A Startup’s First Steps in Finding the Right Pricing Model
Companies can thrive or die based on their pricing strategy. Pricing strategy has taken greater prominence as tariffs force companies to adjust pricing to accommodate higher input costs and to manage the volatility in tariff policies. Remote work and ecommerce continue to reshape how businesses deliver value. Against this backdrop, I followed up with a founder and friend who, two years ago, learned from research that setting prices too low can undermine a startup’s brand and perceived value for the early adopters critical to the initial success of young companies.
Building on that lesson, the founder devised a two-pronged approach for his pricing strategy constrained by available resources and customers. He analyzed willingness-to-pay and the competitive landscape.
Willingness-to-Pay
Willingness-to-pay is one of the classic pricing strategies. This strategy calibrates pricing according to the value that customers impute to a product or service. The challenge is finding a balance: set prices too high and some customers walk away; set prices too low, and the business leaves money on the table. Estimating that balance can become quite complex.
The founder approached this challenge by surveying previous patients to assess their perceived value of his specialist services. He asked participants to choose a monthly payment for his related subscription product and to select a commitment period for the purchase (for example $X/month for 6 months or a higher price for a month-to-month subscription). The participants chose from three price points and three commitment periods. This simple format reduced the time burden on respondents and increased the response rate. This type of exercise is similar to a simplified discrete choice survey, where all respondents evaluate the same set of options and reveal their preferred price-term combination. Startups use this method as a practical way to collect early insights without the complexity of a full conjoint study.
While I cannot publish the results, I can say that the founder concluded that the survey was sufficiently accurate. He saw some variability in responses which suggested that participants put thought into their answers. Data skew could require a second survey to clarify the messaging in the data. For example, with data skewed toward lower prices, a second survey could include the option “not interested”. With data skewed toward higher prices, a second survey could include higher price points in order to capture the attitudes and preferences of premium level customers. This second round would seek to confirm the adequacy of the survey sample.
Competitive Analysis
The founder used competitive analysis to contextualize his pricing decision. Given the innovative niche of this product, the founder could not do a direct competitive analysis. Instead, he compared the prices of nearby, related service providers. Potential customers may use these service providers as their point of comparison (price anchoring) to adjust their willingness-to-pay. Future iterations could run the competitive analysis first, giving survey respondents approximate price anchors and yielding more precise willingness-to-pay insights.
Preliminary Results
With the price distributions from the survey contextualized by the competitive analysis, the founder estimated price points for different commitment periods. The service includes a virtual offering which will price at a discount to the in-person model. (Note that while discounts for virtual services are common, some customer segments may actually pay more for the convenience). After launching the product, the founder will continue to monitor the effectiveness of his pricing strategy and pivot as needed, so stay tuned for updates.
Pricing a startup product is always high stakes. With little history to guide decisions, every experiment carries high stakes. This founder is wisely approaching the process of pricing step-by-step. He started with surveys and benchmarks, and created plans to potentially adjust pricing after launch. He may augment the current pricing strategy with an analysis of the impact of out-of-office communications (for example, asynchronous care), modes of care delivery, and customer commitments to staying engaged with the product with regular check-ins, perhaps supported by pricing-related incentives to keep customers engaged.
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