Pricing

Table of contents

Child pages

• Examples of pricing
• Pricing segmentation

Related pages

• ...

Books

• Monetizing Innovation

Articles

• 2004.12.15 - Joel Spolsky - Camels and Rubber Duckies
  • Haven't read this yet. It was linked to by Evan Miller.
• 2011.03.01 - Inc - Jason Fried - How to Make Money in 6 Easy Steps

  • People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.

    This lesson is at the core of 37signals. There are plenty of free project management tools. There are plenty of free contact managers and customer relationship management tools. There are plenty of free chat tools and organization tools. There are plenty of free conferences and workshops. Free is everywhere. But we charge for our products. And our customers are happy to pay for them.

    There's another lesson in here: Charging for something makes you want to make it better. I've found this to be really important. It's a great lesson if you want to learn how to make money.

  • When you put a price on something, you get really honest feedback from customers. When entrepreneurs ask me how to get customers to tell us what they really think, I respond with two words: Charge them. They'll tell you what they think, demand excellence, and take the product seriously in a way they never would if they were just using it for free.
  • Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project. It worked great.
    

    But as the projects started getting bigger and costing a lot more, I noticed that clients became more reticent about signing on. Big numbers and long time frames make people nervous. More money and more time mean more risk, and risk is something all companies would prefer to avoid.

    I thought about the problem and decided to try something new. Instead of doing long, expensive projects, we'd do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we'd charge $3,500 per page and offer to complete the page in a week. If you want another page, it's another $3,500 and another week. We called it 37express.
    
    It took off. It took the risk out. It let companies try us out before committing to something big. And it was a lot more fun for us—fewer meetings, less stress, fewer decisions to be made. Just a quick one-week project for a fixed price. If you want more, we'll sell you another.
    

    • IIRC this is the same advice that that TypicalProgrammer guy gave.
  • Remove the fear, and people will be more willing to pay you. People don't like uncertainty—especially when they have to pay for it. A week and a fixed price is certain.

  • We've continued to experiment with pricing models. It's been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We've sold our book Getting Real as an instant download for $19 and as a paperback for $25. We've sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.

    We've even sold promotional T-shirts, for $19, when just about everyone else in the business gives them away. People wear shirts they paid $19 for. People turn free T-shirts into rags. Rags don't promote anyone.

• 2012 (Email drip campaign) - patio11 - The Black Arts of SaaS Pricing
• 2012.08.13 - patio11 - Doubling SaaS Revenue By Changing The Pricing Model
• 2012.08.16 - Josh Edelman - Stop Using The Cup of Coffee vs. $0.99 App Analogy
  • Summary: A $0.99 app is not analogous to a cup of coffee. When users buy a cup of coffee, they know what they're getting. Apps are so varied in quality that the user feels (rightly) like it's much more of a gamble.
• 2012.10(?) - IAmNotAProgrammer.com - Don't give away your product for free…unless you plan to keep it free forever.
  
  • The Cost of Free Doughnuts, a story on NPR shows what happens when you make something paid that was once free.
    
  • going from free to paid is a "Categorical Change"
  • The psychological difference between $1 and $2 is minuscule compared to the difference between ZERO and $1.
  • A popular strategy for SaaS products is to be free until you figure out pricing. (...) This is a mistake. IF you ever plan to charge people to use your product, charge them from Day 1.
  • When starting something new, you should try to find out if it's valuable. Ask people for money.
  • If you're building something with network effects, don't charge money.
  • Thoughts: One way to avoid this with SaaS is to keep older customers paying what they started out paying, and only increase the price for new customers.
• 2013.05.12 - Evan Miller - How To Get Great Ratings For Your Mac App
• 2014.12.04 - The Bottom Feeder - How You're Going To Price Your Computer Game
• 2015.12.03 - FirstRound - It’s Price Before Product. Period.
  
