Unique Pricing Decisions

I watched this video on TED that talks about whether we are really in control of all the decisions we make in our life. I watched it purely out of interest but in it I found a really interesting example the speaker gave that I feel can be applied to many businesses in real life because it is regarding a very important component of any business – pricing decisions.

Pricing is a really tough component to tackle. Price it low and consumers might equate to low quality. Price it high and consumers might choose a cheaper alternative. Within a business’ different product lines, pricing is also an issue. Will one product cannibalize another product because of the wrong price? All this and more can keep many entrepreneurs up late at night.

Well there is an interesting portion of this video from 12.35min to 14.10min (I’m awesome right? Now you don’t have to watch the whole video).

For those of you who don’t want to watch it, this is a summary of the example:

The Economist offered 3 subscription plans for its magazines:

Option 1: Online Subscription $59

Option 2: Print Subscription $$125

Option 3: Online AND Print Subscription $125

As it turns out, through an experiment with some MIT students conducted by the speaker, 16% chose Option 1, and 84% chose Option 3 and none chose Option 2 (thankfully). You see when given these options, Option 3 sounds like a really value-for-money, bang-for-buck option!

The experiment was repeated again, this time with only the following two options:

Option 1: Online Subscription $59

Option 3: Online AND Print Subscription $125

I’m not sure if this will surprise you (it didn’t surprise me) but the results were quite the opposite now! 68% chose Option 1 (as opposed to 16% in the first experiment) and only 32% chose Option 3 (as opposed to 84% in the first experiment).

The key takeaway from the speaker was that although Option 2 seemed like a useless option to even have, it was useful in the sense that it helped customers figure out what they wanted!

So for all of you out there currently running your own business, perhaps you can try this little ‘trick’ out and I hope it helps to increase your sales!

(Any comments or thoughts? Do leave a comment!)

Overnight Success

Overnight success….is impossible to achieve.

If that disheartens you that I’ve got sad news for you – you’re probably not cut out to be an entrepreneur.

For the rest who are aspiring or current entrepreneurs, I’m sure you have wished many times that your business idea can somehow miraculously gain a million new likes on your Facebook page overnight, wake up in the morning to find out that some other big business is acqui-hiring your start-up for USD26 million, or even just have a thousand new orders for your product in a single day. Unfortunately for the vast majority of us, this is never ever going to happen.

Many companies that look like they have made it overnight were actually businesses that were almost on the verge of dying or giving up.

Everyone acknowledges the awesome phenomenal success of the seemingly simple and easy game of Angry Birds but many also do not realize that the company behind it was struggling for 8 years, was almost bankrupt, and had decided before hand that if Angry Birds did not make it, they would close down the company. And actually even when they first launched the game on the iTunes store, sales was pretty slow for the first 3 months.

But no other story is more inspiring (to me) than Wal-Mart.

Sam Walton, the founder and visionary behind Walmart has been hailed as one of the greatest entrepreneurs ever and it’s easy to assume that the idea of large scale discount retailing was just something he thought up one day and put into practice the next. The actual story couldn’t be further from that.

From the time Walton first started his journey in entrepreneurship to the day he started Walmart, it took approximately seventeen years. That’s 6205 nights that Walton had to sacrifice! 6205 nights that he had to worry about his business and think up of new strategies and find ways to be more competitive. But it was also a necessary process for him to eventually conceive and put into practice Walmart. So much for overnight success!

So if you are planning to embark on a journey of entrepreneurship, whether it’s a tech start-up or a physical brick and mortar shop, or even a manufacturing or transportation business, it’s always important to think in the long run. Question yourself if you can see yourself doing this for the next 5-10 years. If you can, then forge ahead! If you can’t, then I suggest you think of alternatives because nothing comes easy and nothing comes free. Success comes to those who have the perseverance, determination, and iron-will to pull through with what they have started!

(Have any thoughts on this post? Do comment and share it with me please! Thanks!)