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Pricing Your Product

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Re: Pricing Your Product

#51

Post by skmurphy »

lpolovets wrote: post #38

One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product provides. If someone gets $100 of value per seat and you charge $15/seat, that's great. If you charge $15/seat for a product that creates value per gigabyte, people start gaming the system. E.g. they'll buy one seat for their company and ask that person to be t…

The First Round post “Madhavan Ramanujam–It’s Price Before Product. Period” captures about 80% of the value for startups so I would start there. Its at https://firstround.com/review/its-price-before-product-perio...

I reviewed the book when it came out and extracted "9 Rules for Monetizing Innovation" at https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-mon...

There are better books on pricing: for a straight up analysis of product pricing "The Strategy and Tactics of Pricing” by Thomas Nagle is the best book that I have read. It's on Amazon at http://www.amazon.com/Strategy-Tactics-Pricing-Profitable-De...

Re: Pricing Your Product

#52

Post by tgsovlerkhgsel »

101008 wrote: post #29

My problem with this advice of testing your pricing strategy is how to communicate this to actual customers. Maybe this isn't a thing in Europe or USA; but in third-world countries a change in the price it is important and something your customers want to know. If I set my prices higher, I can't change it for my current customers. They will get mad. So I ahve to create a full logic on the backend for customers create…

The common way to solve this is to offer (either lifetime or limited-time) deals.

You have to maintain the logic, but you can offer lower prices to new customers (to some extent) without getting the current ones too mad.

Re: Pricing Your Product

#53

Post by cameronbrown »

pragmatic wrote: post #48
cameronbrown wrote: post #37

Earlier quoted context omitted.

I really can't imagine why. This seems like one of those self contained problems where some PricingService and a DB returns a number and deals with all the complexity internally. That seems like the logical place where you'd do A/B testing of prices and the like.

Maybe, but who's going to build that system when 110% of engineering is building customer features. Much more likely that a ) engineering doesn't want to touch it ( for obvious reasons so b) sales/sales support maintains this in Excel or worse...

Nothing wrong with maintaining in Excel as long as a computer system can serve that data. At that point it's just a fancy lookup table.

Engineering != programming. People forget that choosing not to code is also an option.

Re: Pricing Your Product

#54

Post by profile53 »

lpolovets wrote: post #38

One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product provides. If someone gets $100 of value per seat and you charge $15/seat, that's great. If you charge $15/seat for a product that creates value per gigabyte, people start gaming the system. E.g. they'll buy one seat for their company and ask that person to be t…

This doesn’t just apply to tech. Take healthcare, where the value created is per patient healed (oversimplified) but the pricing is per item/staff time used. Once again, people game the system, in this case by doing excess charges (see any itemized hospital bill to a private party). The U.S. government’s Center for Medicare has been trying to align the pricing model with the value created by paying flat rates for each type of surgery or illness treated. It seems to work pretty well.

Aligning value with payment is critical to success in any business.

Re: Pricing Your Product

#55

Post by pavlov »

andi999 wrote: post #35
pavlov wrote: post #32

Earlier quoted context omitted.

One trick you can use is to figure out a set of product parameters that you can tweak into new combinations to create lots of pricing plans. They may be effectively identical to previous ones as far as your cost and engineering are concerned, but different enough that customers don’t feel someone is getting a different price for the same thing. E.g. your previous “Medium Starter” plan included 10 foobags and up to 1.…

I didnt buy a robot vacuum because of this. There was a crazy amount of different ones from the same company with different pricings. Maybe it is better now. But usually I want a product which fulfills my supposed needs for a reasonable price. Too many different products (especially from the same vendor) give me the certainty no matter which one I choose one or the other criterium will fail.

The advice is more applicable to SaaS products where users can easily switch between plans, and creating new combinations of the product parameters is free.

Assuming you don’t overdo it, having multiple plans for different types of users can actually help customers feel more confident that your company has the experience to understand their needs.

