We see many teams struggle with pricing and validating the viability of their products/services. How do you identify a price customers are willing to pay? What price will enable you to make enough profit? How do you find the right balance?
Understandably, this can all create a lot of anxiety. But it shouldn’t. You don’t need to guess what the price should be. You can run straightforward business experiments to help identify the perfect price.
We’re going to share a fascinating example of how a team at the company GE went about pricing one of their products.
The following blog is based on this video by David Bland (Co-Author with Alex Osterwalder of Testing Business Ideas.)
The Opal Nugget Icemaker is a product from First Build which is part of GE Appliances. We can learn a lot from looking at how they searched for the right price.
There are a couple of things you notice straight away when you go on their website. First of all they’ve done search trend analysis. They googled “nugget icemaker from home.” This enabled them to begin to understand what customers are looking to pay for this type of product. In forums and customer interviews, they noticed that people were complaining that most in-home nugget icemakers cost between $2k - $3k. The sentiment was that this price range was too high to make this type of ice at home.
Using search trend analysis like this will help you identify if there is a space that you can play in. One where your product stands out from the competition and appeals to customers.
They also did a crowdfunding campaign through Indiegogo which was wildly successful. If you go on the website you can see how they set the pricing options. They knew people wouldn’t pay $2k - $3k for a nugget icemaker. But they wanted to find out if people would pay $399. You’ll notice they included a strike through text suggesting the price will be $499. Over 1,500 people claimed the product which was very strong evidence in this case that they had a price that people would in fact pay. These customers were examples of early adopters.
At the same time as running the crowdfunding campaign, they were also testing a price on their website for $429 for pre-order. This was separate from the Indiegogo campaign. It enabled them to test two different prices simultaneously.
After running these pricing experiments, they used the GE brand. They also increased the price to $476. They have since gone on to make a second generation of the device because it was so successful. The second generation product is sold at an even higher price.
When you’re thinking about testing pricing, don’t get caught up in the anxiety of it all. Your early adopters (people who have the problem, are aware they have it and are actively seeking the solution) will pay a specific price to solve the problem. But when you go more mainstream, you have the opportunity to test different prices on landing pages and even crowdfunding sites. You won’t find the right price after one experiment. Don’t be afraid to run different tests to work out what the right price is for your product.
If you’d like to learn more about running business experiments, why not join us at our Virtual Masterclass? It’s called Testing Business Ideas. It’s run by the Co-Author of the book Testing Business Ideas, David Bland. You can register for your spot here.
You might also like to read this blog by David Bland which explores the GE Appliances case study from a branding perspective.