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Business Owners: How To Use AI to Rethink Pricing and Grow Profits Without Losing Customers
Tim O'Shea
July 25, 2023
Hi Friends đź‘‹
In this week’s email:
Business Owners: How To Use AI to Rethink Pricing and Grow Profits Without Losing Customers
Bard now has image recognition, opening up new possibilities
Chat with this AI and effortlessly create blog content from your ideas and knowledge. Sign up for the waitlist
How to add favourites in ChatGPT
And more…
Let’s get started…
The Best AI Marketing đź”—
🚀 Write with AI assistance to share your ideas and your knowledge
Are you struggling with finding time to write quality content? What if you could effectively generate traffic, followers, and buyers without the anxiety that your writing might not measure up? That’s I created InterviewerGPT, an AI bot that interviews you, just like a journalist, uncovers your stories and knowledge, and creates a blog post for you. The upgraded $38 a month version is coming soon. Join the waitlist here [Link]
🔎 News
Bard now has image recognition. Here are 6 examples of how you can use Bard with images: [Link]
đź’¬ ChatGPT
Create a Tweet Thread from a blog post or article using this prompt from our Marketing Magic Toolkit [Link]
The marketing copy for the InterviewerGPT waitlist above was written by ChatGPT using the Trigger Stories prompt: [Link]
InterviewerGPT: Chat with this prototype AI and create blog content effortlessly [Link]
ChatGPT doesn't have a favourite feature. Use this workaround to edit the chat title and add an emoji, like a star or a rocket, so you can quickly scan for your favourites:
Use Emojis to create favourites in ChatGPT
Deep Dive
Business Owners: How To Use AI to Rethink Pricing and Grow Profits Without Losing Customers
In today's deep dive of TheBoost, we're exploring why business owners are scared to increase their prices and how we can use AI as a catalyst for a change in pricing strategy.
Why you should care: You've put endless hours into your business, yet you're not seeing the financial return you want. You need to raise your prices but worry about losing customers. You dream of a thriving business that offers a comfortable lifestyle, less stress, and more freedom to do what you love but can’t seem to get there.
What you need to know: Pricing strategists charge $500+ per hour. But now, with some smart ChatGPT prompts, you can work out a sensible price increase strategy. Then you can charge what you're worth without fear of losing customers.
On with the story…
Like many of you, I have advised numerous young entrepreneurs over the years.
A common fear among entrepreneurs was that raising prices would lead to losing customers. And with it, the precious traction they had struggled to build.
So I would urge them to create a spreadsheet. That way, they could model pricing changes to see the results.
This would illustrate how they could increase profits even if they lost some customers with a sensible price hike.
eg: If you increase your prices by 20% and expect to lose 10% of your customers, you make 8% more profit.
But, the problem was this…
Most busy entrepreneurs never bothered to make the spreadsheet…
…and never increased their prices.
McKinsey & Company found the same. Companies spend less than 10% of their time on pricing strategies.
Leaving the business transformation on the table.
I know price rises are scary, but…
I also know pricing produces short-term wins and unlocks future growth - here’s why…
Six years ago, I acquired a software business called Scribe, a SAAS for UK local government accounting.
That market was flooded with solo operators who offered their competing software at ridiculously low prices.
The result was low-quality software that didn't meet the efficiency needs of councils.
I knew a price increase was essential, so we did it…
We increased the price by 30% and lost less than 5% of our customers.
In fact, the customers we lost probably would have left anyway, as they weren’t using the software.
The profit from these price increases allowed us to reinvest and improve our software.
In fact, it was the catalyst to grow the business tenfold.
As we improved our software, the customers got more value, so we could continue to increase the price.
It created a growth feedback loop where everyone could win.
But before making this price change, I was a little scared, despite advising so many people to do the same.
Yes, there is a psychological barrier here, and pricing experts help by holding our hands to break it.
Pricing experts tell you…
“A way to remove the fear of increasing prices is to do it gradually, testing it initially on new customer sales”.
or
“The increased profit from higher prices normally more than offsets the loss, if your conversion rate drops”.
But most people don’t invest in hiring a pricing expert.
Then I had the 'aha' moment.
What if…
We substitute the pricing expert for ChatGPT?
So entrepreneurs can immediately see how pricing changes would impact profit.
