Pricing as a start-up: Where do you begin?

pricing

You finally registered that business or online store, and already considering setting up packaging. Or maybe your website is up and running and you’re ready to pull out all stops to get your marketing underway. But there’s just one thing missing, how much should your products or services cost?

Pricing isn’t easy; there are several factors to consider. You don’t want to seem too expensive and therefore alienate your target market. But you also don’t want to price it so low that it connotes less quality or cheapness.  So what’s a girl to do?

I DON'T DO CHEAP AND I HATE CUT-THROAT PRICES SO TELL ME. WHAT'S A GIRL TO DO? | made w/ Imgflip meme maker

We all know that end at the end of the day, you’d want to cover your production costs and still make a profit. Because we all know those red bottoms won’t buy themselves.

However, pricing has to be based on the value transferred to customers for using your product or service. Consider the cost of production and make comparisons between your prices and that of competitors.

A general rule of thumb is to use the 10% rule by using the customer’s derived value and adding 10% to it. Got it? Good. Let’s explore some more.

Know your customers/clients

The better you understand your customers’ needs, the more accurate your pricing will be. Looking to your competitors for a pricing comparison should be based on the assumption that their pricing is ideal.

giphyYour competitors may be over or even under charging. So it’s still important to do a personal cost analysis and figure out the pricing that works best for you.

Is your pricing above or below theirs? Does location, staff, size of the company, quantity, and quality of the products come into play? These are all worthwhile questions you should ask when looking to your for answers.

“Profit is not something to add on in the end, it’s something to plan for in the beginning” – Megan Auman

Price sensitivity

It is important to note that clients and customers will only pay more if they have the assurance of value. So don’t be scared to test out several different prices at the beginning.

It’s the same when you walk into a boutique, see a dress and instantly know it would be far cheaper at a regular clothing store. But because it’s an exotic brand, you believe it is of better quality and therefore, worth the high price.

getting_moneyThis is where price sensitivity comes into play. Price sensitivity is the degree to which the price of a dress in this analogy, affects the customers’ willingness to buy it. I like to call it the fine line between “too good to be true” and “dirt cheap” and therefore a bargain.

You do this by offering a different price, typically with a 5% difference, to individual customers for the same service or product. The general idea is that if you aren’t getting pushback from at least 20% of your customers, then you’re on the right track.

Also, it is important to note that there is less price sensitivity when the product is unique and hard to find. So make sure to distinguish yourself from competitors in a big way. The price would be worth it if the boutique is making just one dress per size. The exclusivity is almost like getting a custom-made dress.

“The reason it seems as though price is all your customers care about, is because you haven’t given them anything else to care about”- Seth Godin

Smaller versus bigger

Giving customers a choice between several tiers in pricing helps establish how well your products/services are priced.  Have you ever come across the low, middle, and high price offerings? This is called ‘Goldilocks Pricing’. With this, you get to choose between the inexpensive but not ideal and the expensive but full package.

You then end up with the pricing that is just the right fit, like your very own Cinderella shoe. It typically has just enough features to get you started and is often the bestseller. More often than not, it’s a few steps away from that ‘premium’ package which you can upgrade to anytime.

 

money_3For instance, if  you sell an 80-gram tub of shea butter for R60, then a 160-gram tub would cost 10% less than buying two 80-gram tubs. Chances are, the customer will go for the bigger tub which means more money for you, provided the production cost is not higher.

Similarly,  a “buy 3 products and get the cheapest one free” sale in a specific high-end product range/ service market will ensure that you still get your money’s worth. Make sure that you always capitalise on these opportunities by offering any extra features that come with the package. For example, 10% to upgrade to the premium package from a 7-day free trial.

In summary, if your product or service is amazing, of standard quality and worth the price, customers will come flocking. Good luck!

 

Negotiate your way to financial success Part II: Negotiation mistakes and how to avoid them

Negotiation

In the last segment, we discussed the essential steps for negotiation. Of equal importance are things you should not do during negotiations. Mistakes during a negotiation can hinder its success.

Don’t get emotional

It is imperative that during negotiations you maintain a professional stance, even when you feel undermined. For example, bursting into tears and lamenting about the unfairness of an offer can prove counter-productive. Your tears won’t persuade your negotiation partners to give you a fair deal.sad-crying-zikoko

Moreover, emotional persuasion will not help you win your negotiation partners’ respect. It will only get them to “pity” you. You never want to start a business relationship out of pity. Pity does not get you the deserved respect in the long run. Emotional outbursts during a negotiation will hurt its effectiveness and productivity.

