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Ask HN: Pricing strategies in a small niche market

3 points by nicheqs 11y ago

I'm considering spending some free time making what is essentially an event planner for a sport/hobby I'm passionate about. There are two other SaaS competitors, and I believe both are clunky and antiquated. Both products are run by individuals and each are around the same age (50-60yrs). I also believe this is the primary source of income for both of them. Competitor A: * I consider the better product of the two. It's simpler and clean. It's typically the choice of premier events. * Platform based on Cold Fusion. The software is mostly unchanged since 2006. * His pricing model is a simple $10/entry. Last year he did ~300 events with 13000 entries = ~$130,000 in revenue unless he gave discounts anywhere. * He's a nice guy who's well-liked in the community. His reputation for service is great. Competitor B: * The more "feature-full" product, but it's confusing to use, poorly organized, and buggy. * Platform is PHP with a lot of c/p JS. I believe he uses contractors to build the product unlike the guy behind A. * Pricing model is a percentage fee on entry fees (which can vary depending on the event). He also runs ads. I believe this product is considered less expensive for smaller events. * Last year he did ~800 events. I'm not sure how many entries yet. There's no easy way to guess his revenue. I'll be able to beat them easily on quality of product, but I'm not sure how to price myself, what model to use, and how I'll overcome the personal connections they have with event managers. Should I pull a Google Apps and go free until they give up? Should I price higher as the "premium" option? Should I try somehow to do subscription? Any advice would be very appreciated!

leesalminen 11y ago
My nich market sounds very similar to yours. I entered a market with 2 older competitors who were stagnating. We talked to a ridiculous number of people about what would make a better product. We then built that. We charge ~40% more than our competition and have had remarkably few complaints about pricing. My email is in my profile - reach out if you have questions!
- nicheqs 11y ago
  Thanks for the inspiring answer. How have those competitors reacted?
  - leesalminen 11y ago
    Our biggest/largest competitor is not happy :P. We've met with them a few times at trade shows now. They're decent people, but the founder (lead dev) told me point blank that he _will not_ write JS. We scared them enough to do a "rewrite". It took them nearly a year and consisted of installing Bootstrap and applying CSS classes. Oh, and copying a few (read: all) of my awesome (but super simple) features. They're yet to copy my difficult to build features. We're still switching people over from them every day of the week and not one of their customers has ever complained about the 40% increase in price. The only other company I would consider competition has done nothing to their product, message or marketing since we entered the market. There's a new competitor entering the market- but their product is far too simple. It's cute actually; reminds me of my concept for the product before talking to thousands of potential customers.
ddingus 11y ago
I want to second leesalminen. Do the analysis and figure out where there is a lot of value to add, then ask for that value in your pricing. To be frank, say you make a "me too" product. Not that I'm implying that is your intent. I'm not. You could roll it out, cut the better product pricing by some amount, promote, and score some revenue. The expectations on this may well result in a race to the bottom, though it could also fund you making some real improvements too. However, your better competitor will likely respond and you've got an arms race where your first move would be just to cut cost. IMHO, adding more value is a harder sell, but when you are successful, you have a lot of room to move, and this is very likely to fund keeping the momentum up. Start out ahead, and the other guy is playing catch up, with market expectations moving up on price / value, not down. You might also, while talking to those people about what would make for a better product, find out what "better" means to them, and price on some fraction of that value added. Things are worth what people will pay for them, and a high value perception often means more dollars. Further, setting that expectation means generally higher margins and maybe you don't have a corner on the market. That's fine. You will be earning your keep very comfortably. Look at Apple and it's smartphone profit / market share, and then Samsung and it's profit / market share. IMHO, doing the work to establish a clear, high value proposition early on has many advantages over a more streamlined, "hey we are cheaper" approach. In this case, given the better product is backed by someone well liked and who gives great service means the market is very likely open to the high value per dollar proposition, and a discount or maybe just aggressive price to gain entry might not be seen as a favorable thing. Or, you may find this "A" person has those connections somehow, or has found some of the market will pay more, or is more profitable. The "B" competitor may do more deals, but might just not make anywhere near the revenue. Find this out. Given the connections in play, a high value / dollar play is likely going to require some real sales effort, and the numbers you put out here are doable by an aggressive person, and that's all fine. Get the value add done, and it will be something to sell. Finally, it's awful hard to bring pricing up. It's a lot easier to either bring it down, or bundle more to maintain value / dollar in the eyes of the users. Start aggressive and high value. You can always take a different path should you find it's just not going to make sense. This also leaves the door open for tiers. Adding higher price tiers to what is seen as a lower price offering has different dynamics than adding lower price tiers to a high value / price offering does. Your discussions on "what is worth what?" with the market should help you understand which of those dynamics makes more sense.

