ProductMarketing.com

Your price is (probably) not the problem — On Product Management

You can’t make this stuff up. While the rest of the Product Marketing team was working on a new pricing model, Michael had uncovered a huge hole in the underlying logic. No one had thought to understand the customer value. They had heard that the price was too high, so many times, from so many sales people, that they stopped questioning it.

via onproductmanagement.net

Is price the driving issue? Do some win/loss (or hire Alan to do it for you) and find out what's really happening in your sales. Don't look at one; look at a bunch--and find the patterns.

The Van Westendorp Price Sensitivity Meter

A slightly more sophisticated form of the Willingness to Pay question (“How much would you be willing to pay for this?”) is the Van Westendorp PSM (Price Sensitivity Meter), which is a battery of four questions.

via blog.vovici.com

Interesting post from Jeffrey Henning of Vovici on using research to set prices.

Posted via email from Steve Johnson on product management

On pricing: Where does the value occur?

Product managers and others seem to love to discuss pricing, whether they have control of it or not. The question seems to be focused on the mechanics of different pricing systems--up-front, subscription, usage--when it should be focused on aligning the price with the product value.

It seems to me that the trick to successful product pricing is to get the money immediately after the customer has received the value. And that's probably the best time to upsell them too.

"You've enjoyed the product. Pay for it now. And what else can we sell you?"

You've had good food and good service at a new restaurant. The bill comes after you've eaten. And along the way, the server has upsold you on coffee, dessert, maybe an after-dinner drink. Good thing they didn't have you pay in advance.

I kinda wish that hotels were that way. The Residence Inn in Burlington, VT is so much nicer and friendlier than I expected it would be. I know it'd be weird but I'd be inclined to pay a little more than I was charged. And yet, name a hotel in New York City that you feel you've gotten your money's worth. ("I'm paying $425 a night for THIS! Heck, I'd rather sleep in the street.")

I would probably buy tickets for upcoming attractions as soon as I've seen the trailer, before the movie even came out, assuming the theater could sell me a ticket without derailing the movie experience. Many times, I watch the "coming attractions," and think, "I'd rather see that movie than the one I am here to see." (And sometimes I have even forgotten what movie I'm there to see. But dang! Those upcoming films look great.) What if I could send a text to pre-pay for that movie and be notified when the movie is in theaters--and better yet, get an offer to see the movie in some kind of exclusive setting rather than packed into a sold-out show.

Compare that with buying an article online. You hope it'll have the information you need for the report or article that you're writing but you won't know until you buy it. So you pay for the article and then don't find what you need. Dang! What a rip-off. And you tell your friends to avoid that service in future.

On the other hand, consider the try-and-buy option on Kindle. "Hmmm, I wonder if I'll like this book?" Not sure? Try it. Amazon downloads the first dozen pages for you to read. And the end of the sample, there's a "Buy Now" button.

So it seems to me that pricing products is difficult because we try to charge people too soon. Could it be because we fear that they won't value the product as much after they've seen it and used it?

Other than restaurants, can you think of products that charge you when you're most likely to appreciate the value?

 

Pricing: your product doesn't have to be a commodity

I hate commodity products because I like premium pricing. But how can you charge a premium?

Generic cables are commodities--yet audio and video cables from Monster fetch a premium price. Why? They're made with better wires and they come with a lifetime warranty.

Alas, they have a terrible website. Just try to find information about the quality of their products and their warranties. Yet musicians who care about sound opt for the better product. More at http://www.monstercable.com/default.asp

Flour is a commodity--yet my father prefers to bake bread with Robin Hood flour, available only in Canada. It makes the best bread! The last time I drove to Toronto, he asked me to buy him some. I said, "You want me to smuggle 10 kilos of white powder across the border!!"

Gad, but their website!

Hood's baking professionals responded by providing high-quality convenience foods. During this time of intense economic competition, Robin Hood renewed its focus on quality, service and building trusted partnerships with customers and suppliers.

http://www.robinhood.ca/rh.timeline.asp?lid=1

If you have a me-too product, you'll have to offer me-too pricing. But why not charge a premium? What do you do that is special in your competitive marketplace? And who values that special thing?

