Congratulations! You have built this awesome company. You have products and services, and now you want to price them. The pros discuss the constructs of cost-based pricing and value-based pricing: “Value-based pricing is the setting of a product or service’s price based on the benefits it provides to consumers. By contrast, cost-plus pricing is based on the amount of money it takes to produce the product”. Deciding the model to adopt for the optimal value creation, in your startup, is the next level as you fix the launch date.

You possibly have some marketing guys to assist. Marketing is a great profession. The bests in the field understand how to present their product offerings to customers to get them  to open their wallets. Irrespective of the quality of the product or service, a very poor marketing campaign could be very disastrous. This field is full of psychology. They focus on mastering the behavior of man under his limited scarce resources. He must make choices and bring that concept of opportunity cost in action; and making sure your product wins in this choice makes a star marketer.

The Pricing Options

The best marketing strategy begins with pricing. Pricing is such a very huge aspect of microeconomics and the all important topic of demand and supply. Depending on products and markets, a manufacturer could go with value-based pricing or cost-based pricing. In most cases, I prefer the former as the seller could win big provided he understands the potential customers very well.

Under value-basing pricing, you are examining the ability of the customer to pay, focusing on the value you are creating for the customer. So, it opens the door to super high profits or possible losses just to keep your market share. For instance, you want to introduce a new brand in a market and your feasibility studies show that your customers cannot pay more than a certain amount that will enable you to break even. Yet, you move ahead because presence in that market provides future prospects for growth and profitability.

Pharmaceutical companies do that a lot when they are moving into developing economies. The prices they ask for their products are aligned with the power of the patients to pay than what the products cost them. Through that, they increase market share as more patients buy their products. This implies that a drug that sells $200 in Florida could be sold for $50 in Botswana by the same company. Simply, it is using the purchasing power of the market to drive the marketing dynamics.

The other one- cost based pricing- looks at setting price that will give you a certain profit level. You look at your fixed and variable costs and based on those arrive on the price of the product. This method may not be ideal in most cases and I think it is a weaker strategy. Marketing is a behavioral science and having rigidity could hurt you in the market. It is better to know your break even point and possibly ascertain if you can take advantage of the purchasing power of your customers.

In a commodity market where differentiation is very limited, cost-based pricing could win. Irrespective of your pricing technique, it is vital you know your production cost before you map how to market your products. Some markets command great mark-ups while some do not. If your product is elastic, you must approach the market, understanding the behavior of price to your customers.

Similarly, for high entry barrier markets like pharmaceuticals, cost-based pricing will never win. The products are so important that consumers rarely have choices than to buy within the industry. That is why the Big Pharma could make profits in excess of 2000%.

The Pricing Psychology

First, you need to examine how you actually get to buy things. Marketers work our brain. Look at it this way with basic examples. You visit a grocery store and see a big markdown in price; say 60% off. The reality is that there may not be a markdown. The seller simply understands that you will think of a bargain when you see big markdowns and then open your wallets.

In short the propensity to pay $20 for a trouser after the original price was marked down by 80% is higher than paying $18 for a similar trouser without a markdown. The latter does not communicate winning in our brain, while the former gives a feeling of success and win. But in reality, you lost, financially, in the former by $2. Have you ever wondered why a grocer is stocking a product for the first time and immediately marking it down by 30%? They also try to give a relative time stamped pricing like “was $200, now $50” or they yanked a product very high, mark it down immediately and use that old price to give an impression that price was cut.

That brings another point where some airlines will tell you that bags could be transported free and then charge high ticket fees to cover that cost of bag. Others will charge for bags, but their ticket fees are lower. Which one is better? It depends if you carry checked bags when you travel. The one that charges for bags could be more efficient as the price is not shared by all customers. So if you carry checked bag, you pay for it; otherwise, no worries. The other one distributes and subsidies the costs of the bags for those that carry bags and then make ticket fees more expensive for those that don’t. However, you may be stuck with the theme that your bags were not paid in one without realizing that your ticket fee was higher.

