Building a Premium Product? Check Your Price Ceiling

Posted by Christina Coleman on

In an uncertain economy, a premium product can be a surprise hit. People have stood in long lines for the iPad, fought their way to a cash register with PlayStations, and got on waiting lists for the Prius. Is your startup based on the assumption that your customers will pay a premium for your product? Rashad Abdu-Salaam, the founder of a telemedicine and digital diagnosis startup SkinClick, was under the impression that LSM would be another hackathon. “We initially came in with a cocky attitude that we were going to just hack together a bare-bones demo.” Rashad, who has an MBA in healthcare, Cayse Llorens, co-founder and software architect, and Ken Ballard (whom they met at LSM), a 14-year veteran software craftsman, knew their idea was strong. They had a business plan developed, healthcare attorneys involved, and a website. Premium service doesn’t guarantee a premium price tag How easy is it to ask a stranger on the street what they pay out of pocket to see a doctor? Just ask Rashad: “While this was obviously uncomfortable, it was a great experience for me … learning more about what customers expect from our product.” SkinClick had never actually talked to any of their potential costumers face-to-face. While developing the idea months before LSM, the team had their target customer profile. They had assumed that because SkinClick would provide exceptional convenience and privacy, customers would be willing to pay a premium. The idea of charging more than co-pay for a doctor’s visit was invalidated during in-person interviews. Most potential customers were quick to inquire about the cost difference, concluding that they would not pay it. The team realized that they needed to pivot to a service with lower marginal costs. They could only be as “premium” as their customers’ willingness to pay. Iterating toward a more affordable solution Cayse and Rashad had originally built the SkinClick product with a bloated feature list that included video conferencing, geo-location and social networking. Eventually, they got burned out. Fleshing out (or scaling down) the functionality of the product during the LSM workshop helped the team iterate to find the optimal mix of efficiency, convenience and usefulness. Throwing out the original idea of an iPhone App that facilitated the diagnosis and e-prescription of skin conditions, their MVP consisted of an electronic medical record and video conferencing platform by the time they entered the LSM workshop. Using interviews, SkinClick settled on a more customer-centric MVP: “a system for taking cell phone pictures of skin conditions, texting them to our diagnostician and getting an opinion plus links to related articles.” Eliminating real-time communication with the doctor minimized their marginal costs, resulting in a diagnostic product that could compete on both price and convenience with a doctors’ visit. It turned out that their customers didn’t need video conferencing or social components. They were fine with a simple exchange of necessary information with a lower price tag. Post thumbnail by amagill.