Constraints on Pricing Strategy

Grow: Setting a low price, leaving most of the value in the hands of your customers, shutting off margin from your competitors.

Skim: Initially setting a relatively high price to reinforce your value and capture the profit you need to invest in more innovat...

• Adopt a grow pricing strategy when market share (first mover advantage) is the most important thing about your market. Keep in mind you will need to raise a lot of money to win.
• Adopt a skim or premium strategy when you have a compelling value differentiation and have identified a we...

Pricing strategy can change as you move across Geoffrey Moore’s technology adoption cycle (see B2B Pricing Black Magic). As you move from Early Adopters to Bowling Alley to Tornado you may ...

The Follow strategy needs a bit more explanation. This used to mean finding a dominant competitor and setting prices at a premium or discount to their price (in practice usually the latter).

In some industries, there is a dominant input that has a big impact on value propositions.

In...

• I have aligned pricing goals with the overall strategy.
• I have a focused target segment.
• I understand what factors determine profit and loss in my target segment.
• I understand the pricing metrics used by the alternatives (competitors or other options customers have).

Early Adopters buy because the solution gives them a competitive advantage. They expect to pay a premium and are not persuaded by discounts. In the Bowling Alley, people are buying because their peers are buying. This is a critical phase as it is when the market gets framed and anchor prices are ...

• Set goals and make sure the pricing goals align with the larger business strategy.
• Understand how you create value for different market segments (consider economic, emotional and community value).
• Figure out your value metric and find a pricing metric that tracks the value.