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Doubling Price to Sell the Unsellable

There’s a story in Robert Cialdini’s book Influenceabout pricing strategy and psychology. The story goes that a Native American jewelry store had an abundance of turquoise jewelry. 
The owner wanted to move the inventory, and tried several sales best practices including product placement and advising her staff to push the jewelry. However, the inventory didn’t move.
As the owner was leaving for a business trip, she scribbled a note for the manager to move the inventory by cutting the price in half.
When the owner returned, all of the inventory had sold. The remarkable part of this story, however, is that the manager misread the note – doubling the price instead of halving!
The previously unsellable jewelry became sellable. Customers associated the high cost of the pieces as high quality.
Consider the factors at play when considering pricing products and services. The market does not always dictate price as you might expect.
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Money Buys Anything

I’ve been thinking of how powerful money can be, and how businesses capture consumer surplus.
According to Investopedia:

Consumer surplus is an economic measure of consumer benefit, which is calculated by analyzing the difference between what consumers are willing and able to pay for a good or service relative to its market price, or what they actually do spend on the good or service. A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price.

However, maybe it’s also this notion of consumer surplus that drives how businesses, government, etc. enable those who “have” versus those who “have not”. Consider for a moment how advantageous technologies and tools can be for startups, for example. Some tools enable these companies to flat out survive and build something meaningful. However, due to lack of resources (normally cash), startups are unable to leverage them (think legal, marketing automation, etc.).
Or, think how fliers today can pay more to sit in first class versus upgrades to an airline’s most loyal, frequent travelers.
Or, think of how money can elevate patients higher on the waiting list for state-of-the-art medical procedures versus individuals who have waited months or years.
Or, when mortgage companies lower interest rates or provide premium cost savings opportunities to those who are financially secure when those who are still consistent in payments but have lower income do not qualify.
This is a free market where competition reigns supreme. However, it comes at a cost to those who could potentially reap the greatest benefits – sometimes at a price of survival. Should money buy anything?
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Negative Churn: Opportunities to Continue Selling

Last week, I shared a post about negative churn – when revenue from existing customers is greater than revenue lost from customers churning (see article). The relevant question, then, is how do companies achieve negative churn? Here are a few options:
  • Additional licenses – This one is common in today’s SaaS companies – selling based on licenses or “seats”. As a team grows, more seats may be required to gain access to a product/ service. 
  • Cross-sell – This type of sale captures cross-functionally opportunities within an organization. For example, a CRM may first be sold to a sales team to manage pipeline. Then, marketing may buy access to the CRM to understand lead and prospect-flow. And so on…
  • Up-sell –Many products and services have tiered business models (packages). Tiered packages allow for companies to address a market’s consumer surplus – sell packages that capitalize on differing price considerations, typically. Think: silver, gold, platinum packages with options that are locked for specific packages.
  • Additional products/ services – Up-selling largely occurs with tiered packages. However, packages are typically within the same product. This sell-on type is about selling a different product/ service. These tend to be complementary offers. For example, a product seller may sell professional services. This can also include things like accessories or service plans (think: cellphone cases or insurance plans).

There are many ways for businesses to continue to sell to existing customers – plenty of latitude to supplement the company’s business model. These are the opportunities that give investors excitement to grow a market beyond its existing.

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The Toughest Questions Suck but Are Oftentimes the Best

Spoke to a friend in an early-stage startup recently who met with a legal team to get advice on some contracts. Apparently, the conversation went a little sour when the lawyer started asking deeper, probing questions regarding financials and the business model.
I say, “sour”, because the mood quickly changed from cordial to combative, and the startup felt they were being attacked. The startup entered the room expecting a review of documents, not an interview. The entrepreneurs felt the lawyers were testing their resolve, preparedness, and “fit” as a client.
As terrible as it may seem to be barraged with tough questions, the lawyer asks great questions about monetization, assumptions around projections, customer/ user acquisition strategy, and the vision. In many ways, the lawyer provides the harsh reality of what startups and entrepreneurs face, especially when entrepreneurs believe raising capital will be “easy”.
Some thoughts:
  • Good partners are those who will not only raise the difficult questions, but will help you to address them.
  • If you’re not ready to answer the tough questions, then you’re not ready to raise funding. Investors WILL CALL YOU OUT.
  • Take a step back from the day-to-day, and assess the strategic to-do’s and milestones you must satisfy.
  • Tough questions… tough challenges… they can be seen as walls never to be overcome, or they can be seen as great opportunities. Up to you which way you address them, if at all.
  • Get savvy with the numbers. Several entrepreneurs and business leaders have advised me in the past, “the best leaders knew their ‘numbers’.”
  • If you don’t have a good answer, it’s okay to say, “I don’t know, but I’ll find out”, and actually follow up. 
  • A business plan can be time-consuming to put together, but can be a great way to structure and think about your business holistically. Consider investing the time to put one together, or in the least, use a One-Page Strategic Plan. Update this intermittently.
  • It’s so important for any relationship, especially in an early-stage company, for each party to assess each other’s fit. Too often, partnerships are started absent of a strong foundation which leads to difficult divorces later. (New employees/ team members included!)

I remember so many people asking my Body Boss cofounders and I if we were thinking about presenting to Shark Tank or asking for funding. I tended to laugh at the questions not just because of the comedy of us being on national television, but because I knew we didn’t have good answers to tough questions.

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Consider Monetizing Third-Party Beneficiaries Along a User’s Journey

An entrepreneur recently asked me how to monetize her app. She’s made great progress building and marketing her app. In fact, she’s been asked to do several interviews and has been invited to conferences all over. Next, she’s seeking investment to support growth, but has few ideas on monetization. Given specific challenges, she could consider monetizing based on third-parties.
Some background: the entrepreneur’s app empowers users to reach long-term safety and security. Since app launch, she’s ridden an impressive wave of press and publicity. Her app is cause-related, and given the most common user demographic, users are not financially stable. Meanwhile, as a for-profit company, asking for donations to support app development and her cause has been troublesome.
The app helps users navigate the long process getting from “low-point” to “high-point”. Because her target users have little disposable income, charging users will be a major deterrent and possibly dilute the power of her cause.
The entrepreneur could consider monetizing the steps along the user journey by considering what third-parties could benefit from reaching the user and by supporting the cause. Perhaps like…

A gamification-like strategy, where company-sponsored rewards (i.e. discounts towards food, clothing, etc.) are earned when users complete specific educational tasks. This can motivate users to stay on track and supported throughout their journeys towards the high-point. 

The entrepreneur can monetize based on reward redemption or sponsorship careful not to dilute sponsorship dollars for the sake of revenue. Meanwhile, sponsoring companies will be able to market their products and services, while also supporting a positive cause.

There are many ways to monetize popular apps despite hurdles – low income users, fears of cause/ value dilution, user privacy, etc. In this entrepreneur’s case, consider not only the target users, but also what third-parties can benefit along a user’s journey.
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