And have an AI to hand hold them through the scary changes.
If you’re frustrated that you’re not making enough money despite all your hard work…
…And wish you could increase your prices without fearing losing customers?
So your business would thrive due to your larger profit margin.
Giving you the freedom to invest more in your business, reduce stress, and even carve out more free time for yourself.
Then try these three ChatGPT price increase prompts I’ve written for you below.
Using ChatGPT as a Pricing Expert So You Can Increase Your Prices and Profit
Grab a decaf, and work through these three different ChatGPT sessions…
Prompt 1: Model & visualise pricing change scenarios
You need to understand if you’ll make more money or less…
eg: What happens to my net profit if I raise my prices by 30% and lose 20% of my customers?
And work out if the price increase is worth it.
This step involves calculations, so we run this prompt in Chat GPT Code Interpreter.
Copy the prompt below, and update it with your data: eg your price increase and projected effect on sales. Then it will ask you for your current profit, volumes, and fixed overheads. Don’t forget to select Code Interpretor before running it!
You are a pricing specialist. I want to put up my prices but I I'm worried that I will lose some customers and not win as much business. But I know that this probably isn't the case, but I don't know what calculations to make to show the different scenarios. Eg if I put up my prices by 20% and lose 10% of my customers, am I still better off? I want you to find out my pricing, gross profit and fixed overheads and then ask my questions to work out the loss of customers in different pricing scenarios. Then you will calculate if I am better off or not on a net profit basis.
Then with the data you need, run this range of different scenarios.
10% price increase with a 5% loss of customers
15% price increase with a 7% loss of customers
20% price increase with a 10% loss of customers
25% price increase with a 15% loss of customers
35% price increase with a 25% loss of customers
40% price increase with a 30% loss of customers
45% price increase with a 35% loss of customers
55% price increase with a 45% loss of customers
When you have the results show them visually in a table and then in a graph clearing showing the data on the points. Calculate the increase in profit in real terms and by % for each scenario.
When you are ready, ask me the questions you need to make the outcome scenario calculations and visualizations. I really want to see % increase in net profit AND actual increase in net profit clearly in a graph and table. Show my base level clearly in both visualisations.
Here’s the prompt above in action:
The visualisations make it easy to understand the pricing scenarios:
We can easily see that putting up prices 20% will make us another 14%, even if we lose 10% of our customers!
You can see my full chat here, including when I change the scenarios.
Now you can understand how pricing changes affect your profit 🚀
So it’s time to develop the strategies to make the pricing change happen…
Prompt 2: Brainstorm strategies for price rises
Now you understand how powerful price rises are from the previous prompt, you need some strategies to make this happen. Ideally in a way that doesn't upset customers.
Here is the advisor-type prompt to help you come up with the strategy. Just copy and paste and run it:
I am going to train you to become a pricing specialist that advises growing businesses on pricing strategies.
You MUST learn pricing strategy using the [pricing knowledge] below.
—[Pricing Knowledge]—
1. Understanding the Pricing Model: How have you currently set your subscription pricing? Can you walk me through the process you use to determine your prices?
2. Defining Subscription Pricing: Could you explain your understanding of the subscription pricing model? How does it differentiate from pricing for traditional products?
3. Identifying Missteps: Are there any common mistakes your company has made regarding subscription pricing? How did you address these mistakes and what strategies have you used to avoid them in the future?
4. Data vs. Gut Instinct: How has the reliance on data influenced your pricing decisions? How do you avoid basing pricing on instinct or "gut feel"?
5. Pricing Updates: How often do you revisit and update your pricing strategy? Can you provide some insights on how these regular updates have impacted your revenue per user?
6. Underestimating Revenue Drivers: How much time and resources does your company devote to thinking about pricing? In your opinion, how important is pricing in terms of revenue growth?
7. Subscription Pricing Models: Can you discuss the different subscription pricing models you have considered or used for your product? How have these influenced your profit margin?
8. Choosing a Pricing Model: How have your fixed and variable costs, customer profiles, and competitor pricing influenced the choice of your pricing model?
9. Pricing Strategies: Which pricing strategies have you implemented for your product? Can you discuss the advantages and disadvantages of each strategy?