  • rec'd by Bryton
  • Thoughts: It seems to have good ideas and useful anecdotes. His definition of price (what customers need, value, and are willing to pay for) seems very closely related to the term "product-market fit" used by many VCs now. I like the latter term more.
  • Summary
    • Intro
      • Porsche greatly increased their profitability by introducing the Cayenne, an SUV, which conflicted with the Porsche brand up until that point. This victory wasn't primarily a result of Porsche’s engineering prowess or manufacturing efficiency, but rather how it designed the car around what customers needed, valued and were willing to pay for – in short, around its price.
      • A guy named Madhavan Ramanujam wrote a book called Monetizing Innovation. The rest of the article is relating his ideas.
      • With the Cayenne, Porsche focused on benefits customers were willing to pay for. All the items customers weren’t willing to pay for, like Porsche’s famous six-speed racing transmission, were thrown out, even if their engineers loved them.
      • Fiat Chrysler took a price-ignorant approach to designing a compact car and it bombed.
    • Main idea of the article: Talk with customers early in the product-development process to determine their willingness to pay for various possible solutions to the problem you're attempting to solve.
    • Four ways companies often trip up when trying to monetize:
      • Too many features - This makes the product harder to explain, and more costly than people are willing to pay.
        • To avoid: Create packages or bundles or multiple versions that each contain a subset of all the features you had in mind, where those packages/bundles/versions are designed to cater to a particular group of customers.
      • Charging too little ('minivations')
        • To avoid: Watch your sales. If the majority of deals are going through the pipeline without any pushback on price, you may have underpriced it.
      • Not developing a product because it goes against the grain of what the company normally offers.
        • These ideas often never make it to the executive suite. They are stopped by mid-level executives who are either unable to see their potential or are scared of them.
      • Either creating the wrong answer to the right question; or an answer to a question no one cares about.
        • How to avoid: Had these firms asked customers whether and what they’d be willing to pay for their inventions before drafting the engineering plans, and had they identified the market size by segment and who would be willing to pay the most and the least for it, they would have reformulated their products to meet an acceptable price. Or, finding there is no acceptable price, or that the market size is too small, they would have scrapped the product altogether before they incurred too much financial damage
    • Three guidelines to properly design and price products:
      • Have the Willingness-to-Pay talk early.
        • What do you think is an acceptable price for this innovation?
          • Based on working with hundreds of companies, here’s what we’ve learned: An acceptable price is the price that people are super comfortable paying. No friction, they just love your pricing because it's a steal. If you're pricing for growth, maybe you can price in the acceptable area.
        • What is an expensive price for this innovation?
          • Expensive is the price that they would actually pay you, but they don't like it. Neither do they hate it, but it's the price usually that's aligned with value.
        • What is a prohibitively expensive price for this innovation?
          • The prohibitively expensive is the price that they'll pretty much be laughing you out of the room. Asking that question gives you some sense of where you can actually be someday, but not at the moment.
        • Consider doing a large-scale study with these questions.
        • Try to identify “price cliffs”, where demand drops off due to price (eg $51 vs. $49.99).
      • Investigate How You Charge As Much as What You Charge
        • Michelin came up with a tire that would last 20% longer, but they knew customers wouldn't pay 20% more for it, so to capture the potential value made possible by this improvement they switched their payments model to having their customers (truck fleets) pay per mile driven. It was a very profitable decision.
        • Factors to consider when evaluating a pricing model:
          
          • predictability
          • flexibility
          • fairness
          • transparency
          • your customer's preferences
          • possible future developments
          • what your competitors are doing
            • You want to set yourself apart.
          • feasibility
          • difficulty of customer adoption
          • scalability
          • ease of communicating the model to customers and partners.
        • Check if any monetization models new to your industry may now be possible with new technology.
      • Don’t settle for a one-size-fits-all solution.
        • Create different versions of your product to match your major customer segments.
        • Possible segments:
          • People who want the best product
          • People who want it now
          • People who just want the normal version
          • People who are very price sensitive
        • Principles that are key to segmentation:
          • Create segments according to customers' willingness to pay, value and needs data.
          • Make sure there clear fences between segments — features one segment strongly wants but others don’t.
          • Start with 3-4 segments, then expand gradually until you reach the optimal number.
          • Make sure a segment will deliver you enough money to make it worth it.
          • Make sure each segment has observable criteria for customizing your sales and marketing messages.
• 2017.08.15 - Polygon - No one knows how expensive video games should be
  • Summary:
    • Main idea: There is no “standard” price for a video game in 2017, and that’s a good thing for developers, publishers and fans.
    • There are now special editions of games that can cost hundreds of dollars.
    • New releases from major publishers can cost anywhere from $20 to $60.
    • Sales are frequent.
    • Some indies are offering discounts for pre-orders, as high as 33%.
      • SteamSpy founder says this is a bad idea, and the indies should just add value to the preorder instead.
    • There are people (like Nine Inch Nails and Jonathan Blow, creator of Braid) who gained enough money and fame under an older system (record labels, limited Xbox Live Arcade access) that they can afford to experiment with new lower-price models in a way that upstarts may not be able to, because they can get enough volume to make it work.
    • The price isn't directly correlated to the budget, either. Niche low-budget games can cost as much as wide-release big-budget games.
    • This isn't a phenomenon unique to games: even Coke and Pepsi are experimenting with new prices and sizes.
  • There are now lots of opportunities for fans and developers at many different price-points / budgets.