Which is better: Many customers at low price-point or few at high price? • Hacker News Board

Re: Which is better: Many customers at low price-point or few at high price?

#41

Post by zorbo » Tue, May 01, 2012, 5:14 PM UTC

patio11 wrote: post #11

cantankerous wrote: post #8

Just tossing it out there, but isn't the price point of a product also a big director in consumer expectations? Not that I support making a crappy product, but consumers who pay a lot more generally have higher expectations about what they're spending their money on (rightly so, at times). If you have a 1000 people who figure it's the price of a soda so who cares vs 10 people who won't get off your case about some pe…

You'd be surprised! In my experience, folks who pay A WHOLE NINETY NINE CENTS OF MY MONEY have very shockingly high expectations of polish / quality / feature selection (but no desire to e.g. read what the software actually does), whereas if someone signs e.g. a contract for $X0,000 for enterprise software, it lacks a feature, and they ask for it, "Thanks for the feedback, we'll consider adding that in a later releas…

Given that a 99c app will attract a _much_ larger user base, chances of running into those users who expect to sit on the front row seat for free also increases.

The nice thing is, they can be ignored, as long as you do it tactfully. If you lose them as a customer, it's no big loss. A single extremely high demanding big customer that pays in the ten to hundred thousands is hard to ignore. In fact, their high demands can run your business into the ground, if you're not careful.

Re: Which is better: Many customers at low price-point or few at high price?

#42

Post by bmelton » Tue, May 01, 2012, 5:21 PM UTC

Rickasaurus wrote: post #40

I work for a company that has only tens of clients (banks) but each pays us in the hundreds of thousands to millions range, an extreme example of B. Just one of these customers takes up to a year to acquire. On the plus side, things can move more slowly and in a well thought out way. Also, there's no worry around your usual "web scale" issues. There's also a lot of freedom around exploring new ways to do things becau…

Having been on both sides of the Fortune 100 sales cycle, it was always a fun game, as a buyer, to see how close we could get to being written off during the courtship process. Drinks at lunch are the norm, but maxing out the champagne costs, getting box seats at games, etc.

Once (if) the sale closed though, it was down to business, and doing our damnedest to maximize both our time and the vendors. I've never worked with or for banks, but I can't imagine them being TOO terribly different from federal IT, so I definitely sympathize with your plight. It seems as though all they really want you to do is acknowledge, in every way possible, how happy you are to have their business, and how lucky you are to be in meetings with them all day every day.

Re: Which is better: Many customers at low price-point or few at high price?

#43

Post by shazow » Tue, May 01, 2012, 5:28 PM UTC

bignoggins wrote: post #18

As a data point I have about 900,000 customers to service (iPhone apps). I've also had times in my career where I have had one customer (department of defense). I'm much happier with the 900,000. I think an assumption Jason makes that i would contest is that you need to provide the same level of service to 10,000 people that you would provide to 10. When your app is at a low price point, you aren't competing on custo…

Are there not perhaps thousands of people who would be using your product under the umbrella of the Department of Defense?

Re: Which is better: Many customers at low price-point or few at high price?

#44

Post by wensing » Tue, May 01, 2012, 5:50 PM UTC

vaksel wrote: post #35

wensing wrote: post #21

Earlier quoted context omitted.

Maintaining two product lines for two segments is a recipe for lack of focus and serving two masters. In the end you will choose to focus on one at a time and may never do both.

it's up to you to define your product line. nothing is stopping you from just limiting the products. Normal Accounts? Max 5-20 users. Enterprise? Unlimited Users no real difference between the products except for a single value

It's fine to have two products for different segments within the consumer or business markets, but having one product for consumers and another for businesses is not as simple as changing a single value. Very different customers with different needs, demands, and expectations of your product.

Re: Which is better: Many customers at low price-point or few at high price?

#45

Post by jiggy2011 » Tue, May 01, 2012, 5:52 PM UTC

vaksel wrote: post #35

wensing wrote: post #21

Earlier quoted context omitted.

Maintaining two product lines for two segments is a recipe for lack of focus and serving two masters. In the end you will choose to focus on one at a time and may never do both.

it's up to you to define your product line. nothing is stopping you from just limiting the products. Normal Accounts? Max 5-20 users. Enterprise? Unlimited Users no real difference between the products except for a single value

That's not really the same thing. What you are doing is offering a commodity product at a large discount to larger organizations.

Take MS for example, you can buy Windows for $100 or so a copy or you can take a site license but the product is the same.

For a large enterprise what they need is someone to take that and fashion it into something that fits their needs, this is where consultancy businesses and "Microsoft Partners" come in. They will have a small number of clients for whom they will support the MS products and be the first port of call if anything needs to be changed/fixed etc.

Then MS has a nice side business is selling training and certs to these partners.

We tried to do a hybrid strategy some years ago and it was a disaster. What we tried to do was create a product that could be sold as a basic system for $100 or so and then provide a "custom" version to a handful of companies based on the same codebase.

What we learned very quickly was that these are competing goals, we would get requests from the bigger clients to fundamentally change something about the software to fit their use case which they expected us to do because of the amount they were paying. Of course many of these changes would totally break stuff for anybody else, so the choice was either to build some sort of monstrous configuration system for the product, break it up into modular constituent parts (very hard to do) or just give up on the idea of selling it as a commodity product.