Tip: Rather than using emotional persuasion, use objective facts. Humanize the negotiation but do not personalize it.

Don’t make unsupported assertions

One could be tempted to make unsupported assertions when negotiations seem to go downhill. Don’t! Using fiction to support your bargaining point during negotiations will hurt your chances of success in that deal.

SO YOU HAVEN'T HEARD? RICHARD BRANSON IS ONE OF OUR NUMEROUS CLIENTS | made w/ Imgflip meme maker

Remember, you will likely be dealing with savvy business individuals who most probably have researched your assertion. They’ll definitely be able to spot a fictional assertion. There is nothing worse than being unethical during a negotiation and tarnishing your reputation in the business industry. News travel fast!

Tip: Prior to a negotiation, gather as much hard data as possible to support your assertions. Where relevant data is unavailable, use comparable data.

When using comparable data, be transparent with your business partners. Do not disguise the comparable data as one that speaks on the matter at hand.

In the same light, don’t rely on spontaneous brilliance. Prepare!

Do not make spontaneous decisions

Do not feel pressured to make a decision on the spot. It is perfectly okay if your negotiations require a series of meetings before reaching a bargain.

 Tip: Ask for time to make a well-informed decision.

Do not say “No”

noYes! I really meant to say do not say “no” during negotiations. Never say “no” during a negotiation, even when declining an offer. Instead,  positively decline the offer. You should be able to embed “no” into the kindest phrase your potential business partner has ever heard!

For example, you have been recently offered a job with an unattractive salary. Rather than emailing the employer to say “Thank you, I have decided to decline your offer,” you could do it better.

Consider calling and saying,  “Thank you for the offer, I am excited about the position and the opportunities it will offer. However, after reviewing the compensation package, it would prove challenging to be able to meet my financial obligations. Nonetheless, I remain open to hearing about future opportunities that will match our mutual needs.”

Such an approach will allow you to continue future conversations with your potential business partners, employers, or even schools. In fact, this approach helped a friend get more financial aid from a top law school.

Tip: Bury your “no” in a positive statement. Make them feel good about your response so that they barely dwell on the fact that you just said “no”.

Do not give an ultimatum

During negotiations, your goal at all times should be to negotiate. Yes, simply negotiate. Avoid using an ultimatum during negotiations. It sends the wrong signal that you’re unwilling to further the negotiation discussions or find a win–win scenario. Moreover, an ultimatum will put your negotiation parties on the defensive.

HOW COME YOU'RE NOT CONVINCED? IT'S A GOOD DEAL! | made w/ Imgflip meme maker

For example, saying “this is my best offer, take it or we have no deal” is wrong. It’ll likely to make the other party believe that a negotiation ends if your offer is not met.

Never give the impression of  foreclosing the possibility of finding a mutually acceptable bargain. Such aggressiveness will likely be counterproductive in achieving success.

Tip: Rather than give an ultimatum, which focuses on the “I,” focus on the “we,”. Express your willingness to create value for all parties while also noting the need to meet a deadline.

You may consider telling your negotiators that you would like to reach a decision by a certain deadline. Such timing should, however, be reasonable.

This can help you pay attention to cultural nuances (as discussed below). Such an approach will allow all parties to focus on reaching an agreement within the stipulated timeframe.

Do not ignore cultural nuances

It is imperative to pay attention to cultural nuances during negotiations. This could play a vital role during the value-creation process.

For example, direct eye contact with negotiation parties is strongly encouraged when dealing with US negotiators.  This conveys sincerity and could enhance negotiations.

In China, however, such a gesture could hinder a negotiation’s productivity. Direct eye contact is considered inappropriate or rude in China.

Tip: Do not apply blanket tactics during negotiations. Research the negotiation parties and be sensitive to cultural idiosyncrasies. This will help you succeed in maximizing your negotiation potential.

To summarize, avoiding these negotiation blunders will improve the likelihood of a successful negotiation. It would provide the ability to realize your desired outcome.




If you would like insights on a particular topic, write to us! We are listening.

