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Lessons on Pricing from Menu Engineers

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The behavioral economics behind pricing. Consumers rely on price cues to determine what they're willing to pay for a product. Enter the menu engineers: the people that help restaurants ratchet up revenue by "hacking common flaws in human decision-making," says GigaOm's entrepreneurial columnist Mike Speiser. They use tricks like removing the "$" from prices to make buyers less intimidated, making the prices hard to find so that diners commit to an item before finding out what it cost, and putting something absurdly expensive just to make the rest of the items look cheap. The article tests that theory by comparing the typical Silicon Valley pricing model ($10,000 widget; $20,000 premium widget) with the Menu engineer model ($10,000 silver widget; $20,000 gold widget; $50,000 platinum widget). "My hunch is that most companies could increase revenue by simply adding a very high-end offering, even if they never sell a single one of those expensive units," says Speiser, a managing director at Sutter Hill Ventures. Still need help? Take a look at How Low Can You Go? our guide to pricing in the recession.

Call it "The Real World" for entrepreneurs. For a select group of entrepreneurs, life is about to get a little more cozy. The Boston Globe reports that Polaris Venture Partners, headquartered in Waltham, Massachusetts, will launch a new incubator, complete with "space, connectivity, coffee, and food, in a fun, open environment," free of charge to a handpicked group of ten entrepreneurs. Dubbed Dogpatch Labs Cambridge, the so-called "frat house for geeks," will be the second such experiment Polaris has launched, having previously started a similar space in San Francisco. The tenants are said to come from a variety of fields, with some scheduled to move in as early as this week. Russell Cook, formerly with beRecruited.com, is the first announced resident.

Intuit said to acquire upstart competitor Mint.com. Just a month after raising $14 million in a Series C round that valued the company at $140 million, the online personal finance service Mint has agreed to sell itself to Intuit for $170 million, TechCrunch is reporting. Mint and Intuit's Quicken are competing services, and the two companies engaged in an entertaining spat earlier this year over Mint's claims of astounding user growth. Mint founder and CEO Aaron Patzer, one of our 2008 30 Under 30 honorees, told us last month that the company would most likely not need to raise any more funds. Wonder if this is what he had in mind.

Aptera lobbies for three-wheeler. What, exactly, is an electric car? That's the question at the center of a debate in Washington that could help decide the fate of Aptera, an electric vehicle startup, according to the Wall Street Journal. Aptera, which is based in Vista, California, is working on a three-wheeler that "looks like a cross between a Cessna plane and a tricycle," the Journal says. Aptera had been hoping to take advantage of a loan program for carmakers developing electric cars--so far, Ford, Nissan, and upstart Tesla Motors have been awarded loans--but the Department of Energy ruled that because the Aptera 2e has only three wheels, it wasn't eligible. Aptera--and some of its investors--have lobbied Washington to reconsider and there are bills in the House and Senate that could force the issue. The Journal notes that the issue raises questions over how much support should go to startups rather than well-established companies. So far, Washington has seemed to favor the established players. Ford received a whopping $5.9 billion loan while Tesla received only $465 million.

Community banks to the rescue. Maybe Rahway Savings Bank of New Jersey just didn't want to say no to a man that looks like this, but when Rahway Harley-Davidson dealership owner Tom McTamney needed a lower loan rate his community bank was there to help. This is just one example, according to The Star-Ledger, about how community and regional banks are stepping up lending as many large banks are still cutting back. "Smaller lending institutions continue to make loans to small business, whereas the bigger institutions have not done that in the crisis," Mark Zandi, chief economist for Moody's Economy.com, told the paper.

Corporate exec turns scrappy entrepreneurA former PepsiCo exec, who worked on the company's Naked Juice division after Pepsi acquired the niche natural beverage maker in 2006, has gone solo, launching his own beverage business, Sol Elixirs. The sparkling botanical drink company is relying heavily on bootstrapping and elbow grease. When he travels to trade shows, Lerner stays at friends' houses to save money and squeezes multiple in-store demos with nearby retailers into his itinerary. The business was started with investments from friends and family after Lerner's wife encouraged him to take the entrepreneurial plunge he'd been longing to try since college.

eBay CEO steps behind the camera to learn from eBay sellers. eBay is in the middle of a turnaround effort to develop a more customer-focused organization. As part of that effort, CEO John Donahoe bought a Flip camera and started recording his encounters with the entrepreneurs who sell on eBay to help inform his staff. "Going to these guys' businesses and warehouses has been eye-opening for me, because it's incredible how they make a business out of nothing, really. They find inefficiencies in the supply chain and are able to create businesses around them," Donahoe told The Wall Street Journal. He's already gotten some valuable feedback, such as the the lag time in responding to emails from buyers and sellers who worry about offering free shipping on auction sales before they know an item's price. One video, from Quick Ship Electronics, even made it past the firewall.

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Last updated: Sep 14, 2009




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