During all of these changes, we talked to our customers a lot about pricing. We watched conversion rate, listened to what our customers said, asked them what else was in their closet, and thought about the value our shirts give our customers: no more dry cleaning, lots of durability and a shirt for every occasion. Mostly, we debated about how all these factors should influence how we priced our clothing.
We get a lot of questions on pricing from fellow entrepreneurs. Howâ€™d we decide to sell our Apollo shirt for $98? Whatâ€™d we do to test what prices are right? And, how should costs play into pricing analysis?
Given that my co-founder Aman and I were students at MIT Sloan when we launched Ministry of Supply, pricing was a topic that we talked to our professors a lot about. In the end, there were three main things we kept in mind when figuring out pricing:
- Understand your customerâ€™s willingness to pay. In pricing class, we learned that 80 percent of managers know how much it cost to produce their product, but only 23 percent know their customersâ€™ willingness to pay. As a customer-centric company, we wanted to understand everything about our customers, including how much they value our products, and what prices made our customers happiest. To do this, we tested pricing a lot, and, analyzed quantitative data such as conversion rate (given different prices), as well asÂ qualitative data, such as their sentiment after we followed up with them for feedback.
- Think of the 3 Câ€™s in tandem: cost, customer, competition. None of these individually should cause you to dictate price, but rather, they should form a comprehensive view that allows you to triangulate the price. We viewed our pricing strategy through these three lenses as we adjusted our pricing: we knew what our costs were, we developed an understanding of who our customer was (what does he usually pay for a shirt? Is he price-sensitive?), and we understood our competitionâ€™s pricing. However, rather than letting one of these factors dictate our price, we used all three to inform our final decision.
- Donâ€™t set prices based purely on cost. As any startup knows, costs depend on sales volume. Sales volume depend on prices. Because your costs will change as you scale, pricing based on cost alone is a dangerous practice. But pricing based on cost also ignores something important, which is theÂ value you create for customers. Think about it: had Pet Rock been priced on cost alone, a lot of money would have been left on the table.
In short, pricing takes a lot of understanding â€” and a lot of testing. Â At MoS, we tested prices constantly before settling on the price that was best for us.
Remember: if people are complaining that prices are too high, that tells you something. Conversely, if nobody is complaining about your price, then itâ€™s likely too low.
As for why all of of our prices end with an â€™8â€˛? Because itâ€™s a lucky number and looks nice.Â Hey, not everything is a science â€“ even if you are a business school student.
Kit Hickey is the co-founder ofÂ Ministry of Supply, a brand which is inventing the future of men’s professional wear. The company has been featured in NYT, TechCrunch, Inc., Forbes and Elle Magazine. In addition, Kit is a lover of mountain sports and has half an MBA from MIT. Follow her:Â @kit_hickey
TheÂ Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launchedÂ StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.