In the previous article here, we started with the introduction of how the marketplace is a play of engines, we discussed the two primary engines — The acquisition engine and the conversion engine.

In this article, we will introduce the other two engines of the growth engine — The pricing engine and the incentive engine. They both go hand in hand but serve two different purposes — one is to extract the maximum willingness to pay from the user, while the other one offers a bridge to cover the gap between the perceived value and the perceived price of the product.

Pricing Engine — As we have discussed in my previous articles (Read here Monetization: Price is right — Monetization strategy), the real product-market fit sits at the intersection of product, market, and pricing. This is where the pricing engine comes into the picture.

The pricing engine extracts a part of the inherent value of the product that the transaction would add to the users. This is explained through the pricing thermometer below.

Incentive Engine — Sometimes, you will find a few users that have less internal motivation than what your price point suggests or their perceived price due to external factors is greater than the inherent pricing — while you could certainly employ personalized pricing or differential pricing but behavioral psychology says that users feel happier and are more inclined to convert when they feel that they are able to get a lower price than the other users and that the company/product values their relationship. This is where the incentive strategy comes into the picture. By incentivizing a few users through right and timely discounts, you can bridge the gap between the internal motivation and the price point at which the pricing engine prices the product.

The objective of the incentive engine is to nudge the users with some external motivation to help them through the funnel.

That completes our discussion of various engines. So here is a summary of our demand engine

1. How to find the right users — Perennial problem of an acquisition engine (Metric: CAC)
2. How to capture the intent by removing any friction — CRO (Metric: Some funnel metric DAU to purchase)
3. How to nudge by using an external incentive — Incentive design (Metric: CAC)

In short, marketplace efficiency is all about understanding the ‘User Intent’.

No wonder best growth teams spend a considerable amount of time to understand their users and their intent. The better we understand the intent, the better will be the product that can serve the users.

As we know, the chain is only as strong as its weakest link. This is true for the marketplace — an inefficiency in one engine will lead to inefficiency of the whole engine. In the next article, we will discuss what happens when one of the engines is not efficient. Until then keep learning, keep growing.

Why do I write on medium? I write not to teach but to share everything that I know. When I started in the product, I did not find much content, my objective is to share all that I learned and in the process learn and grow with the community. So if you have any questions, or if you want to share something, do not hesitate to reach out to me on Linkedin If you want to see what else we are doing at growthclap, please click here

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Read our other articles on Product Leadership, Product Growth, Pricing & Monetization strategy, and AI/ML here.

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