Deciding on the price of a product/service in a start-up setting - Coping with diverse objectives, market dynamics and uncertainty

Abstract

Despite a recent surge of interest, the subject of pricing in general has received little academic investigation (Hinterhuber, 2004) and the research is particularly lacking in the start-up and new venture creation setting. Pricing has though undeniable a large impact on the diffusion rate of a new product/service and on what type of customer segments one wants to target, subsequently effecting financial results the success of the start-up. The aim of this study was to identify “how” and “why” certain pricing objectives and approaches are chosen and how the novelty of both the company and product/service and uncertainty affect the criteria companies use in determining their pricing. Though countless research has been done on pricing and how established companies conduct their pricing schemes, the start-ups did not seem to be able to lean on theoretical or empirical examples of how to formalize their pricing decisions. The start-ups seemed to approach pricing by disassociating themselves from conventional pricing theories and consequently decreasing the focus on pricing objectives explained predominantly to the lack of information. For the most part the companies explained their approach to pricing in somewhat a diverse manner, emphasising the importance of contradicting factors. The companies did though acknowledge the extreme importance of defining and analysing the true value, interpreted in financial terms, their product brought to their potential customer (value-based pricing), a method where the importance of competitor prices is minimized. However growth was an apparent goal for the companies and that other objectives emerged, as the fixation of attracting more information on what their competitors were pricing their products/services, leading to an obvious customer- and share-driven approach. It was evident that the advice given to the companies leaned to the application of a value-based approach to pricing. Nonetheless, when start-up companies increased their interaction with potential customers the pressure of making a sale emerged, shifting the focus to customer and share driven approaches.