Module 2 — Brand, Product and Price · Lesson 2.3
Pricing and Packaging
The most powerful lever in marketing, and the one most teams set once and never revisit
What you'll learn
- Explain why price changes move profit more than equivalent volume changes
- Anchor price to the value of the job rather than to cost or competitors alone
- Design packaging that segments buyers without creating choice paralysis
- Read the choice-overload evidence accurately, including the meta-analysis that complicates it
Founders spend weeks on a homepage headline and set the price in an afternoon, often by looking at two competitors and picking the number in between. Then it stays there for years. Of all the decisions in this course, price is the one with the most direct effect on the business, and it is also a positioning signal: a buyer reads a price before they read most of your copy.
Why price has leverage
Michael Marn and Robert Rosiello of McKinsey opened their 1992 Harvard Business Review article Managing Price, Gaining Profit with the claim that the fastest and most effective way for a company to realize its maximum profit is to get its pricing right — that the right price can boost profit faster than increasing volume will, and the wrong price can shrink it just as quickly. They also observed that many otherwise tough-minded managers avoid pricing initiatives for fear of losing customers, and that not managing price is more damaging.
The arithmetic behind the claim is simple and worth doing for your own business. Profit is what remains after costs, so a price increase that loses no customers drops straight to profit, while a volume increase brings its own costs with it. If your operating margin is 10%, a 1% price rise with no lost volume raises operating profit by roughly 10% of its current level. Run that with your own margin before deciding that price is untouchable.
Price from the value of the job
Cost tells you the floor; competitors tell you the reference point buyers may use; neither tells you what the job is worth. The Bain authors of The Elements of Value (Lesson 1.4) make the point that customers weigh perceived value against price, and that marketers have historically concentrated on the price side because it is easier to manage. The harder and more valuable work is on the value side: knowing, from research, what getting the job done is worth to the buyer — time saved at their cost of time, revenue protected, a hire avoided, risk reduced — and pricing at a fraction of that.
A practical sequence: estimate the value of the job for a typical customer in your focus segment, in money, using numbers they gave you in interviews; note what they pay for the current alternative (including the cost of doing it by hand); set a price that leaves the buyer an obvious surplus over both; and check it against the reference points they will see. Then choose the value metric — what you charge per: seat, project, client, volume — so that price grows as the value they get grows.
Packaging, choice and the jam study
Packaging is how you segment with price: tiers that suit buyers with different jobs and willingness to pay. The common worry is that more options reduce purchase. The classic evidence is Sheena Iyengar and Mark Lepper's 2000 study in which a tasting display of 24 jams attracted shoppers but only 3% of those who stopped bought a jar, compared with 30% when the display offered 6.
That result is real, but it is not the whole story. Benjamin Scheibehenne, Rainer Greifeneder and Peter Todd's 2010 meta-analysis in the Journal of Consumer Research pooled 63 conditions from 50 published and unpublished experiments (N = 5,036) and found a mean effect of choice overload of virtually zero, with considerable variation between studies. In other words: too many options can hurt, under some conditions, but it is not a general law, and 'fewer options always sells more' is not what the evidence says.
The practical conclusion is moderate. Make tiers easy to compare: few enough that the differences are clear (three is common and readable), each tier named for the buyer it suits, each step up adding something a real segment values, and one tier visibly recommended. Clarity of the difference matters more than the count.
Changing price deliberately
Treat price as a decision with an owner and a review date, not a constant. Before a change, write down what you expect (conversion, average deal size, churn among existing customers), how long you will wait before judging it, and what would make you reverse it. Decide how existing customers are treated — grandfathering for a period is common and buys goodwill. Announce changes plainly and early; surprise increases are where trust is lost.
A/B testing prices on a public website is tempting and often a bad idea for a small B2B company: samples are small, buyers compare notes, and showing two prices for the same thing is a trust problem. Sequential changes with a clean before-and-after window, or testing packaging rather than the headline price, are usually safer. Lesson 4.2 covers why small samples make split tests hard to read in any case.
Make price a reviewed decision
- 1
Record the pricing rationale as a decision
On /knowledge, log the current price, the value estimate behind it, the value metric, and a review date. The next person to question the price starts from the reasoning, not from scratch.
- 2
Put the review on a recurring schedule
On /projects/tasks, open the Recurring view and create a quarterly 'Pricing review' task with an owner. It does not change anything by itself; it guarantees the question gets asked.
- 3
Watch deal size in the pipeline
In /clients, the Deal Room's pipeline summary shows deal count and amounts per stage. Compare average amounts before and after a price change, over a window you chose in advance.
Pricing signals
- Average deal amount
- Mean amount of deals won in the period, from the Deal Room. Compare like-for-like windows around a change.
- Healthy signal: Up after an increase without a matching fall in win count.
- Price-cited loss share
- Share of lost deals where price was the stated reason. Kavanah has no loss-reason field, so record it in the deal's notes (or a contact tag) when it moves to Lost and count it yourself.
- Healthy signal: Some is healthy — never losing on price usually means you are too cheap. Our starting heuristic: worry when it dominates, or when it is zero.
- Days since last pricing review
- Time since the pricing decision was last reviewed and re-confirmed.
- Healthy signal: Under a quarter.
Key takeaways
- ·Price moves profit faster than volume; do the margin arithmetic for your own business.
- ·Price from the value of the job, then pick a value metric that grows with it.
- ·Too many options can hurt, but the meta-analytic average effect is near zero — optimize for clear differences, not a magic count.
- ·Change price as a dated, reviewed decision with expectations written down first.
Price and product decide what you sell. The last lesson of this module covers the channels that let you borrow someone else's audience — partners, communities and events — and the disclosure rules that come with them.
Sources
- 1.Managing Price, Gaining Profit
Michael V. Marn and Robert L. Rosiello · Harvard Business Review, September–October 1992 · 1992
The right price boosts profit faster than added volume; many managers avoid pricing initiatives for fear of losing customers.
- 2.When Choice is Demotivating: Can One Desire Too Much of a Good Thing?
Sheena S. Iyengar and Mark R. Lepper · Journal of Personality and Social Psychology 79(6) · 2000
The jam study: 30% of shoppers bought from a 6-jam display versus 3% from a 24-jam display.
- 3.Can There Ever Be Too Many Options? A Meta-Analytic Review of Choice Overload
Benjamin Scheibehenne, Rainer Greifeneder, Peter M. Todd · Journal of Consumer Research 37(3), 409–425 · 2010
63 conditions from 50 experiments (N = 5,036): mean choice-overload effect virtually zero, with considerable variance between studies.
- 4.The Elements of Value
Eric Almquist, John Senior, Nicolas Bloch · Harvard Business Review, September 2016 · 2016
Customers weigh perceived value against price; marketers have concentrated on the easier price side.