What people pay for something is determined by its perceived alternatives.

a 🧵
1/ It’s hard for people to know how much they should be paying for a particular product.

Evolution has trained us to be skeptical of strangers’ claims.

invertedpassion.com/evolution-expl…
2/ By default, people will always feel they’re getting ripped off.

invertedpassion.com/people-evaluat…
3/ So, instead of evaluating rationally, people resort to their gut feeling, which is informed by the perceived alternatives for the offering.

Hence, the positioning of a product becomes the main criteria by much price is judged by people.
4/ But it’s also the other way around.

Especially for new brands, price serves as an anchor to the customer for deciding which category to slot the product in.

For example, the price of a newly launched car slots it either in the luxury or the mid-range or the budget market.
5/ It matters less if the car is actually luxury or not, but if the price of the car is similar to Mercedes or BMW, the expectations of the consumer and their willingness to pay will be similar to Mercedes or BMW.
6/ This suggests that no one company has the leverage to charge whatever it wants to.

Customer expectations for the right price for a product are guided by what alternatives are available in the market and how much do those things cost.
7/ Startups have no option but to play within the market of perceived alternatives and charge similar to what those alternatives are charging.
8/ e.g. Internet has made consumers habituated to free news, information, and videos. A startup that wants to charge for information has an uphill battle because, in the minds of consumers, the price of info is close to nil (even though the value they get from such info is high)
9/ So, value pricing doesn’t work out – water is valuable but people don’t pay a lot for it (because a lot of it is available)
10/ This is also why a lower price is not always better.

When products offered are too cheap, they send a signal about quality.
11/ Especially in enterprises where they’re used to purchasing software and services worth many thousands of dollars, a product that’s only priced a few dollars is perceived to be meant for small businesses and not enterprises.
12/ So, price your products not based on the value you’re providing but what your target customers are used to paying for offerings closest in their minds to your offering.
13/ This also means that through right messaging and positioning an entrepreneur has an opportunity to influence what customers compare the offering to and hence what he is able to charge.
14/ For example, if you’re launching an information product, don’t call it a report and have customers compare it to freely available info on the internet.

Position it as consulting and customers will be able to pay dearly for it.
15/ Remember 🧠

don’t price your product based on the value it creates, price it based on products you want it to be compared with
16/ That's it!

I'm posting ~1 new mental model for entrepreneurs every week.

Here's the entire list of 60+ mental models that I'll cover: invertedpassion.com/free-book-ment…

Make sure you sign up for email updates on the book page.

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More from @paraschopra

8 Nov
Generating profit requires creativity.

a 🧵
1/ Businesses don’t exist to make revenue, they exist to make profits.

But the lure of revenue is hard to resist.
2/ It’s natural to admire the billions of dollars that big US retailers such as Guess, Macy’s, Radioshack and Toys R Us generate every year but it’s difficult to digest that they are in terrible shape because they’re not making any profit.
Read 20 tweets
7 Nov
It shouldn’t be surprising that our fundamental reality is describable using mathematics.

A mini 🧵
1/ Maths is like English, but with far fewer degrees of freedom.

e.g. “We want to move forward with this” can mean so many things, while Area of circle = pi * r ^ 2 in zero curvature manifolds means only one thing.

Math is a language you use when you want to be precise.
2/ In theory, I can imagine that a large part of our everyday language can also be systemised into math.

Analytic philosophy traditions did exactly that.

So math is a language where you make it explicitly what exactly do you mean.
Read 13 tweets
2 Nov
We have 26 constants of nature whose value we need to feed into our scientific theories to get predictions about everything else.

The key question is: will their values emerge from a deeper theory or if they’re simply randomly initialised in our universe? Image
The fact we exist depends a lot on what value these constants take (e.g. mass of electron), so it’s hard to digest that they’re randomly initialised to lucky values.

Our universe can’t be fine tuned.
But they could very well take on random values across a much bigger multiverse and hence we’ll always find them to be lucky in a universe we live in.

This possibility of multiverse is unnerving.

If all values and laws exist, physics becomes geography - the study of our region.
Read 4 tweets
27 Oct
Thanks to new sponsors, we're awarding grants to three more winners who want to:

- Train underprivileged kids in 🏉 Rugby
- Starting a school for kids suffering from ⚧️ gender dysphoria (first-of-its-kind in India)
- Supporting 🥻handloom artists from Odhisa

Total 9 winners now
1/ Saif Ullah Khan wants to train underprivileged kids in 🏉 Rugby.

With this money, he'll be able to not buy equipment for them and hopefully not just make the kids stronger but give them meaning and character.

This grant is sponsored by an anonymous person.
2/ Niwas Sathi will start the first-of-its-kind school for kids who've suffered from ⚧️ gender dysphoria.

Hopefully, this grant of Rs 50k will give the startup capital for his dream and eventually this school becomes a permanent institution.

This grant is sponsored by @ritishri
Read 5 tweets
26 Oct
Marketing needs to deliver more than it asks.

a 🧵
1/ If you prefer reading this in a blog format instead:

invertedpassion.com/marketing-need…

The thread continues below ⬇️
2/ There’s typically an information asymmetry between what sellers know about their products and what buyers know.
Read 24 tweets
21 Oct
🎉🎉Announcing September winners of the Gaur & Chopra Escape Velocity Grants.

Their ambitions include:
• Building a self-driving 🚗 car for India
• Being 1st Indian woman to win 🥇 Olympic gold
• Making 🧪 science videos in Kannada

Total seven winners. Profiles below 👇
1/ I and @sia_steel started giving a no-strings-attached grant of Rs 50k to ambitious people under 25 for whom this money can change their life.

We started 3 months back and so far, we've awarded this to 18 people.

If you're young, please apply here: invertedpassion.com/escape-velocit…
2/ Winners for this month:

🚗 Sainadh Chityala wants to build a self-driving car for Indian roads.

He's passionate about physics and writes a publication about tech and its role in the future of human civilization: semisentient.medium.com
Read 9 tweets

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