Psychology of pricing is in everything we do. Government, especially in U.S., wants our taxes to be withheld and then at the end of the year, they send us tax refunds. Though this is really a very inefficient system to us, the payers, since the government is not paying interest on the money we have “loaned” it, we tend to think we made a gain. Simply, any time you get a tax refund (i.e. if you overpaid your taxes, not for social benefits), it means you have not invested your money very well. You gave government free loan accumulated over one year; that money might have yielded some interests if invested. But what can you do? Nothing, because it is government and in most cases, it can be designed to look like government just did you a great deal while in reality they used your money for free and not paying any interest.

Your Strategy

Pricing is very important and making customers to feel like winners is very important. If you know how to do that, you will have a great product launch. That is why understanding your customer matters. If you do not understand them, you will be leaving money on the table. If your business is selling digital products, the best strategy is value-based pricing since cost-based model does not make a lot of sense: in a perfect market, the marginal cost of a digital product, under most scenarios, is zero. I am confident you will not give out the product for free, unless your business model is freemium, since theoretically the price should be zero.

All Together

A startup must invest efforts to understand its customers towards having the optimal pricing strategy. You cannot afford to leave money on the table by pricing timidly. The ability to ascertain value created by your company is the foundation that will help you model how much customers will pay while considering many other factors like growth, product penetration and competition. As always, it is easier to reduce price than to raise it, in a digital product, especially when you do not have a highly differentiated product. This means you may begin high, and after checking the market dynamics, you will adjust accordingly. You must make pricing a science.

Flutterwave is exciting, not just for its vision, but also for the speed it is pursuing it. The firm provides technology, infrastructure and services  which help global merchants, payment service providers and African banks process and accept payments on any channel  including web, ATM, POS and mobile. It simplifies the process of managing the African problem – many small nation borders – by building infrastructure for modern trade. From outside looking in, Flutterwave connects the world to Africa, and from inside Africa looking out to the world, Flutterwave can power unbounded opportunities, smoothing the exchange of funds in excess of 150 currencies.

Flutterwave was founded in May 2016 by a team of African ex-bankers, engineers and entrepreneurs. Flutterwave’s award-winning payments infrastructure for banks and businesses helps to drive their growth across Africa. In just over a year since its launch, Flutterwave’s technology has been responsible for processing over $1.2 billion dollars across 10 million transactions. Headquartered in San Francisco with offices in Lagos, Nairobi, Accra, Johannesburg, the company is eliminating barriers to the digital economy for African consumers and businesses.

The company is still a toddler – just about a year old – but it already has a history. It is indeed one of the finest startups operating in Africa today. If it succeeds in its mission, it will be a key entity in modern Africa with the capacity to drive trade drivers in the continent and beyond. Payment business is about the movement of funds and anyone that does that efficiently will be rewarded.

The world believes Flutterwave. It just raised $10 million for “rapid expansion”.

Greycroft Partners and Green Visor have led a Series A funding round of over $10 million in Flutterwave. They will be investing alongside existing investors like Y Combinator and new investors like Glynn Capital. The new capital will be used to hire more talent, build out our global operations and fuel rapid expansion of our organization across Africa.

Make no mistake, Flutterwave Managing Director and co-Founder Iyinoluwa Aboyeji and his team are on a mission. They have a war chest of about $10.17 million, from four funding rounds, to battle in the African payment sector . This battle will be across Africa because other fintechs and local banks understand the competitive implications and  their possible existential threats.

The Vision: A Single African Currency

Flutterwave wants to build the real African currency. Sure, it is not a currency in the typical way, with the heads of dead presidents. It is a currency in the sense that commerce can happen within a system that simplifies the movement of funds, agnostic of location and time, across Africa. In other words, making sure that transfer of funds from one part of Africa to another will be so seamlessly done that a man in Cape Town sending money to another man in Lagos will have the same level of friction as though he is sending that money to a woman in Johannesburg. Most friction will be gone, with technology hiding all of them from the users. And when the merchants in Paris, London and New York see Africa, they will see one system – the Flutterwave system. The system becomes the currency of trade because it will be irrelevant where your bank bank is domiciled within Africa. You can pay a man in Cedi in his Accra bank account from a  Nigerian naira bank account, in Lagos, and you will not even blink, provided both accounts are in Flutterwave ecosystem.

