were entering the market with our service business and had to figure out how to
price: pricing at the top of the market or at a lower price to ease entry and
build market share. After looking at different theories, we still weren’t sure
what to do. If we entered with a premium price, we’d price ourselves out of 80%
of the market. If we went at the lower end to gain market share, we’d barely
clear a 12% margin; this wouldn’t be sustainable over the medium and long-term.
total market was large, so it was difficult to get a realistic view of price
sensitivity. Existing competitors were all over the place and it appeared that
price was the primary way they were differentiating themselves and attracting
made a financial model with many different scenarios and decided we needed to
get at least 35% margins to have a positive cash flow. If we priced to this
margin, we knew that discounts would erode it, so we decided to enter in the
top 20% of the market and then offer introductory discounts. The strategy
retrospect, we realized how difficult it would be to price up if you started
with an underpriced service at launch.