For all the talk about product-market fit, lean startups and agile development, growing a business often comes down to whether someone is willing to pay for your product.
If your product passes the sniff test (it offers value and utility), there’s a final hurdle: price. If someone finds the price is right, the deal happens. If the price seems high or unreasonable, it’s a no-sale. In other words, it’s Business 101.
In the startup world, price (and pricing) probably doesn’t get as much attention as it deserves. Aside from the fine folks at Price Intelligently, there aren’t animated or intelligent discussions about pricing strategy and tactics. If anything, freemium dominates the spotlight as startups believe that giving people a free taste will convince them to become paying customers.
My thinking about pricing was sparked recently when I discovered Grammarly, an online service that “corrects contextual spelling mistakes, checks for more than 250 common grammar errors, and enhances vocabulary usage and provides citation suggestions”. It has more than four million registered users so clearly the service has wide appeal.
I have been using and loving the free version of Grammarly for several months. The Chrome extension checks grammar and spelling on social media and Websites. It’s so good it’s a tool that would be difficult to surrender.
But here’s the thing: there is little (zero?) chance that I’m upgrading to an individual subscription, which costs $27.95/month or $139.95/year. Why not? It doesn’t strike me as having enough value to justify the expense. (Note: there isn’t a free trial for the premium service, which detects plagiarism and general citations, and works on Office.)
Don’t get me wrong, I’m good with paying for online services. In fact, I have signed up for a growing number of online services in the past year. In many ways, it feels like having a hand-picked cable package.
It’s not for a lack of trying by Grammarly to win me over. Its email marketing campaigns are creative and engaging (see below).
But Grammarly does raise some interesting questions about how online products are priced. What’s the balancing act between offering no-frills, free packages that deliver some value, high-cost packages that deliver plenty of value, and nothing inbetween?
In a consumer world that worships free or cheap, what does it take to demand (and get) reasonable or high prices for your product?
Some other examples of startups looking to charge premium prices are Proposify and Piktochart. Proposify has a lower level package for $20 a month package that allows freelancers to send 10 proposals a month. As someone who falls into that camp, it would be wonderful to be sending 10 proposals a month, but that’s not my world. As a result, I’m not going to be a Proposify customer, even though the service looks good.
In a recent blog post, Price Intelligence’s Eric Yu looked at pricing sensitivity to discover how prices affect sales, and how to demand the amount of value being created in a product through a customer’s willingness to pay. It’s an enlightening read for anyone curious about pricing. It is interesting that Yu suggests pricing is an “afterthought” for many companies.
So where do you think we stand with pricing for online services. Have we come to a point in which free is losing its lustre as a marketing tool? What does Grammarly’s pricing approach say about the freemium model? Has the online market arrived at a pay-to-play juncture?
More: ChartMogul looked at the pricing pages of some of the leading B2B. Here are five key insights that it discovered.
To learn more about the power of storytelling, my new book Storytelling for Startups provides entrepreneurs with strategic and tactical guidance on how to tell stories to the right people in the right places. I also offer storytelling workshops. For more details, send me email (email@example.com)