How repositioning a product allows you to 8x its price

Pricing is often more about positioning and perceived value than it is about cost-analysis and unconvincing ROI calculators.

As a result, repositioning can allow you to charge many times more than you think. Here’s how.

You’ve created a marketing tool called DoubleDown that doubles the cost-efficiency of AdWords campaigns. You heard that right folks — as a marketer, you can generate the same impact, the same number of conversions, the same quality of sales leads, but with half your current ad-spend. Wonderful! Who doesn’t want higher ROI.

What can you charge for this tool? Clearly you can’t charge as much as the money the customer is saving on AdWords, otherwise the net result is no savings at all. Let’s say you can charge 25% of the savings and still find many willing customers.

Here’s what your sales pitch looks like to a specific customer who spends $40,000 per month on AdWords:

Halve Your Spend!

Great deal! The VP of Demand Gen will be able to boast to the CMO that she saved the company $15,000/mo even after paying for DoubleDown, and you’re raking in a cool $5,000/mo. Everyone’s happy!

Now let’s see why you can actually charge eight times as much money for the same product.

Marketers have a single paramount goal: Growth. Even indirect marketing like brand, events, and PR have the long-term goal of supporting growth. In the case of DoubleDown’s customers it’s direct: Growth through lead-generation through AdWords.

Growth is much more valuable than cost. To see why, consider the following two scenarios:

  1. CMO reports to the CEO: I was able to reduce costs 20% this year.  The CEO is happy. The CEO’s follow-up question is: How will we use those savings to grow faster?
  2. CMO reports to the CEO: I was able to increase growth by 20% this year, but it also cost us 20% more to achieve.  The CEO pumps her fists amongst peels of joyous laughter. The value of the company increases non-linearly. The additional revenue growth more than pays for the additional marketing cost that generated it. The CEO’s follow-up question is: How can we ensure this happens again next year?

It’s always 10x more valuable for a business to grow faster than it is for the business to save money.

This insight points us to an alternate pitch for DoubleDown. It’s not about spending less for the same amount of growth, it’s about spending more to create more growth.

In particular, using our example of the customer who currently spends $40,000/mo, suppose that customer is generating 200 quality sales leads per month from that spend. The sales pitch changes as follows:

You’re paying $200/lead right now, yielding 200 leads per month. Using DoubleDown, you can double the number of leads you’re generating, still at a cost of $200/lead:

Double Your Leads!

The key is this: The customer is willing to spend $40,000 to generate 200 leads, and therefore is happy to spend $80,000 to generate 400 leads. It doesn’t matter how much of that $80,000 is going to AdWords versus going to DoubleDown. The key is not to “save money on AdWords,” but rather to “generate more growth at a similar unit cost.”

In the “saves money” pitch, the value was $20,000, and the customer needed to keep 75% of that value-creation. Whereas in the “generate growth” pitch, the value is $40,000, and the customer is happy to pay 100% of that value-creation to a vendor. Both the amount of value created, and the percentage of value the customer is willing to pay, is a multiple higher for the “growth” pitch versus the “save money” pitch.

So the next time you want to formulate your product as a way to “save time” or “save money” or “be more efficient” …. DON’T!

Instead, figure out how your product creates value in the way your customer already measures value, and position your product as a way to accomplish that.

  • Jason, this is a great post! I would like to illustrate your point with a specific example.

    A few years back, I worked with a founder who wanted to build a productized service. Even though the model *would* be profitable as a cost-saving product at $500/mo, we agreed that with some repositioning, the exact same underlying service *could* be priced much higher.

    Ultimately, he ended up re-positioning to promise a measurable increase in e-commerce conversion rate. This translated to a simple value prop of “Pay $X to get $Y more sales.” We wrapped some risk reversal around the first 30 days of the engagement and ta-da! This was a no-brainer offer that sold well and created income certainty for the founder with 5-figure quarterly plans, paid in advance.

    TLDR: same service, 20x the price point.

    PS – tagging @Patrick Campbell to weigh in – he’s probably got more analysis to share here.

  • Great post! Thank you. Trying to apply this to our pricing strategy at the moment.

    Do you think it increases overall conversion rate as well?

    • It varies.

      Clearly, raising prices can reduce overall N (whether through conversion rate or fewer customers arriving in the first place), but there are lots of examples of startups who raised prices and N increased, for example: https://blog.asmartbear.com/selling-ebook.html

      Either way you’re likely to increase profit, and increase the quality of customer that you attract.

      To be sure, it can be detrimental! There are also stories of price increases that were catastrophic. Sadly, no one answer here!

  • Elahe Anvary

    Thank you ever so for you article post.Really looking forward to read more. Much obliged.
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  • Tom

    Wow!!
    Hello I hope you are doing good
    very good post for product strategy, also help for product details strategy https://bit.ly/2Bgh7JJ