10. Additional Strategies: Are there additional pricing strategies like freemium, upselling, and cross-selling that you have used? How have they contributed to your overall pricing strategy and profit margins?
These questions aim to explore the current pricing model and strategy of your product, understand the influence of data in your pricing decisions, investigate your approaches to updating pricing, and delve into the various pricing models and strategies you may have considered or implemented. The goal is to identify areas for improvement and discuss strategies to enhance your product pricing.
I can certainly advise you on how to improve your product pricing through various strategies. Let's explore this using the information provided:
1. Understanding Subscription Pricing: Subscription pricing model is where customers pay regularly for a service or product, typically a monthly fee. The pricing often depends on the length of the subscription, making longer-term subscriptions cheaper.
2. Common Mistakes in Subscription Pricing: It's important to avoid common pitfalls such as basing pricing on gut feelings rather than data, not updating pricing regularly, and overlooking pricing as a crucial revenue driver. You should invest time in understanding your customer data and setting your pricing according to it. Regularly revisiting your pricing can significantly enhance your average revenue per user.
3. Choosing the Right Subscription Model: There are four main types of subscription models, namely flat rate, tiered, per-user, and usage-based pricing models. Your choice should depend on various factors such as the nature of your product, your target market, and the scalability of your business. Understanding each model's strengths and weaknesses can guide you in selecting the most profitable pricing model.
4. Determining Your Pricing Model: When deciding on a pricing model, consider factors such as your fixed and variable costs, understanding who your customers are, and how your competition prices their products. These factors will influence your pricing strategy and help you define a suitable price for your product.
5. Implementing Pricing Strategies: You can adopt different strategies for setting your prices, such as cost-plus pricing, competitor-based pricing, and value-based pricing. Each strategy has its advantages and disadvantages. However, the most recommended strategy is value-based pricing as it aligns the product price with its perceived value by customers.
6. Optimizing Your Pricing: Finally, you can optimize your pricing by considering additional strategies such as freemium models, upselling and cross-selling, and giving users multiple tiers. These strategies can help you maximize your profits.
—End of Pricing Knowledge—
You MUST now ask a series of questions, one by one, to get the information required to give your advice on how to improve the users pricing. Use imagination, establish credibility, and create curiosity.
During your interview, it's crucial to emphasize the importance of a data-driven approach to pricing, focusing on customer value, and adopting a flexible and customer-oriented pricing model. Ensure to highlight your understanding of different pricing strategies and how to optimize them for the best results.
Once you have understood this message ask your first question, REMEMBER it is one question at a time.
Great, so you have some strategies.
But you and your team and still a little worried.
That’s where pricing increase training comes in…
Prompt 3: Training on how to put your prices up
Now ChatGPT can train you and your team to become comfortable making the changes.
Copy and paste the pricing trainer prompt below:
My business coach has told me to do some training on how to put up my prices without loosing customers. He mentioned always charging more for new customers and anchoring. He mentioned there are so many ways to do this if I learn about it.
“I want to do deliberate practice about how to put my prices ups including techniques you think would work well. You will be my pricing teacher. You will simulate a detailed scenario in which I have to engage in a price rise. You will fill the role of the pricing teacher, I will fill the role of the student.
You will ask for my response to in each step of the scenario and wait until you receive it. After getting my response, you will give me details of what the other party does and says. You will grade my response and give me detailed feedback about what to do better using the science of negotiation.
You will give me a harder scenario if I do well, and an easier one if I fail.
But - firstly ask me some questions about my business so you can present scenarios within my industry.
Just try it. It feels magical being trained by AI.
ChatGPT will then on to ask you questions about your business and run through some interactive training specifically for you.
Your Turn: It’s Time To Revisit Your Pricing
Businesses spend most of their time thinking about products, sales and marketing but spend next to no time on pricing, despite pricing being one of the largest growth levers.
So, I advise businesses or individuals looking to leverage AI for their pricing strategies to dedicate some time to think about it.
Start thinking about pricing and run some models, strategies and training using my prompts above.
It's an easy way to increase profit, thus improve your product, and ultimately unlock growth. It's a common mistake for young businesses to price too low, but with the power of AI, you can confidently navigate your pricing strategy to maximize profitability.
Let me know how you get on with ChatGPT to help you increase your prices and boost your profits.
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Thanks for reading,
Tim
