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Your Price is Wrong: Pricing Your Products for Maximum Return, Alan Albert, MarketFit at ProductCamp 2017
- 1. marketļ¬t.com alan@marketļ¬t.com @A_Albert Presentation copyright Ā© 2017 Alan Albert All rights reserved Alan Albert How to price your products for maximum return Your Price is Wrong 1
- 2. How much do you pay for a coffee? 2
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- 10. Tall Grande Venti Trenta 10
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- 27. How much do you pay for a coffee? 27
- 28. How to price your products for maximum return Your 28
- 29. Product Management Marketing Development Customer Service Manufacturing Design Quality Assurance Strategy CEO B2B Products & Services B2C Products & Services Startups Bootstrapped Venture-funded SMB Fortune 500 Cognitive Psychology Computer Science $1B Advisor Investor Director Chair Databases Personal productivity Business intelligence E-commerce Financial services Social networking Education Knowledge Management Home Grocery Shopping Online security Real estate software Video software Value Added Reselling Process Control Non proļ¬ts Publishing Brick & mortar retail Personal computing Enterprise software SaaS / Cloud computing Industrial technology Software development UI / UX Information architecture Input / output devices Mobile devices Corporate strategy Corporate partnerships Marketing automation Online marketplaces Pricing strategy Consulting services 29
- 30. Alan Albert marketļ¬t.com alan@marketļ¬t.com @A_Albert Strategic Services for Measurable Growth MARKETFIT Advisory Services Consulting Services Market Research Strategic Pricing Strategic Innovation Corporate Strategy Product / Marketing Strategy Business Coaching 30
- 31. Agenda How we think about pricing Customer values Value-based pricing Pricing for maximum return 31
- 32. ā The single most important decisionāØ in evaluating a business isāØ pricing power ā Warren Buffet 32
- 33. Why is pricing important? Price COGS Volume SG&A 0 5 10 15 0.3% 1.7% 9.2% 10.4% Source: SMC 2010 1% improvement ofā¦ Causes proļ¬ts to increase byā¦ 33
- 34. How is pricing set? Competition Cost Plus or āØ market-based Asked Customers Guessed 0 25 50 75 18% 21% 24% 52% Source: 2013 Price Intelligently survey. Respondents were allowed to select more than one response. 34
- 35. How NOT to set pricing ? Competition Cost Plus Ask Customers Guess Your competitor āØ sets the price Your costs set a ļ¬oor for your price Your customers āØ set the price Just wing it They donāt know the right price either Donāt let your costs āØ set a ceiling Youāre at their mercy Why would anyone want to do this? 35
- 36. ? If pricing is so importantā¦ Why are we so bad at it? How can we do better? 36
- 37. Agenda How we think about pricing Customer values Value-based pricing Pricing for maximum return 37
- 38. What is value? What we care about when making a buying decision From the customersā perspective ā not the sellerās 38
- 39. What do we pay for? 39
- 43. What determines value? Context Value Layers Differentiation Special Cases 43
- 45. You can create value by changing the context of the experience Context 45
- 46. Context You can create value by changing the context of the experience Where: On site vs. Laptop vs. Cloud When: Same day vs. Next week Why: Emotional vs. Functional Who: Millennials vs. Baby boomers 46
- 47. What determines value? Context Value Layers Differentiation Special Cases 47
- 48. Context āā VALUE LAYERS Different Values at Each Layer Product Solution Type Problem / Job to be Done Role / Identity 48
- 49. Role / Identity You can create value by targeting diļ¬erent roles or identities 49
- 50. Role / Identity single / spouse / provider status-seeker brand-loyal You can create value by targeting diļ¬erent roles or identities user / buyer purchasing agent distributor 50
- 51. Problem / Job to be Done You can create value by redeļ¬ning the problem 51
- 52. Problem / Job to be Done You can create value by redeļ¬ning the problem Lodging: Hotel vs. A place to stay Photos: Capturing memories vs Social sharing CRM: Managing prospects vs. Managing pipeline 52
- 53. Solution Type You can create value by changing the type of solution 53
- 54. Solution Type Lodging: Hotels vs. Couch Surļ¬ng Photos: Film vs. Digital vs. Disappearing CRM: On-premise vs. Cloud You can create value by changing the type of solution 54
- 55. You can create value through product innovation Product 55
- 56. AirBnB: Rating both hosts and guests Photos: Disappearing images and videos CRM: Integration with other cloud services Product You can create value through product innovation 56
- 57. Context āā VALUE LAYERS Different Values at Each Layer Product Solution Type Problem / Job to be Done Role / Identity 57
- 58. What determines value? Context Value Layers Diļ¬erentiation Special Cases 58
- 59. Thereās always an alternative Differentiation 59
- 60. Differentiation āThe Competitionā D I Y Do nothing Thereās always an alternative 60
- 61. Differentiation Differentiation from the alternative defines product value If that differentiation isnāt valued, āØ your product has no more value than the competition Diļ¬erentiation drives pricing power 61
- 62. How is your product different from the best alternative? What is the net value of those differences? Differentiation Diļ¬erentiation defines value 62
- 63. What determines value? Context Value Layers Differentiation Special Cases 63
- 64. Special Cases Topics for another day Pricing Branding Targeting Channels Marketplaces Others 64
- 65. Pricing You can add value via Pricing Pricing models 65
- 66. Pricing A higher price can add value, by connoting: Higher quality Rarity / Exclusivity Desirability 66
- 67. A lower price can add value, by connoting: A āgood dealā A limited-time offer Pricing 67
- 68. Pricing Models Pricing models are a great area for strategic innovation 68
