Revenue and Pricing Hypothesis Essay Example

Part A

The startup app intends to establish its pricing both on the vendors and consumers end based on theoretical cost analysis and costing process. Based on a revenue streams hypothesis, it is possible to consider the significance of the input of the beauticians in comparison to their costs. Such comparisons are to be made to the income they stand to obtain from being independent with a similar consumer stream. In order to test the hypothesis and create a more practical and market-relevant approach, there emerged the need to interview potential clients and vendors. As such, it would be difficult to establish initial price points without interactions with the customer, which would ease the process of developing ideal pricing and compute expected profit margins.

Interviews of 7 potential clients with respect to the hypotheses resulted in the following responses to the price list. The respondents were majorly positive on the usage of PayPal or credit cards as payment platforms – ideally, since they had used these platforms before in paying for other online services. Beaut-Ease branded product prices were offered, and a number of them responded to having to pay higher prices for high-end beauty services. In this regard, a majority of prices were commended in light of the efficiency that was captured in acquiring them (through delivery and accompanied by services). However, the pricing of products that did not require service accompaniment was pointed out as being above the standard market value by too many price points, and the value of delivery and convenience was not considered to justify the rather high pricing of the products. These included Deep Clean Charcoal Clay Mask and Exotic Exfoliation Body and Facial Scrub CoCo, whose pricing ($30-$50) could not be justified without the provision of accompanying services.

However, on the side of the startup, the cost of establishing services in substitution of the application of clay masks and body and facial scrubs was not justifiable. These beauty treatments are commonly self-served and easy to use and apply. In this regard, setting the price for accompanying service is not ideal due to the inability of Beaut-Ease to incorporate associated service. In response to the inclusion of supplies for the vendors, there were interactions with six respondents, who were assessed in their interest in pricing in response to the proposed price points for service and its delivery to the comfort of the client. The proposed division of revenue from 25% for the startup and 75% for the vendor was deemed suitable by a significant number of respondents, provided that the pricing was suitably above that available for the vendors acting on a private basis. Most of the respondents were confident about the hourly approach to payment as opposed to the standard approach of payment per session of service. The hourly rates are appealing to the standard range beautician, and increases their bottom-line through the reduction of the cost of supplies, and only demanding their skill.

Additionally, the provision of a competitive edge to these service vendors increases their drive towards increasing their work input to enhance their standing and ratings within the app. The professional in this case, in earning a commission for offering services, allows for the enhancement of their brand. The estheticians’ abilities, according to some respondents, should reflect the amount of business they receive, and this is observable in the inclusion of an opportunity for the clients to rate the service. Although most of the respondents’ interests were not aligned with custom pricing, the hypothetical interest expressed a commonly stated question on whether such competitive pricing would result in higher turnaround and customer retention rates. As such, the initial pricing models may require modifications to fit this requirement and allow for the increased interaction of service providers among themselves for better pricing models.

Part B

The following results emerged from considering the revenue hypothesis in light of respondents relevant to the usage of the services or acting as professional beauticians.

Are 70% of users willing to pay a membership fee?

Professionals logging onto the platform as service providers are willing to pay a membership fee, with a majority of them preferred that the amount be annual and justifiable within the expected returns. Of the respondents, 80% were comfortable with a membership fee contingent on their gaining from payment of such fee within the guarantee of gaining a similar amount in less than a month of serving within the platform. The rationale behind this interest is to safeguard the service providers from paying a redundant fee that would not benefit them. In addition, these professionals may require the justification of the price of membership on a less frequent basis, especially since they submit 25% of revenue on a consistent basis to the service in exchange for clients. Additionally, it is arguable that the payment of a membership fee would increase the responsibility of the professionals to committing to service provision in the interests of the app as opposed to the risk-free operation that would be damaging to other members. A similar requirement, therefore, captured the willingness of the users to pay the fee to make a commitment to the service provision process.

Would 80% of customers be willing to download the free app?

