Startup Pricing Pitfalls: A how-to series on avoiding common pricing mistakes

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Startup Pricing Pitfalls: A how-to series on avoiding common pricing mistakes

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10 Minute Read
This post kicks off a regular series on Pricing Pitfalls and how startups can prepare for, spot, and overcome pricing challenges with confidence.

A couple of weeks ago, we met with the CEO of a startup (let’s call him Barry) who was looking to transform his pricing strategy. At Fuel, we are big believers in the idea that to produce a great solution you must have a holistic understanding of the problem. So, we ran Fuel’s Pricing Quick Diagnostic in advance of the meeting, and informed Barry that we would take him through the results in the session. This is familiar territory for us – nothing new here. But what did stick out for us was what Barry said immediately after sitting down.

“So, tell me. How bad is it?  Is this the worst pricing you’ve ever seen?”

Besides being a curious intro to a problem-solving session, Barry’s line nicely illustrates the way executives often think about pricing problems. They tend to assume they have unique and insurmountable problems. That they have dug themselves into an inescapable ditch through flawed pricing practices. Nobody could possibly be doing this as badly!“Regardless of the specific industry or situation, startup executives continuously fall into the same traps.”

Regardless of the specific industry or situation, startup executives continuously fall into the same traps.

The reality is quite different. Having run the Pricing Quick Diagnostic for countless startups at various stages of growth, what strikes us is how frequently the same pricing problems pop up in markedly different companies. Regardless of the specific industry or situation, startup executives continuously fall into the same traps.

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The good news here is that for pervasive problems there are tried-and-true solutions. Our hope is that by shedding light on these all-too-common pitfalls, executives will have the strategies they need to take steps to diagnose their problems, craft a solution, and begin harnessing the growth acceleration that strategic pricing will bring.

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In a series of upcoming posts for Fuel, we will unpack the four most frequently encountered pitfalls and how to address them. These are:

  • Value-agnostic Packaging – without careful design, packages will likely not address customer needs and willingness-to-pay — leading to unexpected customer choices
  • Undifferentiated price metrics – the metric accepted by your industry and peers is not always the right metric for you
  • Off-target value communication – startups frequently talk about what customers should care about, not what they do care about
  • “Wild West” discounting – in order to be effective, sales reps need some degree of flexibility, but too much can result in indiscipline and prevalent value leakage

For each pitfall we explain what the problem is, how to know when you have the problem, and practical advice on what you can do about it. In the meantime, if you have any questions on pricing and packaging, please feel free to contact James Wilton, Fuel’s Pricing Lead, directly at james_wilton@mckinsey.com and follow Fuel on LinkedIn and Twitter for more pricing insights.

About the Authors

James Wilton Headshot
James Wilton
Pricing Lead

James leads the pricing practice for Fuel By McKinsey, helping our clients maximize revenue growth.

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