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Growth Hacks From Instacart, How to Price Your Early B2B Product - Tactician: #00105

Growth Hacks From Instacart’s Head of Growth

Author

Alexander Lowell Small
April 24, 2024

Instacart’s growth hacks are so good, they make me paranoid.

'How did you know I needed more coffee?

Are you watching me?

…Or is my coffee pot texting you behind my back?'

Growth Hacks From Instacart

Why Read:

  • Gain valuable insights on acquiring initial customers, optimizing conversion funnels, incentivizing referrals, and building geographic word-of-mouth.

Featuring:

Key Concepts and Tactics:

  • Getting scrappy is the best way to find initial customers.

    • "Before product market fit you should be doing whatever you can to get those initial users. There's no Playbook, no techniques. Go out on the street and find people. Go to your network. Do whatever you can to get those initial users up because nothing else will really work."

  • Finding users who tell their friends about your product is a critical signal and growth channel. 

    • "There are no great products in the world that don't have phenomenal word of mouth. People telling their friends about a product is always the number one growth channel that you can have and it's the foundation for everything."

  • Optimise conversion funnels relentlessly to improve signups/activation. 

    • "Any sequence of steps that a user has to go through to take an action that you care about, could be signing up, could be depositing money in, could be placing a grocery order on Instacart, ordering a ride… any kind of sequence of steps that they go through you should be collecting all the data you can about how folks are flowing through that sequence of steps and generating tons of ideas in terms of optimizing that process."

  • Give users incentives to invite friends, but it's more important to create dynamics where they brag to friends. 

    • "The more people you referred to Instacart that went on to place orders, you got a discount off your next order, or your series of orders. These things definitely work. They don't work as well as building something viral into your product to begin with or creating dynamics where I could brag about this thing."

  • Build awareness through geographic word-of-mouth by concentrating initial expansion. 

    • "As soon as we launched the city center all the zip codes that surrounded the city center were suddenly a lot more interested and getting Instacart...we changed our strategy and launch in the city center and then just rapidly expand in the circle."

How to Price Your Early B2B Product

  • Why Read:

    • Learn key insights on early-stage pricing strategy, understanding customer value, price anchors, and the value of keeping pricing simple.

  • Featuring:

Key Concepts and Tactics:

  • The binary nature of early-stage pricing: 

    • Point: Early on, focus on getting customers to pay anything rather than optimizing the price, as a sign of solution desirability. 

    • "At the earliest stages, your price doesn't matter. As your startup evolves and scales you're going to change pricing a lot. If a customer is willing to pay $1, it's significantly better than $0. That's what I mean by 'pricing is binary'. Convincing people to pay for anything is a big deal, the amount itself is not super important. Charging people money early on isn't a sign that you have a functioning business model with strong economics, it's a sign that people want your solution (i.e. you're using price as a validation of desirability)."

  • Avoiding direct pricing questions and focusing on value: 

    • Point: Instead of asking customers what they would pay, focus on understanding their current spending and how they evaluate the solution's ROI. 

    • "'How much would you pay for this solution?' is a bad question. It puts people on the spot and doesn't give them anything to react to. If they give you a number, you won't know why, and asking, 'Why would you pay that?' is awkward. Instead, ask questions such as: 'What are you currently spending to solve this problem?' or, 'How would you evaluate the ROI of this solution?' That second question focuses more on value creation than locking in a specific price. Understanding how customers determine value will help you figure out pricing."

  • Understanding and communicating the value proposition: 

    • Point: Clearly articulate a value proposition that resonates with customers and addresses their acute pain points. 

    • "If you can't articulate a clear value proposition that resonates with customers, you'll never figure out pricing. Your customers don't care about your costs. So costs + margin doesn't work. And customers simply will not buy unless the value is obvious and matters to them. In fact, before you figure out the price, you have to figure out where your solution sits in a long list of their priorities. If you're solving a 'nice-to-have' problem that's not burning a hole in your customers' brains, they'll want to pay less (if anything at all)."

  • Recognizing customer price anchors and comparisons: 

    • Point: Identify what customers are using as anchors or comparisons for your pricing, such as competitors, similar software, ROI equations, and price scaling. 

    • "People use a few different things to compare or anchor pricing: Competition, similar software (solving different problems), ROI equations, and how your price scales. Your job is to figure out what people are anchoring your pricing against. You do so by talking to them. You have to learn: How they perceive your product and the value it'll create, how they make purchasing decisions, and how they compare your product to competitors (or other 'similar' products)."

  • Understanding customer budgeting and purchasing processes: 

    • Point: Gain a deep understanding of your ideal customer profile (ICP), their priorities, budgeting, and purchasing processes to inform pricing and go-to-market strategies. 

    • "Nothing matters more than knowing your ideal client profile (ICP), what they're prioritizing, how they buy and how they budget / spend money. A few key things to consider: If you have a long sales cycle, you can't charge a low amount. If your go-to-market strategy requires salespeople, it impacts the price. If your product requires multiple customer stakeholders to get involved in the sales process, you can't charge too little (b/c this will naturally increase the length of the sales cycle)."

  • Validating willingness to pay before implementing free trials or freemium: 

    • Point: Gauge customers' willingness to pay before offering free trials or freemium options to ensure a path to conversion. 

    • "Regardless of the approach you take, I recommend gauging customers' willingness to pay first. Can you validate they'll pay before you implement a free trial or freemium option? If you launch with a free trial, generate decent fanfare, but don't convert anyone, you're in trouble. 😰 If you validate people will pay first, then decide a free trial is the best way to drive adoption, with confidence people will convert, you've got a chance. 😉"

  • Keeping pricing simple and avoiding overcomplication: 

    • Point: Start with simple pricing structures and avoid innovating too much on pricing models early on. 

    • "Early on, keep pricing simple. During a customer interview, you might only present one price. Then test different prices with different customers. Early on, your job isn't to maximize revenue per customer or design the perfect pricing model—it's to get anyone to pay anything for what you're selling. Ideally the 'anyone' becomes a clear and precise ICP, so you can repeatably find and convert them. Ideally the 'pay anything' becomes a profitable price point that expands naturally as product usage/stickiness increases. But at the start, use basic methods (customer interviews, competitor pricing, price anchoring) to figure out what to charge."

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