Product pricing: how to extract more value
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My presentation on Melbourne Product Camp 2013. Brief intro in pricing : how smart pricing can help increase revenue and profit from your product. Topics touched: price discriminations, two part tariffs, versioning, bundling.
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Product pricing: how to extract more value
- 2. ONE PRICE Price Q-ty P Q Dead value Dead value Captured value Captured value (or revenue) = PxQ
- 3. 3 PRICE LEVELS Captured value (or revenue) = Ps*Qs + Pp*Qp+Pb*Qb Dead value reduced ~twice! Price Q-ty Ps Qs Dead value Dead value Captured value Pp Pb Dead value Dead value Captured value Captured value Qp Qb
- 4. WHEN YOU CAN DO IT There are 2 conditions that must be met to practice price discrimination: • There are at least 2 distinct segments of customers • It is impossible (or at least very hardly possible) to do arbitrage CONTROVERSY As a rule customers don’t like it. What can be done: • Frame it as a discount rather than price increase • Don’t show lower price to higher paid customers if it is possible
- 5. HOW IT CAN BE DONE • Classical price discrimination (the same product priced differently) • Student, senior, army force, health card prices • Geographical • Gender based • Tourist prices • Bulk discounts • 2 part tariffs • Coupons • Versioning
- 7. VERSIONING (CONTINUED) Issues to consider: how many versions? • Versioning cost (approach to development) • Creation • Support and operation • Cost to make customer decision process more complex • Increased sales/marketing cost
- 9. BUNDLING WTP, Joe WTP, Sue Videoshop $50 $100 Photoprime $100 $50 Price set Joe pays Sue pays Total value Videoshop= $100 Photoprime=$100 $100 (VS only) $100 (PP only) $200 Videoshop= $50 Photoprime=$50 $50+$50=$100 $50+$50=$100 $200 Bundle- Videoshop +Photoprime = $150 $150 $150 $300
- 10. HOW IT WORKS. REAL LIFE EXAMPLE My side project Altima Lookbook: an extension for Magento e-commerce More info: http://shop.altima.net.au/altima-lookbook-professional.html
- 11. HOW IT WORKS. REAL LIFE EXAMPLE We have 3 price levels: • Altima Lookbook Free ($0) • Altima Lookbook Professional • Community edition $85 • Enterprise edition $210 More info: http://shop.altima.net.au/altima-lookbook-professional.html
- 12. HOW IT WORKS. REAL LIFE EXAMPLE Key numbers after 5 months of enterprise licence introduction More info: http://shop.altima.net.au/altima-lookbook-professional.html Number of Enterprise licences purchased, % of total paid orders 18% Number of Enterprise licences purchased, % of total revenue 34% Extra value captured (% of total revenue) 20%
- 13. QUESTIONS? ?
- 14. THAT’S IT Thanks for your attention Alex Levashov alex@levashov.biz LinkedIn: http://au.linkedin.com/in/alevashov/
Editor's Notes
- Samples:Adobe Creative SuitStudent and Teacher EditionAnnual plan forA$24.99 per month (50% less than regular)