At the August 2012 meetup for SF StartUP ProductTalks we were lucky enough to have Mark Stiving speaking about product pricing. Bloody brilliant talk, I thoroughly enjoyed this months meetup!
You want simple pricing if you have few competitors. If you are in a really competitive market you want to make the pricing complex to prevent customers shopping on price.
See? Nuggets of awesome. Check out the video and follow along with the notes below.
What is pricing?
Pricing is powerful.
If you have a 1% improvement in pricing at a large company you can improve profitability by 10%.
Pricing is grading your product development.
Pricing is secret. We never want to tell our customers the best price we sold the product at to another customer. The only think we make public are the high prices.
Pricing is dynamic. Why set a price and only revisit every several years?
Pricing is information.
When you go in to a wine shop and you want to buy a bottle of wine for dinner at a friends you will use the price to determine what you buy.
Pricing is risky. Get it wrong and can hit profitability. Do you want to take that risk?
Pricing is all of these things and more. We can capture it in one simple phrase…
Pricing Captures Value
Cost Plus Pricing is not the way to price. We always want to think about pricing in terms of how much our customers are willing to pay.
Cost only drives whether you should be in the business or not. Once you’ve spent the cost it is irrelevant to the price.
Know your Value
Two decisions, we start out with “Will I buy something?”, and once they have answered that they ask “Which one will I buy?”.
Customers making the “Will I?” decision are not price sensitive. Lowering the price will not push people to jump into the product category simply due to a lower price.
Price has a powerful impact when customers are making a “Which one?” decision.
Value is perceived differentiation – create it, find it, communicate it. If you can’t communicate how you are different you can’t charge high prices. Value is Perceived Differentiation – it is only differentiation if your customers know about it and believe in it.
Segmentation
Different people are willing to pay different amounts for things. Our job is to charge each of them a different price.
Win customers who don’t value our products as highly. Still capture revenue from those that place a higher value on the product.
Is it fair? Yes, it is fair. Because each customer places their own value on the product.
Customer Characteristics – create a characteristic of the customer and provide the product at a price for each.
Transaction Information – create a pricing differentiation based on the transaction. It’s all about the discount. Set a high price and give a discount for less desirable transactions.
Product – get more out of the current customers through product features or enhancements.
Behaviours – all behaviours are saying is we’ll set a price and if you trade some of your life we’ll give you a discount. e.g. a discount.
Offer a Good, Better, Best product segmentation. Any uncertain customer will buy the one in the middle.
Good, Better, Best, and Phenomenally Ridiculous. When you have this top one it makes everything else look cheap.
Product Portfolio
Complements – Once we’ve got the customer to make a choice for us. Then the customer can ask “Will I?”.
I guarantee you there are other things you can sell that you haven’t thought about yet.
Anchoring – look at Mark’s Individual vs Corporate pricing.
Getting Paid for Free
Free has to be one of the best things that anyone can ever do when it comes to pricing. How do you get paid for free?
- Free samples
- Free trials
- Free information
- Pay as you wish
- Free network membership
- Ad supported
- Freemium
Key Truths of Pricing
- Know your Value – charge what your customers are willing to pay
- Segment Your Pricing – charge more to customers who are willing to pay more
- Build a Product Portfolio
Resources
- Tune in to #ProdMgmtTalk Radio next week for a session titled ‘How product management can make or break your company’ with David Fradin, Monday Aug 27 4pm PT.
- Read more about product pricing on Mark’s blog, Pragmatic Pricing.
- Get Mark’s book Impact Pricing: Your Blueprint for Driving Profits
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- Common Sense podcast by Dan Carlin – it’s okay to give a buck a show, it’s okay if you don’t.
- Read up on Conjoint analysis.