Upgrade your PR Game: Lessons from Wimbart Global PR & Media #SheHiveLondon

Jessica Hope Wimbart Hope She Leads Africa

Jessica Hope, founder and managing director of Wimbart PR joined us over the weekend at #SheHiveLondon. With over a decade of experience at places like iROKOTv, Jessica launched Wimbart Hope earlier this year. No matter the size of your business or brand, PR can help upgrade your business. In this installment of the #SheHiveLondon catch up, we share key takeaways from Jessica’s sessions on how to master the PR game.

On the importance of PR for African businesses

PR can help your business or brand majorly by giving you that all-important exposure. It expands your audience and helps prove that you are legit: it’s one thing to tell someone that you’re great, but when other publications or news outlets do it, it’s another level.

Someone reads about you, they get curious and start to build trust in your product. That’s what brings you one step closer to closing a deal or making a sale.

On starting her own business

After over 10 years of building and honing her PR skills, Jessica Hope stepped out to launch one Wimbart PR. Wimbart found it’s niche: African Tech startups and it is flourishing. She never let any social challenges get in the way – recalling one time she went to an industry event six months pregnant and still managed to close multiple deals.

She recognised that business is about making that personal connection. So by putting your real authentic self out there, all sorts of opportunities jump out at you. Mentoring also helped her to make the move from employee to M.D. Having worked for university friend turned iROKO TV CEO Jason Njoku, he encouraged her to take the plunge.

On developing the right PR strategy

Start to build your own narrative. Your narrative is the story of your brand and how your product is going to help customers. It’s what makes you unique and interesting. It’s not just about the story though, if you can back it up with good data and already have endorsements from other people, your story gets stronger.

When you’ve crafted your story you can pitch it to publications, to in-house journalists and freelancers why can then feature your work to their audience of thousands (and maybe even millions if you’re lucky).

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On working well with the press

Creating the right narrative isn’t the only important thing to do, you have to be a careful planner. Everything in publishing works on schedule, so if you’re interested in getting a story in for Christmas, you should be pitching it to publications months in advance.

Ask around, go to industry events to meet journalists and get to know what they want. (That’s right networking is unavoidable, no matter how awkward it might seem at first).

Remember many businesses are trying to do what you’re doing, and sometimes being one of the first to reach out to the press will give you the upper hand. Journalists are on strict schedules and also quite cynical make sure your pitch is high-quality, interesting and timely. Remember while the goal is to build your media presence, it doesn’t always happen overnight.

Be patient and be prepared to get ignored at times, don’t worry, it happens to the best of us. Just stick with it, persistence pays off.

On embracing the quirks of your brand or business

To put it frankly, the fact that you exist is not news. When pitching your brand or business you need to think about what your ‘so what?’ is. News outlets get hundreds of stories a day, what is it about you that is specifically interesting?

Jessica used the example of AfroEmoji. While the app was relatively simple, it was pitched to the international market as ‘Africa’s first Emoji brand’.The app got featured on CNN and the Huffington Post which led to thousands of downloads.

Even though there were a few side-eyes about how the African Emojis all looked suspiciously Nigerian, the controversy helped the buzz and put it on the map. Embrace your quirks and let your personality come out. You can’t please everyone, no matter how hard you try.

afro-emoji-she-leads-abiola-babarinde

On building partnerships with the press

The African business ecosystem is still being figured out by international media, this means that it can be tough to get noticed. You can help journalists out by giving them context and a full backstory around your journey so far.

On the plus side, unlike some African publications, Western publications don’t usually charge for editorial features (nothing better than saving some $$$).

Never forget that relationships with journalists can move from purely business to a more personal connection in the long-term. When you think of this as a journey, not just a one-time goal, developing PR partnerships comes right into your reach.

The 4 minute guide to SME marketing: Everything na packaging

packaging

This article in the on-going series was largely borne out of a personal experience. Did I mention that I am testing the entrepreneurship waters myself? To digress a little, I think there is a side-gigging bug making the rounds, especially in the city of Lagos. Let’s do a quick poll if you currently work a 9-5 job but still want to take charge of your working life, do what you love and not be dictated to by corporate rule, say Aye!

