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How to price our product/service?

We are a startup company developing advanced consumer level network gadgets. The first product is a portable router that intended to replace VPN service. Our service is much better than software VPN in almost all aspect and its functionality and performance has been proven by many of our users. We have quite some sound reviews written by professional reviewers. However it seems our pricing strategy is not well perceived by the market. Right now, we charge on subscription of service just like VPN and our charge is higher than most VPNs (about 30% by my estimate). We are charging 180 USD for the first year and 110 USD per year after that. The hardware is included in the first year subscription. The problem is that this price is well taken by business users but not so consumer friendly in terms of price, responded by many reviewers. They like the product/service but don't like the price.

I'd like some advise on the pricing strategy that we may use to promote the sales. Hopefully we can satisfy both business users and normal consumers who are more price sensitive. Our website is at www.homingsystems.com if you want to find out more information about the product/service. Thanks in advance for your help.

11 Replies

Shobhit Verma
1
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
Congratulations on a good product!
The problem is that this space is changing a lot! To be able to keep up with the changes in the market, you will need to continuously innovate in the market.
That also means focusing on the target market as much as possible and deciding where you want to go B2B or B2C.
B2B has better and cheaper solutions so it will be hard to "cross the chasm" if you continue to have a hardware dependent solution, even if you have early traction. Unless you make it about a solution for "securely working from home", which is again .. crowded.
If you go B2C, the challenge is that most people don't know they need this solution. I tried this idea on consumers only to realise that either they are savvy enough to use VPN from their office/home themselves or they are not that savvy and hence they don't understand what kind of privacy is at risk.
Consumers are not willing to pay for a software only solution, so having a hardware play is actually very nice. I would say just choose your battle between B2C and B2B and price accordingly. If you decide to go to B2C , be prepared to realise that it is going to be all about marketing as educating consumers is pain in the neck. If you go B2B, be ready to innovate on remote working solutions. And yes, that kind of focus will make the pricing decisions easier as well. Good luck!
Derek Liu
0
0
Derek Liu Entrepreneur
Founder and CEO at Homing Systems
Hi Shobhit, thank you very much for you comments. We are in B2C for sure. B2B is not in the picture for the reason you mentioned. We have been marketing this product for about 6 months and improving the software along the way. We do see lots of people are already using VPN and looking for change so we didn't actually spend much time educating people. However, in our situation, we are not position the price right and that has hindered many users to sign up even they want to.
Irwin Stein
0
0
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Mr. Liu: Let me pass on to you the advice that one of my business school colleagues who taught marketing would give to his students. If you want to move the goods, run a sale or add-on something for free. .The two most powerful words in retail advertising are "free" and "sale". If you do it for a limited time, you don't have to permanently cut your base price. Otherwise, make your advertising "sexy" for the same reason that they use beautiful models at the auto show. Good engineering is important, but you need to get eyeballs on your product.
Shobhit Verma
0
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
Derek,
You might not like it, but if you are going B2C you have to try and beat something like Lima.
Subscription model for consumers have rarely worked out, unless there is something physical(tangible) that is shipped every month.
https://meetlima.com/how-it-works/index.php?lang=en
Saravjit Singh
0
0
Saravjit Singh Entrepreneur
Independent Consultant and Trainer
Derek,

If I was in your place, I would base my price on customer-perceived value.This is the difference between your segment's prospective customers' evaluation of the benefits and costs of your product when compared with other suppliers (products offering solution may be similar or different in approach)

Benefits include price, prompt pre- and post sales service, easy availability, quick installation, etc.

There are many standard texts available and also vis google search on this methodology.

Moti Barkan
1
0
Moti Barkan Entrepreneur
Founder at HackNot

Derek,

I think that you need to consider the features and transfer them into clear benefits. I reviewed your site and agree with the first comment - security could be a main differentiation. I am not sure speed is really a challenge.

If interested, I could propose some security enhancements to your product that will make it clearly superior in maintaining a secured session (how you handle man in the middle attacks?).

I will also suggest you consider a crowd funding effort as a market test/proof.

Derek Liu
0
0
Derek Liu Entrepreneur
Founder and CEO at Homing Systems
Thank you guys. We have done the crowd funding on Kickstarter last year and we also had a wide spread crowdtesting campaign. We even have hundreds happy customers globally. Basically the product is well accepted and people like to have one, but the problem seems to be the pricing so the sales does not grow as expected. Business customers have no problem to recognize the value and willing to pay the price, but average consumers are kept away by the price tag (it cost 180 dollars at the first year, even after some discount, it is still way over 100+ dollars). So I guess what we are facing now is that we need to target different market segment with different pricing. Any idea or pointers?
Mark Capaldini
1
0
Mark Capaldini Advisor
Former CEO Advising CEO's | Business Advisor | EOS(R) Implementer | Certified Value Builder (TM) | Executive Coach
1. Differentiate the B2B and B2C offerings, perhaps in software functionality, so that you can have two prices for two offerings.

2. Take the advice you have received in your reviews -- perhaps a slight reduction in price for business and a bigger one for consumers.

3. Your biggest competitor in any decision is "do nothing." You must educate BOTH markets as to WHY THEY NEED your product. Security is one consideration, but develop at least 2-3 more.

4. Decide if you are offering a product (one-time purchase) or a service (subscription). Currently you have an awkward hybrid of the two. If you go the service route (my recommendation) be very clear on what the customer is receiving each year for the additional fee. Everyone understands why anti-virus software is sold on a subscription. Can you employ a similar rationale?

5. Solve the pricing riddle at a good value for each market and watch your company grow.

Best wishes for success.
Linda Leon
0
0
Linda Leon Entrepreneur
Owner at MVP Professional Productions
Setting a price point is always tricky. One thing that might help you to finalize your pricing is to determine what type of image you want to project. You can project your image as a high end company or as a average consumer based company. That will not only determine the price, but how you target your client base and how you market to them. Starbucks and McDonalds both sell coffee but we clearly know which company derived their pricing model from image.
Moti Barkan
0
0
Moti Barkan Entrepreneur
Founder at HackNot

Mark is right on.

I would suggest you visit your price - is the price for consumers of $110 for service is really reasonable? To me it seems way too high.

Consider packages, commitments for two year as example, without the purchasing of the device upfront.

Revisit your cost structure...

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