3 points by nicheqs 11y ago

leesalminen 11y ago

My nich market sounds very similar to yours. I entered a market with 2 older competitors who were stagnating. We talked to a ridiculous number of people about what would make a better product. We then built that. We charge ~40% more than our competition and have had remarkably few complaints about pricing. My email is in my profile - reach out if you have questions!

nicheqs 11y ago
Thanks for the inspiring answer. How have those competitors reacted?
- leesalminen 11y ago
  Our biggest/largest competitor is not happy :P. We've met with them a few times at trade shows now. They're decent people, but the founder (lead dev) told me point blank that he _will not_ write JS. We scared them enough to do a "rewrite". It took them nearly a year and consisted of installing Bootstrap and applying CSS classes. Oh, and copying a few (read: all) of my awesome (but super simple) features. They're yet to copy my difficult to build features. We're still switching people over from them every day of the week and not one of their customers has ever complained about the 40% increase in price. The only other company I would consider competition has done nothing to their product, message or marketing since we entered the market. There's a new competitor entering the market- but their product is far too simple. It's cute actually; reminds me of my concept for the product before talking to thousands of potential customers.

ddingus 11y ago

I want to second leesalminen. Do the analysis and figure out where there is a lot of value to add, then ask for that value in your pricing. To be frank, say you make a "me too" product. Not that I'm implying that is your intent. I'm not. You could roll it out, cut the better product pricing by some amount, promote, and score some revenue. The expectations on this may well result in a race to the bottom, though it could also fund you making some real improvements too. However, your better competitor will likely respond and you've got an arms race where your first move would be just to cut cost. IMHO, adding more value is a harder sell, but when you are successful, you have a lot of room to move, and this is very likely to fund keeping the momentum up. Start out ahead, and the other guy is playing catch up, with market expectations moving up on price / value, not down. You might also, while talking to those people about what would make for a better product, find out what "better" means to them, and price on some fraction of that value added. Things are worth what people will pay for them, and a high value perception often means more dollars. Further, setting that expectation means generally higher margins and maybe you don't have a corner on the market. That's fine. You will be earning your keep very comfortably. Look at Apple and it's smartphone profit / market share, and then Samsung and it's profit / market share. IMHO, doing the work to establish a clear, high value proposition early on has many advantages over a more streamlined, "hey we are cheaper" approach. In this case, given the better product is backed by someone well liked and who gives great service means the market is very likely open to the high value per dollar proposition, and a discount or maybe just aggressive price to gain entry might not be seen as a favorable thing. Or, you may find this "A" person has those connections somehow, or has found some of the market will pay more, or is more profitable. The "B" competitor may do more deals, but might just not make anywhere near the revenue. Find this out. Given the connections in play, a high value / dollar play is likely going to require some real sales effort, and the numbers you put out here are doable by an aggressive person, and that's all fine. Get the value add done, and it will be something to sell. Finally, it's awful hard to bring pricing up. It's a lot easier to either bring it down, or bundle more to maintain value / dollar in the eyes of the users. Start aggressive and high value. You can always take a different path should you find it's just not going to make sense. This also leaves the door open for tiers. Adding higher price tiers to what is seen as a lower price offering has different dynamics than adding lower price tiers to a high value / price offering does. Your discussions on "what is worth what?" with the market should help you understand which of those dynamics makes more sense.