⚡ 𝗛𝗼𝘄 𝘁𝗼 𝗳𝗶𝗻𝗱 𝘁𝗵𝗲 𝗿𝗶𝗴𝗵𝘁 𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝗳𝗼𝗿 𝘆𝗼𝘂𝗿 𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝘃𝗲𝗻𝘁𝘂𝗿𝗲, by example of a subscription business we built for fahrrad.de
In 2021 we were contracted by fahrrad.de respectively internetstores GmbH to build a bike subscription business for them, similar to Swapfiets.
𝗔𝘁 𝗳𝗶𝗿𝘀𝘁 𝗜 𝘄𝗮𝘀 𝗯𝗹𝗮𝗻𝗸: how should we find a great entry price to start off with? What was a good price? Measured against what?
Fundamentally there are two strategies to determine a price:
𝗜𝗻𝘀𝗶𝗱𝗲-𝗼𝘂𝘁 and 𝗼𝘂𝘁𝘀𝗶𝗱𝗲-𝗶𝗻.
What does that mean?
Inside-out: you 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲 𝘆𝗼𝘂𝗿 𝗰𝗼𝘀𝘁 𝗯𝗮𝘀𝗶𝘀 𝗮𝗻𝗱 𝘀𝗲𝘁 𝗮 𝗽𝗿𝗶𝗰𝗲 𝘁𝗵𝗮𝘁 𝗰𝗼𝘃𝗲𝗿𝘀 𝘆𝗼𝘂𝗿 𝗰𝗼𝘀𝘁. Ideally a bit more in order to make a profit ;)
Outside-in: you look at how competitors are pricing their services. If there are none you might look at indirect competition that delivers a similar value to the user: in our case it was public transportation, e-scooters etc.
By 𝗰𝗼𝗺𝗯𝗶𝗻𝗶𝗻𝗴 𝗮𝗹𝗹 𝘁𝗵𝗲𝘀𝗲 𝘀𝗼𝘂𝗿𝗰𝗲𝘀 𝗼𝗳 𝗸𝗻𝗼𝘄𝗹𝗲𝗱𝗴𝗲 𝗮𝗻𝗱 𝘀𝗲𝘁𝘁𝗶𝗻𝗴 𝗮 𝘁𝗮𝗿𝗴𝗲𝘁 𝗽𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗽𝗲𝗿 𝘂𝗻𝗶𝘁 we were able to find a price that was both competitive as well as covered our expected cost of the business case.
To wrap up:
- 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗰𝗮𝘀𝗲, your cost drivers and your target profitability (per unit and at large)
- create a price 𝗯𝗮𝘀𝗲𝗱 𝗼𝗻 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗰𝗮𝘀𝗲 (inside-out)
- understand your market, your competitors or similar value drivers and 𝗽𝗿𝗶𝗰𝗲 𝗮𝗰𝗰𝗼𝗿𝗱𝗶𝗻𝗴𝗹𝘆 𝘁𝗼 𝗯𝗲 𝗰𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝘃𝗲 (outside-in)
- 𝗯𝗲𝘀𝘁 𝗰𝗮𝘀𝗲: outside-in price is higher than the inside-out price so you have some wiggle room ;)
𝗛𝗼𝗽𝗲 𝘁𝗵𝗮𝘁 𝗵𝗲𝗹𝗽𝘀 𝘆𝗼𝘂 𝗳𝗶𝗻𝗱 𝘁𝗵𝗲 𝗼𝗽𝘁𝗶𝗺𝗮𝗹 𝗽𝗿𝗶𝗰𝗲 𝗳𝗼𝗿 𝘆𝗼𝘂𝗿 𝗻𝗲𝘄 𝘀𝗲𝗿𝘃𝗶𝗰𝗲 𝗼𝗿 𝗽𝗿𝗼𝗱𝘂𝗰𝘁 𝗶𝗻𝗻𝗼𝘃𝗮𝘁𝗶𝗼𝗻!