One important element when developing your go-to-market strategy is determining your pricing. Getting your price wrong, in the beginning, can be a huge blow on the success of your business’s future revenue.
Here’s a common theory that startups and small businesses use when they’re pricing their product: the only way you can compete for market share is if your price is lower than the leading competitors in the market.
This strategy is very common because it is logically sound, right? Why would someone buy my product when it’s the same price or more expensive than a brand they’re already familiar with?
Unfortunately, when businesses go with the “discount model,” they often end up bleeding their margins very quickly. This is the strategy that the market share leaders are hoping you choose to adopt. They know there’s no way your company has neither the resources nor efficiencies necessary to compete with them.
The efficiency model, otherwise known as the Walmart model, takes a lot of time to develop and perfect. The companies that thrive using discount pricing have spent decades building a system that can produce these efficiencies. They have the capital and infrastructure to mass-produce at a volume that will destroy your margins and run your product off the shelves.
As startups, we need to focus on premium pricing. Our market share volume will take time to grow and we should be methodical while it does. You will have to spend resources educating the market and building awareness around your product. During this time as a startup, you’ll have to make sure you have high margins.
Create a high-quality product for a niche market at a premium price. This is how you’ll thrive in The Reef™.
Aram Chavez, founder of Aha To Exit, breaks down this pricing strategy:
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