Instead of building a product that is just the same as everyone else's, build one with capabilities or attributes that matter to a market segment. And charge 'em a premium.

Pricing: It’s all about trust.

I led a pricing discussion last week at pCamp Amsterdam. Pricing is a topic that everyone has interest in, even if they don't have responsibility for pricing. There are research tools, notably conjoint analysis, that will help you set the right price but most product managers seem to follow try a logical rather than quantitative approach.

Apple products are often brought up in most pricing discussions. How do they charge a premium? Frankly, it's always difficult to use Apple as a reference point. They are huge; they spend money on research; they often seem to develop products specifically for Steve Jobs; they have a rabid fan base. Do you? Can you apply Apple's success to your own situation?

More important, how is it that Apple can charge premium prices, especially for new products?

The Apple iPad is a premium priced product that had hundreds of thousands of orders before anyone in the general public had actually seen it. How in the world…?

For one thing, Apple gave an incredible demo when the product was announced. Apple's keynotes are in fact 90-minute product commercials. You can see the products being used in real life. But even though they hadn't seen the iPad, an amazing number of people pre-ordered the product. Why?

I think Apple has created a loyalty from its customer base. Apple customers know the first product will be great and that subsequent products will be even better. We trust that they've designed another great product.

Can you say the same about your company? Your products? Will the first release be great? Or merely adequate?

As much as anything, pricing is aligned with trust. How much do you trust Apple or RIM or Microsoft or Oracle or SAP?

I just bought a new Jawbone wireless speaker. Sight-unseen. But I have trust. I bought Aliph's Jawbone ICON. Love it. So when they told me about the new speaker, I was inclined to trust them. And I didn't look elsewhere. I didn't compare "feeds and speeds" with other units. I went, "Yes I have this problem" and "I like Aliph products."

Who do you trust?

Not everyone feels this way, which is why it's important for you to research your customers' expectations rather than yours and mine. Research isn't just about product features; it's also about pricing, packaging, distribution channel, access to customer support, and so on.

Pricing is a complex issue. It involves comparison to competitive products and alternative products (I could buy the Aliph or the Jabra headet). It includes the cost of alternative uses of the money (I could buy a Bluetooth headset or a Netflix subscription). It involves trust (Do I believe it'll be worth the money? How does this compare to other products I've purchased in the past).

Start with these questions: competitive, alternatives, and trust. And then test the idea with your customers-to-be. You may be surprised with their answers.

Related posts:

• CrankyPM on Pricing
• Saeed Khan on Pricing

How will you make money?

The recent demise of Wave causes IT buyers concern. What else might Google discontinue? While it seems unlikely that they’ll stop offering Google Apps what if they did? As a result, IT buyers are reluctant to put business data on any of Google’s apps.

It once seemed logical to put all employees on Gmail instead of hassling with Exchange but now I don’t know.

Say what you will about Microsoft, it’s clear that they will continue to support the business products that they offer--Outlook, Exchange, Sharepoint--and it’s not always so clear for other vendors. Can I trust Apple’s MobileMe? Can I trust Google’s Gmail? I know I can trust Microsoft Exchange.

Your buyers are asking these questions too… about your products. Should we go with [new thing that is better] or stick with [old thing that is stable]? Perhaps that’s why roadmaps are so popular with enterprise buyers. They want to see that you have a plan beyond the current release, for at least a couple of years. See Creating the Right Product Roadmap for more on this.

I love Posterous (rhymes with “preposterous”), the tool I use to dash off blog entries with embedded photos, video, music, attachments of any kind; my blog entries are forwarded to my “official” blog at www.productmarketing.com. But what is the Posterous business model? How will they make money? How will they survive as a business? I love the tool but can I run a business on it? (I’m told they make money from adding their referral codes to product links so if you’re not getting revenue from Amazon and others, they will.)

Sure, the product is valuable but is the business sustainable?

Pricing has to do with the value that you deliver today; roadmaps reveal the value into the future. For business products, evaluators of business solutions need to understand both. Do you deliver enough value now? And will you be around after they’ve committed their business to your product?

Posted via email from Steve Johnson on product management

Sure it's cool but will people pay for it?