Well, my business partner and I had a mini-debate about how products should be packaged for potential customers. My stance was a very practical and cost minimizing one seeing as ‘affordable’ was at the core of our proposition to customers. But she, on the other hand, believed in making an impression because from her perspective and quite truly, packaging can make all the difference!

Let me quickly explain why this is so. Remember that saying about dressing how you want to be addressed? The same can be said of product packaging. Humans are largely visual beings and can form lasting impressions based solely on what they see.  Also, seeing as we live in a cluttered world, you want to be able to, with your packaging, get people’s attention and inspire them to take action.

Now I am not going to over-flog the “Packaging Matters” discourse because I am almost certain that as a (potential) business owner this is something you are definitely aware of. But while you do the needful, there are 2 things I think you should keep in mind:

What’s your business model?

As a new business, especially, one playing in an already saturated field, one way to win would be through your pricing model. You should actually aspire to deliver the lowest cost to your customers in the form of lower prices. This can guarantee you a spot on customers’ purchase considerations. I mean who doesn’t want to pay the lowest price for the best quality, right?

If your promise is the lowest cost, perhaps you shouldn’t spend so much on the packaging of your product seeing as every cost you incur would have to be taken care of in your selling price. Of course, you should consider this if you intend to make a profit and remain in business.

Going minimalist (please do not read this as tacky!) with your product packaging shouldn’t bother you at all if your proposition to customers clearly explains why that is necessary. So for example, ever noticed the difference in packaging when you shop via Jumia or Konga (proposition: lowest price guaranteed) as against shopping at a Montaigne Place (proposition: luxury at its best)?

Packaging versus Product Quality

I am sure we’ve all had this experience before. You go to a fancy restaurant with the most fantastic ambience and the food turns out absolute crap. Mind you, this is after much pomp and pageantry. Or you pick a pack of biscuit off the supermarket shelf because of a package design too catchy to ignore and discover that it tastes like sawdust.

In both aforementioned instances, you’d have to be a masochist to want to relive that experience.

The learning, therefore, is this: you can inspire an action (purchase) with package design but if the product/service experience does not meet expectations, there would likely be no repeat purchase. More important than the package design is the product/service quality because that’s what ultimately delivers value.

There is the need to fully understand how your desired customers define value and give them that, else any other thing you do would be counter intuitive. So you start a hair salon business, what would your ideal customer appreciate more; gold-plated mirrors from Dubai or gifted and experienced hair stylists on your payroll?

This is the ideal process:

  1. Know your intended customers.
  2. Understand their needs.
  3. Create a product/service that fully satisfies those needs.
  4. Then properly package that product or service.

Do not attempt to prioritize no. 4 over no. 3. There’s so much more we can say about packaging but this is still the most important thing:

“Packaging is a substantive aspect of your marketing strategy that you should pay keen attention to ”.

Cheers!

 

“Be realistically audacious” : Teniola Adejuwon on the 500 StartUps accelerator experience

Teniola Adejuwon of Podozi at 500 Start Ups

Podozi.com is a beauty ecommerce platform that gives African women access to both local and international beauty brands. Co-founders, Teniola Adejuwon and Wale Babatunde, recently completed a 4-month accelerator programme with 500 StartUps, a leading venture capital fund in Silicon Valley. To date, 500 StartUps has invested in over 1,500 businesses across 50 countries worldwide. Every year, thousands of businesses apply either through a formal application or referral, and after passing 5 or 6 rounds of interviews are accepted onto the programme. Podozi was one of 50 startups accepted for the most recent cohort ‘Batch 16’. With the programme, Podozi worked in Silicon Valley, learned how to take their business to the next level and received a net investment of $100k.

In this interview, Teniola shares her experiences with 500 Startups and gives some advice for aspiring entrepreneurs.


How did you get involved with 500 Startups?

It came as a total surprise. Last year, we were introduced to 500 Startups through an investor who was a personal contact. As my mentor Tara Fela-Durotoye always reminds me, your network is your networth. Previously, the investor had mentioned that although they typically focus on Series A funded businesses or higher, they really liked the Podozi business. So we agreed to keep in touch for when the business grew bigger. Applying to 500 Startups was an aspiration of ours, which we planned to pursue in the future. About a year later, we got an email introducing us to 500 Startups, and that was it.

How has being part of the 500 Startups programme helped develop Podozi?

