Pricing as related to a product’s lifecycle – Part 1/5

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If you are in technology marketing, you are probably familiar with Geoffrey Moore’s Maturity Life Cycle. Moore looks at how a technology product’s market evolves over time. This blog is the first of a series, covering section the early market of the adoption cycle.

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At the very beginning, when a product is new, the inventors need to find innovators and early adopters and then find a way to cross the chasm into the mainstream market. This is at the very early stage of the market. The market does not even know that the product exists. At Ibbaka, we work with a fair number of these very early stage technologies as our customers are looking to launch new product offerings. In some cases, the product is brand new. We need to design a pricing strategy that will drive adoption from innovators to early adopters (who are willing to buy an unproven technology) and enable the company to start to build a track record with its product. It is at this very early stage that companies have a tendency to gravitate towards giving their product for free (to get the case studies) or heavily discount (in order to get some traction). See my colleague’s blog on the pitfalls of setting a freemium model. At Ibbaka, we recommend against devaluing your offering from the outset; instead, we promote pricing based on differentiated value.  

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When to start developing your pricing strategy? As early as possible. It is essential to establish need. We are generally engaged once our customers have already undertaken the development of their technology. They have initial evidence to support that there is a market for their product. We take this initial evidence and deepen it to develop a market segmentation that shows what segments will get the most value. Value is always unique to a particular segment and we want to understand both the economic and the emotional value that the offer brings.

When establishing early markets, being able to identify early adopters who share your vision for innovation is key. At this stage, companies are building initial relationships to understand and learn more about prospective segments. Attending trade shows, conducting surveys and interviews as well as online research are ways to gain more insight into potential segments. We focus on the data that will help us understand differentiated value mapped to a particular segment. Without this insight, one cannot meaningfully price.

Price is based on your differentiated value. All the things you do, that other companies also do, are table stakes. As an early stage company, you have a window of time to find your early adopters and prove out your unique value proposition. The other key to segmentation is to understand the patterns of buying behaviors in early-stage markets: understand who are your key stakeholders, key opinion leaders, decision-makers, and influencers. Then, delve deeper to understand how these people shape the buying process.

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Armed with this knowledge, you can begin to communicate value and position your offering. You can use the appropriate value propositions to build awareness and interest. Remember, early adopters are willing to pay a premium if they can see that your offering will help them establish a leadership position that will:
·       place them in the forefront of their industry
·       establish them as authorities
·       provide competitive advantage
·       enable positive transformation
·       grow revenue, market share or increase profits.

There is constant pressure to transition from securing early adopters to succeeding in a mainstream market and to prove that you can get traction for your offering. This is the stage where investors are looking for evidence that there is a clear demand for your offering and your firm has the ability to meet that demand to thereby capture market share. They are looking for a repeatable, scalable sales model. Pricing and value have a clear role to play here as well. Ensuring your sales can optimize monetization with value-based selling.

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The foundation for customer targeting continues to be differentiated value. Some factors we take into consideration for choosing your priority ‘where to play’ segments include:
·       accessibility of the target
·       purchasing behavior of the target and
·       the ability of targets to reference others
Size of the target segment is not all that important at this point as the initial segment is generally a stepping stone to follow on segments.

At this period of the lifecycle, adoption should be growing. Through your product, you have forged early relationships with customers and are validating your value claims. Now is the time to reconsider your pricing objectives. Do you optimize for market share, for revenues, or for profitability? Your tactics around pricing will need to be structured according to the business objectives of your company.

We'd be happy to have a converstaion to learn more about your pricing considerations. Ibbaka will be at the following events. Let’s meet at the Professional Pricing Society’s Fall Pricing Conference. We are also holding a workshop on how to price innovative new offers. Let’s connect to see if we can help drive results of your go-to-market and launch plans.