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A Guide to Pricing Plans

capitalandgrowth.org

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Re: A Guide to Pricing Plans

#31

Post by gk1 »

gridlockd wrote: post #15
gk1 wrote: post #7

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the biggest levers for increasing revenue through new and even current customers. It’s very important to get it right, and to experiment occasionally. (I know because I’ve done it for companies.) It involves a lot more than growth-hacking the pricing page.

Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value . Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what the…

In my view, if you're charging $20 for a utility that demonstrably saves companies hundreds of hours of labor, then you're leaving a whole lot of money on the table.

Re: A Guide to Pricing Plans

#33

Post by tptacek »

gridlockd wrote: post #15
gk1 wrote: post #7

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the biggest levers for increasing revenue through new and even current customers. It’s very important to get it right, and to experiment occasionally. (I know because I’ve done it for companies.) It involves a lot more than growth-hacking the pricing page.

Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value . Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what the…

I'm not Greg Kogan, of course, but...

It is indeed highly subjective to the user. So, part of the job of marketing is, segment your market, decide which one is most lucrative, target them with pricing that optimizes the outcome for that segment, and then adjust the product packaging to give yourself the most flexibility to attempt to repeat the process with the next segment of customers.

You learn the value your users get from your offerings by talking to them.

From 10+ years of watching this conversation recur on HN and talking to people running businesses, it seems like probably one of the most common mistakes business owners here make is trying to target an overly broad group of customers, and setting a very low ceiling on their prices to make sure everyone in that group can afford the product. That never seems to work well. On the other hand: setting a price for your product that only works for customers who can put it to extremely lucrative use? That's a strategy I've seen succeed a bunch.

It all depends on your product and your company; you can win big with fixed (maybe low) prices and a huge, undifferentiated customer base, if the stars align. They seem not to most of the time.

Re: A Guide to Pricing Plans

#34

Post by tptacek »

perennate wrote: post #28
gridlockd wrote: post #15

Earlier quoted context omitted.

Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value . Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what the…

This why GP is saying pricing is one of the biggest levers for increasing revenue. If you're charging $20 for the service and focusing on tricks like these, then you'll not make as much compared to realizing that utilities are willing to pay much more and focusing sales efforts on them.

Which is to say that they're both potentially sort of right, but that the blog post is talking about tactics and not really addressing strategy.

Re: A Guide to Pricing Plans

#35

Post by Guest0918231 »

davidajackson wrote: post #5

> Yes, Product C is slightly cheaper than the most expensive option, but it offers less storage than any of the options. Why would a business want wrong looking pricing on their pricing page, "decoy"s aside? Seems that would deter people more. Makes the business seem like it doesn't have its stuff together. Would you trust a company that seems like it can't do simple math? I think the author may be getting at somethi…

It would make more sense to have prices $40, $50, $60, where the $50 plan is always on sale for $30. Then, you effectively have a $30 and $60 plan, and the $40 is a decoy to make $30 seem like great value.

I designed a quick example below. That being said, I have no experience with pricing strategies, and I feel like this example is missing out on users and businesses that would be willing to spend $100.

https://i.imgur.com/vzaoy8q.jpg

Re: A Guide to Pricing Plans

#36

Post by listenallyall »

Guest0918231 wrote: post #35
davidajackson wrote: post #5

> Yes, Product C is slightly cheaper than the most expensive option, but it offers less storage than any of the options. Why would a business want wrong looking pricing on their pricing page, "decoy"s aside? Seems that would deter people more. Makes the business seem like it doesn't have its stuff together. Would you trust a company that seems like it can't do simple math? I think the author may be getting at somethi…

It would make more sense to have prices $40, $50, $60, where the $50 plan is always on sale for $30. Then, you effectively have a $30 and $60 plan, and the $40 is a decoy to make $30 seem like great value. I designed a quick example below. That being said, I have no experience with pricing strategies, and I feel like this example is missing out on users and businesses that would be willing to spend $100. https://i.im…

$29 would likely work a whole lot better than $30

Re: A Guide to Pricing Plans

#39

Post by pdonis »

csa wrote: post #27
gk1 wrote: post #7

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the biggest levers for increasing revenue through new and even current customers. It’s very important to get it right, and to experiment occasionally. (I know because I’ve done it for companies.) It involves a lot more than growth-hacking the pricing page.

> This is all about tricking people, and nothing about designing pricing to match the value provided. Hmmmm... maybe. That said, I would say that they are more often just a way for a company to price their products in a way that more accurately reflects the value to the purchaser. The easiest example of this is anchoring. The difference in a pricing page that offers 100-220 and a page that offers 100-220-500 is typic…

> Having that high end third option effectively gives folks the permission to select a more expensive option that probably has more utility for them and/or their organization

You're assuming that just, you know, telling your customers about what extra features they get in the more expensive 220 option isn't enough to persuade the ones for whom it would genuinely add value to choose it.

Which means either you aren't communicating your features effectively (and you should fix that instead of worrying about hacking your pricing page) or you think your customers aren't capable of judging what's in their own best interest given accurate information, so you have to manipulate them for their own good. The GP, by saying "this is all about tricking people", is simply expressing what to me is highly justified skepticism about the latter position.

Re: A Guide to Pricing Plans

#40

Post by pdonis »

gridlockd wrote: post #15
gk1 wrote: post #7

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the biggest levers for increasing revenue through new and even current customers. It’s very important to get it right, and to experiment occasionally. (I know because I’ve done it for companies.) It involves a lot more than growth-hacking the pricing page.

Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value . Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what the…

> some utility might save hundreds of hours and thousands of dollars over the course of its usage

Yes, "might":

> you can't know the value users will actually get out of your product

So the problem you have is that you think (but don't know) that your product is much more valuable to your users than they think it is (since they're only willing to pay $20 for it).

You're not going to fix that problem by hacking how your pricing is presented on a web page. Which is why people view trying to fix it by hacking how your pricing is presented on a web page as "tricking the user".

> This is why anchoring is beneficial, it gives you the opportunity to tilt that expectation a little bit.

If your program is actually worth thousands of dollars to the user, but they're only willing to pay $20 given their current knowledge, you don't want to tilt their expectations by "a little bit". You want to tilt their expectations by a couple of orders of magnitude. Which, as noted above, is not doable by hacking how your pricing is presented on a web page.

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