Utilities, prices and models

This weeks discussion is on analyzing a business idea on multiple dimensions, i.e. buyer utility, pricing and the business model. A good venture would need to make sense on all of these levels, but we already got that, didn't we? :)

Here are my couple of thoughts:

I think buyer utility and strategic pricing are highly intertwined. After all the consumer would not buy our product if her expected utility in monetary terms was less than the product price. I assume that different levels of pricing may include different product attributes. To that end I would like to underscore the importance of multi-attribute conjoint analysis, which I touched on last week. If I should go into a bit further detail: you would construct a survey, in which every question has a multiple choices that have hypothetical sets of attribute levels.

For instance let's imagine a new winter jacket. Our pertinent product attributes are price, water/wind resistance and ease of putting it on/off. Let's further assume that all 3 attributes have different possible levels, e.g. low, medium, high.

Each choice of each question would have a hypothetical product with different levels of attributes and the consumer would be asked to make a decision between different hypothetical products. This in turn would allow us to understand which attributes matter more. After putting this into context with our competition (which have comparable product attributes) we can effectively decide on the product price which would enable us to calculate our potential market with the optimal product attributes. And perhaps also tweak our current product attributes.

This may have been a bit complicated but I'd like to encourage you to do some further reading about this. You will find it useful in comparing competition's products and price optimization.

OK. About the business model:

One thing that became really clear to me while I read this section was that one needs to be most critical with their assumptions. Assumptions' validity is most sensitive to time, geography, markets, regulatory environment, etc. Falling in love with your product and business model is very easy (nobody thinks their baby is ugly!) and urging critical thinking amongst the venture team must be of utmost importance.

Also, I liked the emphasis of considering partnering up with different entities. If there are potential synergies, cooperating/partnering with even competitors can be useful. I bet it's not easy to overcome one's emotions and embrace competition. But it can deem valuable.