The first thing you want to do is be clear about exactly what you are selling or what you intend to sell. Is it a product or a service?
Once you are clear about your product or service, the next step is to structure it for scale. The success of a product is largely determined by its configuration. Just as an ant will not grow to become an elephant no matter how well fed, an elephant will also not likely become a rat due to poor nutrition; rather than reducing in size, it will simply die.
To position your product or service for scale, consider the following four key elements:
There are many pricing models to choose from, including cost-plus, competitive pricing, price skimming, penetration pricing, and value-based pricing. However, there are also many other creative models that can be more profitable. Here are a few examples:
A. Selling a service even though your actual product is a product. For example, there is a restaurant that, rather than charging for meals, sells advanced tickets for dining and charges higher prices for peak hours. The Next Restaurant that charges like it, is selling rock concert tickets. This model is so successful that there is a secondary market where people buy tickets and resell them to others who didn’t plan as far ahead at up to a 1000% markup.
B. Monthly subscription model for unlikely products or services. Subscription models are creative ways to ensure a steady flow of loyal customers and offer the company stability. There are different ways to design a subscription model for a product or service; it just requires some creativity. Subscription profit models are trending as more and more companies creatively join the bandwagon. Some start with freemiums and later go on to charging when their customers are hooked, while others charge as soon as possible.
C. Selling your product as a service. One company that has done this well is Hilti, a company that sells tools for fleet management but decided instead to sell the fleet management service on a subscription basis.
D. Metered billing, also known as usage-based billing. This is a form of billing where you charge your customers based on their usage of your software or service.
E. A combination of premium and discount pricing. This is another creative model where you can unbundle your offering into a discounted primary product or service and then make regular add-ons premium. A leading player in this space is Gillette, which offers razors and blades. This model is also known as the razor-razorblade model. The razor-razorblade model is a pricing tactic in which a dependent good is sold at a loss (or at cost), and a paired consumable good generates the profits.
If this generates enough interest, we will consider three more elements when properly configuring your product or service.
I hope this makes sense.