Do you remember Better Place? If you’re scratching your head, you’re not alone. Founded in 2007, Better Place aimed to revolutionize the electric vehicle industry by providing battery charging and swapping services.
Better Place ended up filing for bankruptcy in 2013 having burned through $850 million in private capital.
One of the critical missteps? Their pricing strategy. Better Place opted for a subscription-based pricing model that was out of sync with market expectations and needs at the time. The result? Low adoption rates, financial strain, and ultimately, the company’s downfall.
The story of Better Place serves as a cautionary tale about the importance of getting your pricing strategy right, especially when launching new products or services. Below are 10 tips for pricing new products and services in the B2B sector.
- Price as or before you develop a product: Instead of first developing a product and then figuring out how to price it, begin early on by understanding the price your customers are willing to pay. This ensures that the product you develop aligns with the market’s perceived value and that you do not waste precious resources in overdeveloping the product.
- Understand your potential customers’ willingness to pay: Use customer research to quantify your customer’s willingness to pay as well as price sensivity. This data-driven approach will provide you with actionable insights on your expected revenue potential and will therefore help optimize your product development and pricing.
- Create a monetization roadmap: Develop a roadmap that outlines how you plan to monetize the product. This should include pricing tiers, potential upsells, and other revenue streams. The roadmap will then serve as a guide throughout the product development process.
- Build a cross-functional team: Pricing should not be the sole responsibility of finance or sales. Involve product managers, marketers, and customer service representatives to ensure a holistic approach to pricing not only during product development but as a lasting legacy for the future business.
- Align your business around price: Once you’ve determined your pricing model (i.e., price metrics and price points), make sure everyone in the organization understands why this pricing has been chosen and how it supports your overall business strategy. This organizational alignment is crucial for consistent messaging and sales execution.
- Test, validate, incorporate: Before a full-scale launch, test your pricing strategy on a smaller segment of your target market. Meticulously collect and analyze the data from the test to validate or adjust your pricing model. While it’s essential to be flexible and open to adjustments, ensure that any changes are consistent with your brand’s value proposition and the customer’s perceived value.
- Monitor and adjust your pricing continually: The market is dynamic, and your pricing strategy should be too. Regularly review your pricing model to ensure it aligns with market trends and customer expectations. If a pricing strategy doesn’t work, don’t consider it a failure but a learning opportunity. Analyze what went wrong and how it can be corrected, just as we can learn from Better Place’s missteps.
Pricing is often an afterthought in the product development process, but it should always be at the forefront. By adopting a price-led approach to innovation and following these seven tips, you can increase the likelihood of your new product or service being a financial success.
The best way to price a product is to never have to lower it.
Charles L. Tiffany, founder of Tiffany & Co