All the respondents interviewed were ready to download the free app given that all emergent charges were only for the provision of services. Their response was justified by their interest in exploring and testing the convenience on offer from the app, and with the app being free, they were won over. More than half of the respondents expressed interest in comparing the prices on offer from the free app to their current spending on independent service providers and contractors. However, not all these customers expressed their interest in sampling the quality of services if the pricing of such service could not be justified by convenience against their competition. It would, therefore, be suitable to pivot the pitch for the consumers to a cost-friendly approach in initial pricing, ideally to convince the users on the level of quality of the services. However, the free app would motivate increased downloading and testing of the services by potential clients.

Are 50% of customers willing to purchase products from the Beaut-Ease Skin Care Line?

From the respondents willing to download the free app, only 40% were already willing to buy products on the app without any kind of guarantee on quality. This limits the level of business that the startup expects in the initial stages. However, there are opportunities to motivate purchasing, with initial offers for the users, where the motivation for consumption would increase with an established clientele base (Bates & Robb, 2014). Additionally, this initial reluctance to purchase from the app may be eased by offering attractive pricing in the initial setting to promote purchases. In the overall sense, this reluctance emerges from the unfamiliarity of the users with this form of service and product delivery.

Part C

Revenue Streams

100% of income will come from payments facilitated by PayPal and major credit cards when the service sales are paid online by customers. This absolute approach to payment is in the response of clients in fully proffering these methods, especially since they have used them before on other online purchases and service interactions. These platforms are an attempt to eliminate cash-based payment which would shortchange the startup. Additionally, the proposed platforms offer secure payment options that can be liaised with to facilitate eased payment options with free transactions for the clients.

10% of income comes from Beaut-Ease Skin Care products (scrubs and masks) available for online purchase and beauty service upsells. This hypothetical stance is retained due to its suitability to the business model provided by the service providers and the preferences of the clients. As such, 10% is deemed suitable for service upsells and online purchases.

7.5% of income comes from membership fees and registration fees of beauty service employees. The increase in the percentage demanded from the professionals is captured in their initial interest in joining the platform and enhancing their bottom line. As such, it is possible to take a larger percentage of the income from the initial fees, which will facilitate the setting up of services for the benefits of these beauty service employees. Also, it makes it easier to engage the demands of the employees in aligning pricing indices to the preferences of the clients and end-users.

Free download for customers to access Beaut-Ease Travelling Service Mobile App. This hypothesis is maintained due to the advantages it presents to the startup in introducing the services to the users and increasing their interest in recognizing the services on offer and the pricing. However, the free download requires being coupled with a similarly attractive pricing approach from which the users are motivated to try out the products and services on offer (Jelfs & Thomson, 2016). With the responses from the clients regarding buying new products without motivation, there emerges the need to market the products using pricing that is competitive. This can then be coupled with the selling point of the service, which is convenient for the client at similar pricing.

Part D

App Developers and Associated Services

Q: What timelines can be expected in maintenance and system setting up processes?

A: The development can be completed within six weeks, with the flexibility of up to two weeks to complete the process.

Q: What charges are on offer in the initial startup days?

A: Development will cost $3500 for setting up, $1000 for initial modifications and maintenance operations.

Q: What credit options exist for service provision from the developers?

A: The developers have credit options of up to 50% financing of the development over a period of six months.

Investors

Q: What timelines are required from the investor for the initial return on investment?

A: The investors will offer a grace period of 6 months for the initial response for returns on investment for a period spanning up to two years.

Q: How well can credit be stretched to fulfill financial requirements from the company?

A: Credit facilities will be offered, with a line of credit of up to $10,000 for furthering the initial setting up of the app and establishment of inventory for the testing phase.

Q: What is the ideal credit interest does the investor possess?

A: The most suitable credit interest would be capped at 10%, with an associated reducing balance on the line of credit. It would mean that a reducing value of interest would be offered with the picking of the business.

 

References

Bates, T., & Robb, A. (2014). Small-business viability in America’s urban minority communities. Urban Studies, 51(13), 2844-2862. http://dx.doi.org/10.1177/0042098013514462

Jelfs, A., & Thomson, H. (2016). Marketing small and medium sized enterprises in the digital age: Opportunities and challenges. Teaching Business & Economics, 20(1), 4-7.

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