One of the key ideas for any new product is "how will we make money?" or "Will our customers be willing to pay for it?"

Julie O'Dell writes, 

In a new study, researchers found that while half of all Americans surveyed have tried a free web app like Twitter, zero percent of them would be willing to pay to use Twitter or a similar service.

This finding is just one unearthed by USC’s Annenberg School for Communication and Journalism’s 2010 Digital Future Study, a study that’s been tracking online and social media behavior for the past nine years.

In December 2009, users were hit with a hoax that Facebook would start charging $5/mo. My friends and family went insane but all agreed that they'd pay for it. 

How will your product make money? The old school answer was "advertising." The new school is "value add." Look at the fabulous Flipboard app which turns Facebook and Twitter into a magazine format.

How will your product make money?

Posted via email from Steve Johnson on product management

Customers don't care about your costs

The most common method of pricing is cost-plus, where you take the cost of your manufacturing and add 10% (or 50% or 200%) to create a selling price. And pricing experts assure us that cost-plus is always wrong. 

The cost of components in the new iPhone is $181.55. And Apple appears to barely recoup their costs with phones starting at $200. Of course, to get the $200 price, you have to sign up for a $40/month subscription with AT&T so Apple makes much more in the long-run. Still 60,000 people bought new phones on the first day, so I guess price wasn't their issue. People who hate AT&T will opt for Android but the same scenario applies. 

What's your pricing scenario? Do people get value at once or over time? Price your product in alignment with the customers' perception of value. 

Posted via email from Steve Johnson on product management

Can I pay you a premium fee for a premium service - PLEASE?

Yesterday, after one too many unanswered tech support emails, I invested in a new web hosting provider.  The new provider is around 400% more expensive than the previous one, but their customer service is extremely good.  I had already researched them months ago and was really impressed.

via jimsmarketingblog.com

Nice writeup about pricing, customer support, and the pain of switching. And I expect Jim will get a follow-up from the old service asking how to win back his business. Too late. He didn't want to leave but having left, he ain't comin' back.

Posted via web from Steve Johnson on product management

on conjoint analysis

I don't know much about conjoint analysis but I'm told by professional researchers that conjoint is the only way to estimate revenue potential to a feature. In the latest issue of The Pragmatic Marketer, Brett Jarvis writes,

Conjoint analysis is a set of market research techniques that measures the value the market places on each feature of your product and predicts the value of any combination of features. Conjoint analysis is, at its essence, all about features and trade-offs.

Read more in http://www.pragmaticmarketing.com/publications/magazine/8/2/conjoint-analysis-101

Is Your Product Priced Right?

When launching any new product, pricing is an important component to consider. We must price the product to fit in with our overall value proposition.  Are we positioning the product as a high end expensive, valuable product or a bare bones low cost product? What do our customers want? How much will they pay?

via outsideinview.com

Pricing is always a topic of interest to the strategic product manager. Jennifer offers her outside-in View with some great tips on pricing.

Posted via web from Steve Johnson on product management

How do you turn data into revenue?

Scott Brinker offers this view of pricing for data, answering the question:

How do you turn data into revenue?

It's organized by how revenue is generated, from direct money-for-data to indirect branding programs.

Read more at http://www.chiefmartec.com/2010/01/7-business-models-for-linked-data.html

Friday fun: Google pricing

Notice anything about the "new cost" pricing for Google apps?

For more on pricing, read Don't just roll the dice - a usefully short guide to software pricing and Camels and Rubber Duckies.

Update: this is the pricing for Google storage for Gmail and Picasa Web Albums.

Apple makes $$$ on iPhone

The Industry watcher iSuppli says that the new iPhone 3GS costs Apple just $178.96 to build. Apple makes $420 on each iPhone sold. They seem to imply that this is too much profit but they looking only at the cost of the handset; they overlook the cost of infrastructure, the cost of the excellent app store, and the cost of brilliant design.

The iPhone's success proves that creating a product that people want to buy translates into low price sensitivity. We don't really care about the cost of goods sold; we care about the value of the solution. And if market demand is any indication, it seems plenty of people value Apple's solution. Apple has priced their product correctly, ignoring the costs and focusing on value.

