifying your offer structure by introducing additional tiers, bundles, and new levels of fences and caps. The important thing to keep in mind is nobody is willing to pay more for the same value. Therefore, evaluate your proposition carefully when it’s time to transition from penetration pricing into full-price.
The important thing to keep in mind is nobody is willing to pay more for the same amount of value that they receive
Ensure you’re sufficiently well-positioned to not go under
Cutting prices to a point where you can’t cover your costs may cause the detriment of your company’s future. Make certain that the increase in adoption will help achieve your longer-term profitability targets, particularly when the prices are artificially low. Constructing a price-adoption curve might go a long ways.
And if you need help along the way, you know how to find us.
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