Good Morning Operators!

I’m really excited about this week - this is one of the most exciting times of the year with GROW LA, SXSW, Expo West and Shoptalk all happening at basically the same time. I’m in Austin for SXSW this week (I wrote most of this on the flight over 🙂 ) and am praying that the weather gods give Austin good weather this week. If you’re going to SXSW, feel free to give me a shout! Before we get into today’s content, I want to share a quick note from our sponsors at Nostra.

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Price as a Growth Lever:

Many Founders and Operators are pinching and squeezing different parts of their business to find extra money in today’s environment - this is especially prevalent in consumer goods where SaaS firms and marketplaces are changing their fee structure in a way that squeezes margin (e.g. Amazon). So where does that leave us? How do we make more money while maintaining or improving profitability and EBITDA?

You could test a million new creatives, try a hundred different influencer and community activations in an effort to go viral, launch new products, or send a letter in a bottle to the ecomm gods in the hopes that they might ‘magically” 2-3x your AoV and repeat purchase rate overnight. 

Here’s what happened when I tried that tactic last year:

Fortunately, my message made it into the hands of one of the Ecomm Gods:

Alternatively, you could get back to basics; How do we get the customers who buy from us to buy more stuff when they make their first purchase? How do we get customers we acquired once to transact with us multiple times ? There are many answers to this - better email  + SMS flow, using an app, and countless other tactics that are made easier by the Shopify SaaS ecosystem.

OR, before you start investing in SaaS, you could look inside the fundamentals of your business - specifically your pricing strategy. The way you price different products can have a profound impact on your ability to generate profit. To be clear, this doesn’t simply mean “charge higher prices”, though that is one consideration you can make. I.e. How much more money would I make if I charged 10% more? 

In general however, brands that have a winning pricing strategy actually don’t try to compete on price. They compete on value. This means that they generate more LTV out of their customers by increasing perceived value of what they’re offering, which allows these brands to get customers to spend more because of the value they’re getting in return. There are 3 pricing frameworks I’ve noticed consistently (though this is not an exhaustive list). I’m only going to dive into 2 of them today so that #3 gets sufficient air time in a standalone newsletter post.

Turning Money into more money: Tactical Guide for Pricing Strategy

1) Everything tastes better when it’s free: AKA “Gift with Purchase”

The “gift with purchase” promotion is one of the oldest tricks in the book in the world of retail. The success driver (from a profitability POV) lies within the pricing strategy, which is what I’ll focus on in this example. 

I’m not a Lily Pulitzer customer, but their current “gift with purchase” promotion that they’re running is an excellent example of strong pricing execution where there is disproportionate value delivered to the customer at the higher AoV points.

Why this (probably) works: Dresses at LP typically range from around $150 to $500, which means that to unlock a “somewhat” proportionate “free gift” value with their purchase, a customer has to spend at least $300. What this ends up creating for shoppers is a FOMO feeling where they feel compelled to spend more to get more value because of the better “free gifts” . The “magic” of making this work is structuring your prices in a way that the customer can’t simply spend barely over the minimum amount to qualify for the “free gift” (especially for the lower tiers in a tiered promotion, like in this example).

2) “More is More” - LTV - Based Pricing

Two ways that LTV-Based pricing puts more $$ in your pocket: 

A) It gets your customers to commit to spending more money with you up front, which increases the likelihood of them coming back to buy from you again 

B) It gets them to use/consume more of your product, which also increases the likelihood of them coming back for future purchases. 

It also gives you more insight into your different customer segments, but that’s not where we’re going to focus today. 

A great example of this from out in the wild is from True Classic tees with their pack builder.

More Spend = More Value:The more you purchase, the more value you get. Spending more unlocks lower prices per shirt. So even though you’re spending more money, you feel like you’re getting a better price. Also notice how you see the per unit price and how that’s emphasized. A $14 tee shirt feels a lot more reasonable than $130 for a bunch of tee shirts. When they show the total price at the bottom, its conveyed as a discount and the per-shirt price is displayed again 

What’s (probably)  going on under the curtain:(If I were Ben @ True Classic)

• I am assuming that repeat purchase rates and LTV are strongly correlated to first purchase AoV. I.e. the higher their first purchase AoV is, the higher their  LTV & Repeat purchase rate are. In True Classic’s case, because they typically break even on acquisition, getting those acquired customers to come back is especially critical.

Category POV: This approach makes a ton of sense in apparel, where consumers tend to be more loyal to brands they know and love. If a brand makes a great pair of shoes that are comfortable & fashionable, you’re more likely to consider purchasing other products they make. 

True classic does this really well with their in-cart upsells (h/t to Nik for pointing this out on Limited Supply a while back).

Let’s a look:

Pricing games don’t end with the Pack builder. Notice the gamification at play here: The green progress bar stimulates excitement around the value of spending more $ by telling the customer “You’re SO CLOSE” to unlocking the next “free” item. 

“Screw it, might as well spend more to get the free item” : Another important note, when you go to their “sale” page, it is literally impossible to only spend the $20.02 needed to unlock the “free” boxer brief, so they end up increasing AoV significantly through cleverly marrying their bundled pricing to their in-cart upsell strategy. At that point, you might as well spend enough to get the $200 free long sleeve, and even then you are still spending at least $230 before taxes. ( note the “Classic 3 pack” doesn’t quite get you there as it’s $59.99

Why this works:

The reason this works brilliantly isn’t just because True classic has great marketing. They are brilliant at structuring their pricing in such a way that they incentivize HIGHER AoVs which mean = better margins, and can help drive higher repeat purchase rates and larger LTVs… which means for the roughly the same $X they spent to acquire you, they’re effectively almost doubling their profit on the first order (Making assumptions about their unit economics here - more on this in the third tactic, to be covered in the next newsletter)

That’s all for today my friends! I have been having a blast at SXSW so far and can’t wait to share some of what I learned in future newsletter posts. If you’re a cool cat and are heading to Expo West or Shoptalk, make sure you say hi to a few of my friends - S/o to Nate + Jess (who have an awesome expo west event planned). 

Cheers, 

Zach