We recently completed the programme, so it’s still very early to articulate the full benefits, but being part of the 500 network is like being part of a global family. It’s a lifetime thing, where you grow and evolve. We were exposed to people and ideas from across the world. While we have formally finished the programme, we continue to keep in touch with our batch and the other businesses in the community via a group email. We have a well of resources to draw from and access to mentors who we can reach out to for advice.

Throughout the programme, we had opportunities to pitch to hundreds of investors and peers in the startup ecosystem. One of our pinnacle moments was presenting Podozi during the closing ‘Demo Day’. Being able to articulate our brand raised our profile with international peers and investors, which also helped our profile in Nigeria. Also, to be eligible for the programme, we had to (re)incorporate as a U.S. company which gave us access to U.S. specific venture networks and investors.

Tell us more about your experience in Silicon Valley as part of 500 Startups Batch 16?

Living in California was an interesting experience. Given the 8-hour time difference, we were working from 9am to 7pm U.S. time, then worked after hours to service Nigeria alongside our colleagues back home. It was a demanding but authentic experience of what it means to run a truly international business. All businesses in our batch worked from the same office in San Francisco. This helped develop a spirit of camaraderie, collaboration and shared learning, which is not always a given in most accelerators.

We travelled to Los Angeles, New York and other cities across the U.S. which gave us exposure to international best practices and processes. Once you get established processes in place, you’re able to serve your customers better. I’ve always been an advocate of this and Podozi advocates this too. While it’s not always possible to please everyone, I remind my team to put themselves in the customer’s shoes. Empowering the customer is crucial, and something businesses on the continent tend to miss.

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What advice would you give to aspiring startups and entrepreneurs?

Cultivate an attitude of excellence. Being entrepreneurial isn’t about calling yourself the CEO, you need to have a long-term mindset. My first company, Beauty by Nature, ran the Beauty Business Masterclass series. We would teach attendees that no matter whether you’re a nail technician or a self-taught makeup artist, you need to develop your craft and put the right structures or systems in place to support it. That is the difference between a sustainable business and one that burns out quickly.

Also, it is not only about funding. Successful entrepreneurs are convinced beyond reasonable doubt about what they are doing. In the past I’ve seen African startups get deterred early on by investor questions about about basic things like their business model or business numbers. If you are not convinced about your product, it will be difficult to enter in, let alone survive in Silicon Valley. It can become quite distracting when your brand gets bigger and your profile increases, so you need to keep focused. As one of my mentors says, ‘the media, awards and accolades will come; just do your work’.

What tips would you recommend for making a successful application to an accelerator?

Firstly, do your homework. There are funds and accelerator programmes that may be targeted to your industry or geography. Be aware that while some of them are global, their funds might be localised to specific regions.

Then, develop a proof of concept. Ideas are a dime a dozen, so don’t just go about touting ideas. Don’t simply try to replicate an idea that works in another country, ensure that it’s relevant to your market. My mentor, Mrs Ibukun Awosika says, “Be the expert of your business – know your numbers and keep your books tidy”. Businesses sometimes rush to launch an app without considering the consumer behaviour in their locality or whether they have the capacity in-house to maintain such. In e-commerce the big question is traction! It’s all about your metrics.

Third, be humble enough to admit what you don’t know and be ready to learn quickly. Utilise your resources, prepare in advance and ask as many questions as possible, there’s a wealth of resources out there like Quora to keep you up to speed. Fourth, be realistically audacious. Investors are not looking for timid entrepreneurs, they are putting their own money in and they must get a return. In the back of their minds they are asking; “Can this idea generate $100m in revenue”?

Finally, get ready to put in the grind and work very hard. As Scandal’s Eli Pope said to Olivia, “You have to work twice as hard”. It might sound harsh, but it’s the truth of the world we live in. Listen to advice but ultimately stick to your own values. I know who I am and what I’m about, and that is what sustains me.

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What’s next for Podozi?

There’s a lot to look out for from Podozi, it’s a dream that is evolving everyday. We are a company that will be here for another 50 years; a company that started in Africa with a global mandate. We want to be the bridge between customers and the beauty brands that adequately meet their needs, educating and creating a wholesome experience of beauty for women of color everywhere.

Finally, what’s the one piece of makeup you can’t live without?

My lipstick! I always go for a red or pink shade, or sometimes mix it up. I wear it practically everyday.