Have you priced your product on its cost or its value? The trick of course is to create a product that people value. That means you need to solve a problem that people want to pay to solve.

As an aside, iSuppli's "About Us" page reads:

iSuppli Corporation helps clients improve performance in the electronics value chain by providing them with the facts, analysis and advice they require to know precisely how to succeed.

Huh?

Jim Geisman on pricing

I just heard from my long-time colleague Jim Geisman that he will be doing pricing workshops at various events. Jim really understands what pricing is all about whether you are doing traditional software products or cloud computing / on-demand / SaaS products. If you want an example of Jim’s understanding of pricing, you may want to listen to the webinar he did with Barb Nelson. Here’s a description of the pricing workshops. (Jim is also offering a discount for members of the Pragmatic Marketing community. Contact him for the discount code.)


Geisman on Pricing

My friend Jim Geisman is offering his Software Pricing Workshop next week at The Hyatt Harborside Hotel in Boston. He explains,

Pricing is important today because products change frequently, competition is intense, and software development and delivery costs are shrinking. New software business models, such as on-demand/SaaS (Software as a Service) delivery, are threatening traditional software companies. Whether you adapt to these new models or address them another way, a tactical pricing error will hurt your company.

on pricing

I was 20 when my wife & I got married and I used to play guitar for weddings to make a little extra cash. I did the first one for $40--an astronomical sum in those days, at least it was to us. And the bride didn't blink at the price. For the next wedding I changed $60 and the planners accepted immediately. At $80, still no hesitation, nor was there at $100. When I got to $125, I started getting some resistance and at $140, they balked. So I set my price at $125 and lost only a few deals.

It's really hard to ignore your costs in pricing but you should. What's the cost of a couple of hours on a Saturday? $20/hr seems more than enough! But $60+ dollars a hour was even better. My wedding planners weren't really paying for two hours on a Saturday-- they were paying for my ten years of experience that created a lifetime memory.

You don't pay a doctor by the hour, why should you pay by the hour for a musician... or a consultant? How many years of experience led to a breakthrough software or software product?

At Pragmatic Marketing, we accelerate product management. We help heads of marketing get their people up to speed quickly so they don't have to do it themselves. More important, we help you deliver products to market faster and with shorter time-to-profit! What's the value of better products faster? What's the value of having standardized business cases and market requirements? What's the value of crisp positioning? What's the value of a standard, repeatable approach to product management?

So what's the value of your offering to the client? That's the question one must answer when pricing a product.

Product Pricing and The Socratic Method

Jacques Murphy explores pricing: "Today's issue is not a simple one. It's product pricing, or how to structure and set the price of the software product. Like philosophy, there are many schools of thought, some openly opposed to others, and Product Managers find themselves faced with a dazzling array of choices." Read more in Product Pricing and The Socratic Method.

Rebates and pricing

I've just bought a digital SLR camera from Canon and it has me thinking about pricing. Canon is offering a $100 rebate if you buy before August 1--hmmm, just about the time the new Sony SLR camera is planned to ship, the one I've been waiting for. So, for basically the same price, I can get a "better" camera sooner. Sounds like a good deal! Canon has used a rebate to offer predatory pricing without reducing the actual price of their camera. Good combination of competitive intelligence and pricing strategy.

The camera is a delight but the rebate process is troublesome. I think I've spent an hour getting all the paperwork together. Do they make it difficult on purpose? Yes, I think they do! The $100 incentive helps one decide to buy yet they don't actually have to pay the $100. So they make an offer (like the Dr Scholl's guarantee) and then make it difficult to receive the offer (like Dr Scholl's--did you keep your receipt? And can you find it six months later?) And I still fear that I've done something wrong and will get a "so sorry, you messed up" response from their fulfillment service.

Coupons and rebates are methods of offering different prices to different personas. Those who are price sensitive are beguiled by the option while those who aren't don't care either way. The offer is effective before the sale but somehow less relevant after the sale. It's buying versus using criteria.

Can we use this technique in B2B? It certainly seems to affect the B2C sales cycle!

Do You Have To Drop Price To Increase Sales?

Chuck McKay reminds us that it ain't the price that matters. When will your sales people learn this?