Chapter 2. Pricing Components

Strategy | Method | Structure | Positioning

There are both strategic and tactical elements to pricing.

I love the framework of Pricing Components listed by Tomasz Tunguz in his article, Ten Year’s Worth of Learnings About Pricing, for Redpoint Ventures. They are:

3. Pricing Strategy

4. Pricing Method

5. Pricing Structure

6. Price Positioning.

There’s a lot of strategic value packed into each one.

They’re numbered to correspond to the companion Pricing Canvas and the next four chapters.

3. Strategy

There are three pricing strategies to choose from based on where your customers fall on the demand curve(more on demand curves later). It’s very important that you understand and commit to the right one.

4. Method

Tunguz calls this Pricing Philosophy. Is it easy to tell how customers value your product based on contextual clues? Or are you introducing something brand new and need to use tools to discover the value in the customer’s mind?

5. Structure

Are you using tariffs, bundling, or discounts to maximize the perceived value of your product? Should you?

6. Positioning

What does price communicate about how you relate to other products in the market? Does your purchase process, unit of sale, etc. align with what your customers care about?

Additional Reading:

Ten Year’s Worth of Learnings About Pricing, by Tomasz Tunguz