Re: Pricing Your Product

#56

Post by yellowapple »

throwaway7281 wrote: post #24

Value-based pricing is the worst societal invention. Imagine a medicine can be made from simple ingredients, but you discovered a recipe by accident. It's very valuable since it might save lives, so the value is high, the cost is low and you can reap the benefit on the mere basis that you discovered something by accident. You also need to make sure that no one "gets it", so do not educate people, just milk them - and…

And indeed, from the article:

> Because Natera's test [for pre-natal Down syndrome] is better than its competitors' products, the company charges more.

That is, instead of eliminating the older, more invasive diagnostic procedures and making the world a better place for all of humanity, Natera instead opted to charge extra for it (regardless of how much it actually costs to them) because they know people will pay more for it, and Sequoia is celebrating this and championing it as an example to be followed.

This is the kind of greedy capitalist bullshit that gets L'Internationale playing in my head.

Re: Pricing Your Product

#57

Post by ramraj07 »

lpolovets wrote: post #38

One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product provides. If someone gets $100 of value per seat and you charge $15/seat, that's great. If you charge $15/seat for a product that creates value per gigabyte, people start gaming the system. E.g. they'll buy one seat for their company and ask that person to be t…

I am slightly ashamed to say that I was one of those people who gamed Dropboxs packrat feature to store close to 10 TB of data on a 1 TB premium plan. I'll concede that they grandfathered that feature for longer than I thought they would, and am still a (somewhat) happy Dropbox subscriber, but those were good times indeed.

Re: Pricing Your Product

#58

Post by clairity »

skmurphy wrote: post #51
lpolovets wrote: post #38

One of the biggest lessons I've learned as a VC in the past few years is that pricing really has to be aligned with and proportional to the value your product provides. If someone gets $100 of value per seat and you charge $15/seat, that's great. If you charge $15/seat for a product that creates value per gigabyte, people start gaming the system. E.g. they'll buy one seat for their company and ask that person to be t…

The First Round post “Madhavan Ramanujam–It’s Price Before Product. Period” captures about 80% of the value for startups so I would start there. Its at https://firstround.com/review/its-price-before-product-perio... I reviewed the book when it came out and extracted "9 Rules for Monetizing Innovation" at https://www.skmurphy.com/blog/2016/11/16/nine-rules-from-mon... There are better books on pricing: for a straight…

that nagle book was taught in my MBA pricing class. small but surprisingly dense and thorough. there's a lot more to pricing than just value pricing vs. cost-plus.

Re: Pricing Your Product

#59

Post by IAmGraydon »

eruci wrote: post #33

Pricing is HARD. I launched a SaaS in 2016 with a 100eur per month recurring plan. only 5 signups in two years. Then around 2018 someone wrote me "that's incredibly cheap. why?" So, I doubled it to 200eur per month. Today there are 60 recurring plans at 200 per month, and only 3 @100(grandfathered plans from the early days.) Clients tend to think that if something seems too cheap, something is wrong with it.

Did anything else besides the price change since 2018?

Re: Pricing Your Product

#60

Post by dannyw »

andi999 wrote: post #35
pavlov wrote: post #32

Earlier quoted context omitted.

One trick you can use is to figure out a set of product parameters that you can tweak into new combinations to create lots of pricing plans. They may be effectively identical to previous ones as far as your cost and engineering are concerned, but different enough that customers don’t feel someone is getting a different price for the same thing. E.g. your previous “Medium Starter” plan included 10 foobags and up to 1.…

I didnt buy a robot vacuum because of this. There was a crazy amount of different ones from the same company with different pricings. Maybe it is better now. But usually I want a product which fulfills my supposed needs for a reasonable price. Too many different products (especially from the same vendor) give me the certainty no matter which one I choose one or the other criterium will fail.

That’s a problem with product differentiation; not too many SKUs. I think you are referring to iRobot? I couldn’t understand the differences either.

But does the variety of MacBooks turn me away from buying a MacBook? No. Yet there are way more models!

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