Once that happens, reducing the constructs of Rand, Naira, Cedi, etc into the background, what will matter is if a merchant, consumer or business is connected into Flutterwave. You can sell to someone in Ghana from Nigeria and he pays you in Cedi but the money shows in your bank account in Naira, in real-time. All the regulatory, cross-border issues, are all complied with, but importantly invisible to you.

There is no ambiguity on this vision, if you read carefully the press release: “Flutterwave’s global payments solutions will make it easier for Africans to participate in the digital economy so you can make and accept payments for whatever you want, in whatever currency or payment method you want, across the globe.”

The Laurels

Flutterwave is a beacon of excellence. For just about a year, this company has built a top-grade technology business that executes at high level. When you mix technology and efficiency, at scale, solving a huge problem, great things happen. For all the Africa-focused Y Combinator alumni, Flutterwave is already one of the great stories. It will open doors that will help on how the world sees new generation of African entrepreneurs. I am so happy that our Iyin is driving this. He has validated many young people before the world, beyond what any conference, promoting Nigerian entrepreneurs, will do in the next few years. And when you know that this young man is just starting, you will be marveled.

The key win for Flutterwave will be becoming the entity of choice at scale in the continent. It may become a very important banking institution even though it is not a bank. The consequence could be huge across African banking markets. The disruptive impacts of simplifying payments especially from the lens of foreign corporation cannot be underestimated. Apple can decide to open a one-African store where all currencies across the continent are accepted; Flutterwave will be a natural partner to it. From Spotify to Netflix, they will see huge value in this firm. There is no need of playing dozens of currencies when one can handle most things efficiently.

Over a year ago today, we founded Flutterwave to build underlying payments infrastructure for African businesses to accept card, mobile money, and bank account payments in a single place. Without this payments infrastructure it was impossible for African businesses to scale acceptance of digital payments.

The Numbers

Good numbers make entrepreneurs good presenters. Flutterwave has processed a total of $1.5 billion worth of translations since founding. This number, I expect, will triple by next year, because they generated it in just few of the countries. When they scale with this new war chest of $10 million, they can put many more things in their views.

Source: Flutterwave

The Challenge Ahead

Flutterwave has solid engineering. But others will not just wait for it to eat their lunch. I expect the local banks and other competitors like Paystack, Interswitch, Remita and amalgam of Kenyan and South African companies to prepare for battle. Unlike most competitors, Flutterwave is pursuing a pan-African strategy from day one and that is what makes it extremely disruptive. Once it achieves network effect, the rest will be history. The local competitors may see increasingly high level of defection because it will create more value with more people in its ecosystem.

Flutterwave must win the battles against competitors and those that will come via technology including blockchain/bitcoin-enabled variants. But looking at it, if there is any firm that can scale the competition, I expect it to be among the league.

The Sound of Exit

Flutterwave will be acquired within the next five years. The trajectory is very obvious. Once they fix the African payment infrastructure challenge, they will depart. How? The people funding it are the same people that funded Stripe, Xoom, etc

The next chapter for us at Flutterwave is building a global payments technology company that changes how the world does business with Africa. This is why we have partnered with Greycroft, Green Visor, Glynn Capital and Y Combinator?—?the same teams that helped fund and build global payments giants like Braintree, Stripe, Xoom, Square and Visa.

If you are an investor, the best way to create more value is to connect the firm with others. I expect Stripe to be the company that will acquire Flutterwave.

All Together

Flutterwave is amazing and it is a new generation company which will do so much good for the continent. By removing the friction that exists in payment, African companies will have expanded markets. Similarly, global merchants can reach us more efficiently. How everyone wishes Flutterwave is a Lagos business instead of the beautiful America owing another good one, to forever enjoy the taxes, this firm will generate. That is the Nigerian burden, which must be fixed. It remains easier to build a business with this scale of vision from America. And that is why it is operating from there. Iyin said it clearly when CNN asked him why San Francisco, he responded: “We’re trying to connect Africa to the digital economy — there’s no other place that exemplifies the digital economy than San Francisco.”. Irrespective of location, we celebrate Flutterwave for scaling brilliance.