- 69. Pricing Models Subscription vs Purchase: Salesforce.com All-you-can-eat Subscription: Netļ¬ix Adaptive Subscriptions: Slack Membership: Amazon Prime Pricing model innovation creates value 69
- 71. What determines value? Your customersā values Your own perception of value is irrelevant Your perception is not your customersā perception So make sure you measure your customersā values 71
- 73. Agenda How we think about pricing Customer values Value-based pricing strategy Pricing for maximum return 73
- 74. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy Start 74
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- 76. What is your pricing objective? Market share Revenue Proļ¬t Retention Defend vs. new competitor Awareness / Trial Choose one 76
- 77. What is your pricing objective? Market share Revenue Proļ¬t Retention Defend vs. new competitor Awareness / Trial Align your entire team to achieve this one objective Choose one 77
- 78. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 78
- 79. Segment for Maximum Return Different customer segmentsā¦ Have different willingness and ability to pay Get diļ¬erent amounts of value from the same product 79
- 80. Different willingness and ability to pay Segment for Maximum Return Price sensitive ā> Low Margin Value sensitive Quality sensitive ā> High Margin 80
- 81. Price sensitive ā> Low Margin Value sensitive Quality sensitive ā> High Margin Segment for Maximum Return Different willingness and ability to pay 81
- 82. Value āØ sensitive Pricing predicament Quality sensitive Price sensitive Perceived value & willingness to pay # of āØ Customers Many Few Low High 82
- 83. Pricing predicament Low price Value āØ sensitive Quality sensitive Price sensitive Perceived value & willingness to pay Many Few Low High # of āØ Customers 83
- 84. Low price Many Few Seems right Pricing predicament Willing āØ to āØ pay more Canāt afford Perceived value & willingness to pay Lost Customers! Low High Lost Revenue! Sweet spot Lost Revenue! # of āØ Customers 84
- 85. Pricing predicament High price Value āØ sensitive Quality sensitive Price sensitive Perceived value & willingness to pay Many Few Low High # of āØ Customers 85
- 86. Canāt afford Pricing predicament Seems rightCanāt afford Lost Customers! Lost Customers! Sweet spot Lost Revenue! Perceived value & willingness to pay Many Few Low High High price # of āØ Customers 86
- 87. Solution: Segmentation Different segmentsā¦ āØ get diļ¬erent amounts of value from the same product Larger companiesā¦ have more employees using your product use more advanced features make more transactions with your product 87
- 88. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 88
- 89. Value Metric Value metric = the unit by which the customer measures value Value metric determines how much a customer is willing to pay Credit: Steven Forth 89
- 90. Value Metric Credit: Steven Forth Transactions Leads Impressions Value metric = the unit by which the customer measures value Value metric determines how much a customer is willing to pay New customers Time savings Risk reduction 90
- 91. Pricing Metric Pricing metric = the unit by which you set a price Find a pricing metric that closely tracks the value metric Credit: Steven Forth 91
- 92. Metrics The value metric comes from understanding your customers Your pricing metric is an important opportunity for innovation Credit: Steven Forth 92
- 93. Pricing Metrics in Action ā¢ Pricing Secrets Company / Product Value Metric Pricing Metric Google Adwords Ad Effectiveness Pay per click Survey Monkey Survey complexity and sample size # of questions, responses, & some functionality Hubspot Clientās target market size, marketing activity # of contacts, some functionality & add-ons KissMetrics Depth of app analytics Number of app events Toyota Performance, comfort, luxury Base model, engine, feature bundle 93
- 94. Segment for Maximum Return Diļ¬erent market segments often have diļ¬erent value metrics To maximize return, identify best metrics for each segment 94
- 95. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 95
- 96. Enter the Pricing Grid 96
- 97. Enter the Pricing Grid Pricing metrics Market segments Prices 97
- 98. Enter the Pricing Grid Market segments? Prices? Are these the rightā¦ Pricing metrics? 98
- 99. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 99
- 100. Agenda How we think about pricing Customer values Value-based pricing strategy Pricing for maximum return 100
- 101. How to Price for Maximum Return Discover and measure what your customers value most Choose the right objective: Market Share? Revenue? Proļ¬t? Other? Segment your market based on their perception of value Identify your customersā value metrics Build your pricing grid with matching pricing metrics Track, communicate and charge for value your customers perceive Test, measure, and iterate to optimize Start here Not here 101
- 102. Do you really knowā¦ What your customers actually value? What is the value of your differentiation? What are the right segments? What are the right value metrics? What are the right pricing metrics? What are the right prices? 102
- 103. You donāt have to guess What your customers actually value? What is the value of your differentiation? What are the right segments? What are the right value metrics? What are the right pricing metrics? What are the right prices? 103
- 104. All of these are knowable All of these depend on your customersā perception of value Your customersā perception of value can be measured 104
- 105. You wonāt ļ¬nd the right priceāØ in the ofļ¬ce 105
- 106. Whatās a cup of coffee worth? Coffee with customers to discover their values? PRICELESS 106
- 107. Thank You 107
- 108. marketļ¬t.com alan@marketļ¬t.com @A_Albert Presentation copyright Ā© 2017 Alan Albert All rights reserved Alan Albert Your Price is Wrong How to price your products for maximum return 108