How disruptive are pricing techniques? Do you want to shake things up in your business? Perhaps you want to go a whole lot further and shake things up in your industry as a whole? Steady on there, first things first.
“Disruption is all about risk-taking, trusting your intuition, and rejecting the way things are supposed to be. Disruption goes way beyond advertising, it forces you to think about where you want your brand to go and how to get there.” – Richard Branson
It all starts with changing your customers’ perceptions, to get them to associate new, better and more positive associations with what you are trying to achieve.
It’s not always about stealing customers from the bottom of an existing market, usually with a lower-cost offering – although that has certainly worked with pound stores.
A more effective approach is to appeal to a specific segment of the incumbent’s customer base by utilising an entirely different pricing metric that speaks explicitly to them.
Find a new value driver that serves a set of customers that are not currently catered for and then find a new pricing metric, one the competition won’t want to copy because it threatens their own business model.
What you are offering could be cheaper than what’s currently on offer but for longevity it helps to be innovative and unique, perhaps, if appropriate, available to a wider world and in more languages, etc.
However, you can only claim your company is disruptive when the majority of your customers are unable to embrace any of the existing incumbents in the market.
“Disruption is about thinking differently and proactively, making choices and decisions that might be seen as different but in the end are breakthroughs, and generating different customer reactions. Disruption means looking at problems differently, adopting innovative problem-solving approaches and implementing programs that are unexpected or surprising.”- Stephan Liozu PhD, Founder of Value Innoruption Advisors
Some Disruptive Pricing Models
AirBnB quickly became the biggest holiday accommodation provider worldwide without having its own property portfolio.
Its success is down to the fact that it provides a more affordable, personalised, and homely travel experience compared to overpriced and impersonal hotels. It’s the difference between being treated as just another customer and being treated as a valued friend.
Google and Facebook remain two of the largest and most profitable tech companies in the world with most of their products for free. They understood that it’s not only about trying to sell something, it’s about having access to the network and meeting a need.
In the late 1990s, Apple products were regarded as overpriced and inferior in terms of processing power, features, and available software.
Today, Apple is synonymous with sophisticated and forward-looking products and they have demonstrated that usability and intuitive design is more important to the average user than the sheer volume of functions available in an application.
Budget airline Ryanair created an entirely new market of budget travellers, not by stealing customers from BA or Lufthansa, but by offering routes no one else provided at prices that rivalled train and coach fares.
The Dollar Shave Club turned subscription-based pricing into a huge trend by offering razors for $1 a month. However, the reason they were so successful wasn’t just because of their pricing – it was because their creators banded together to solve a common problem which was too many expensive razors with countless features that still didn’t give a comfortable shave.
How to Develop a Disruptive Pricing Strategy
If being cheap is your only plan you’re not being disruptive. Much better to assail the opposition with better technology, design, product, a route to market, customer service etc.
However, pricing does do the following:
- Epitomises your value proposition
- Communicates your value
- Positions you to your customer
- Positions you relative to your competitors
You Could Allow Customers to Appreciate Value Rather Than Demand a Set Price
Examples include a book publishing platform called LeanPub, which allows the author to set the price range and the user to choose how much they pay within this range.
Another example involves the tourism industry with the concept of Free Walking Tours, where people are asked for donations or a guideline price at the end of the tour.
Many walkers end up paying more because of their good experience. Today, there are more such tours on offer in more locations, which indicates that this model works.
Focus on Value
If you want your business to expand, increasing prices and decreasing costs are old fashioned and restrictive ways to achieve this. When you cut costs usually the quality declines and with that the value.
When you increase prices without also increasing the value proposition, the perceived value of what you are offering declines - and with that your long-term growth.
Not all successful businesses are disruptive ones. It’s entirely possible just to go head to head with an incumbent business and to beat them at their own game.
However, you can use pricing to discourage the customers you don’t want. The customers you do need are the ones you can provide extraordinary value for, that are easy to reach, and that help you get additional customers.
You need to avoid the ones with a high cost-to-serve, that are difficult to use as reference customers, and that have too many unique requirements.
Rather than focusing purely on profit, it is a much more effective approach to focus on value and view payment as feedback, much as a waiter would regarding his tip.