We chose the 3rd option.

Re: Which is better: Many customers at low price-point or few at high price?

#46

Post by jiggy2011 » Tue, May 01, 2012, 6:02 PM UTC

cantankerous wrote: post #8

Just tossing it out there, but isn't the price point of a product also a big director in consumer expectations? Not that I support making a crappy product, but consumers who pay a lot more generally have higher expectations about what they're spending their money on (rightly so, at times). If you have a 1000 people who figure it's the price of a soda so who cares vs 10 people who won't get off your case about some pe…

I think that often the cheaper products tend to be the most polished. Let's say you are developing something with Designing say a beautiful UI full of clever widgets is probably a waste of time vs adding features. It just needs to be "good enough" to use, if the users are having problems with it then it is probably more economical to get them in a room together and run a training session at which point they will grumble, stick some postits to their monitors and carry on.

I've developed some programs before that have had bugs and when I've offered to get right on and fix them I have been told by the client "don't bother, I'll just tell the users not to click that button under those circumstances".

With the cheaper app you are looking at ways to do things that will wow 100,000 people rather than just a few.

Re: Which is better: Many customers at low price-point or few at high price?

#47

Post by bdunbar » Tue, May 01, 2012, 6:15 PM UTC

shazow wrote: post #43

bignoggins wrote: post #18

As a data point I have about 900,000 customers to service (iPhone apps). I've also had times in my career where I have had one customer (department of defense). I'm much happier with the 900,000. I think an assumption Jason makes that i would contest is that you need to provide the same level of service to 10,000 people that you would provide to 10. When your app is at a low price point, you aren't competing on custo…

Are there not perhaps thousands of people who would be using your product under the umbrella of the Department of Defense?

Customer does not equal user.

Re: Which is better: Many customers at low price-point or few at high price?

#48

Post by Travis » Tue, May 01, 2012, 6:19 PM UTC

wensing wrote: post #34

jordhy wrote: post #6

Strive to get many customers paying a high price for your product. Apple computers and IBM mainframes are two of the most profitable product lines in IT history. Personally, I love the high stability of a broad consumer base. However, you can architect a successful business either way.

I'm surprised with the amount of Apple love in startup-land, more startups don't attempt to emulate their pricing strategy. Instead, we are A/B testing our way to local maxima with products that are supposedly changing the world.

I agree. I'm also a little surprised at the false dichotomy presented in this thread. Using hand-wavy or made up numbers is not a meaningful way to have this discussion.

Every business has a different decision to make. It feels like this thread is thinking of it like maximizing an equation (FindingMaxRevenueGivenPriceSensitivies()). Instead, some products lend themselves to low cost support; sell those more cheaply. Some products require insurance-like support contracts -- those are going to be enterprisey. Some products will lend well to cheap inexpensive versions and high end enterprise versions, without changing the product (the value prop is really high to a business, esp if it's a service that can automate out the cost of a person's salary).

This thread and the obsession with A/B testing result from a hyper focus, like you said, on finding local maxima. I think it's often useful to take a step back and find the high level factors and built a pricing model around that.

(Of course, nothing excuses you from talking to customers.)

Re: Which is better: Many customers at low price-point or few at high price?

#49

Post by true_religion » Tue, May 01, 2012, 6:22 PM UTC

shazow wrote: post #43

bignoggins wrote: post #18

As a data point I have about 900,000 customers to service (iPhone apps). I've also had times in my career where I have had one customer (department of defense). I'm much happier with the 900,000. I think an assumption Jason makes that i would contest is that you need to provide the same level of service to 10,000 people that you would provide to 10. When your app is at a low price point, you aren't competing on custo…

Are there not perhaps thousands of people who would be using your product under the umbrella of the Department of Defense?

Those people aren't making purchasing decisions, ergo they're not customers but users.

Re: Which is better: Many customers at low price-point or few at high price?

#50

Post by jiggy2011 » Tue, May 01, 2012, 6:23 PM UTC

patio11 wrote: post #10

hoka wrote: post #4

I think having to please fewer customers could be great, but you run a greater risk of someone undercutting you and taking them away. Though, if you have 10 customers vs 1000, it's a lot easier to personally try convince those 10 to stay.

Welcome to HN. In general, people (especially businesses) do not make decisions based on price. This is one of the most common misconceptions of new software/startup founders. Indeed, for higher paying customers, they are often shockingly price insensitive, assuming you are genuinely delivering value to them. More on this topic in my Microconf speech in, oh, 7 hours or so, but I'll try to hit the highlights in a blog…

This depends if you are dealing with public sector organizations or not.

In many cases these organizations have to review their contracts every X years and have to take the cheapest deal (unless they can provide evidence that the supplying cannot produce what they have promised etc).

I have spoken to a few people now who were supplying various government departments and had excellent supplier/client relationships (they were going out of their way on weekends to fix problems etc) where under any ordinary circumstances this would continue. However they got to the end of some review period and another supplier (who is known for providing very mediocre service) undercut them by some small amount that they were unable to match so they were unable to continue the relationship despite every stakeholder being happy.