5 ms·

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the bi

by gk1 7y ago

This is all about tricking people, and nothing about designing pricing to match the value provided. Pricing, especially for software products, is one of the biggest levers for increasing revenue through new and even current customers. It’s very important to get it right, and to experiment occasionally. (I know because I’ve done it for companies.) It involves a lot more than growth-hacking the pricing page.

thomk 7y ago
Can you expand a bit? I'm genuinely curious about your experience helping customers price products.
- gk1 7y ago
  Two examples of many, to illustrate there's more to it than playing Malcom Gladwell with the price points: == 1. A software company that most people here would recognize (and many use) asked me to find out why corporate/enterprise users weren't upgrading from the free and low-cost plans to the upper tiers. After extensive research and customer interviews, I identified five main benefits their enterprise users were getting from the platform. The twist: Four of those five benefits were available on the free plan. And the "premium" features on the top plans were of no use to them. No wonder they weren't upgrading. Soon after, the company overhauled their pricing plans to capture more value ($$) from the benefits they provide. This was a major breakthrough for them and led to fantastic outcomes. === 2. Another software startup, smaller than the one above but still recognizable by a good fraction of HNers, was losing potential customers because their pricing tiers were based on # of servers. Because 1) EC2 and Docker were becoming a thing at the time, so pinning the price to "number of servers" resulted in some absurdly high quotes for not-so-large teams, and 2) the legacy/incumbent providers pinned their pricing to data volumes, so the people who wanted to switch found it hard to compare pricing and see that this company's plans were a better value. We changed the pricing to be based on data volume and designed the tiers to be a bit lower than the big incumbents and to not encourage current customers to downgrade. === And sure, while this was all going on there were designers and product marketers busying themselves with optimizing the pricing pages for conversions. However, a good outcome for them would be a 5–10% increase in signups, whereas the outcomes from the two examples above were measured in seven-figure increases in ARR and VC rounds.
gridlockd 7y ago
Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value. Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what they'll be ready to pay. This is why anchoring is beneficial, it gives you the opportunity to tilt that expectation a little bit. Is that "tricking the user"? Arguably, but since you can't know the value users will actually get out of your product, any claims in that regard will fall under "marketing BS" as well. Pick your bullshit wisely.
- perennate 7y ago
  This why GP is saying pricing is one of the biggest levers for increasing revenue. If you're charging $20 for the service and focusing on tricks like these, then you'll not make as much compared to realizing that utilities are willing to pay much more and focusing sales efforts on them.
  - tptacek 7y ago
    Which is to say that they're both potentially sort of right, but that the blog post is talking about tactics and not really addressing strategy.
- gk1 7y ago
  In my view, if you're charging $20 for a utility that demonstrably saves companies hundreds of hours of labor, then you're leaving a whole lot of money on the table.
  - gridlockd 7y ago
    The $20 figure may be more appropriate to the average consumer, but the same principle applies to companies. However, then it gets way more complicated because more people are involved in the purchasing decision and the users aren't necessarily the ones deciding the purchase. Getting a small purchase through is exponentially easier. Most companies aren't actually all that efficient, they are very good at creating busywork. Lots of human factors are at play. Changing workflows is a tough sell. Also, what's a "demonstrable" saving? Sure, I can sing the praises of my product, of course I will. I can bring testimonials. The person at the other side will not take it at face value. They have a budget, they have an expectation of how much to spend. They can't just add my promised savings to their budget. Nobody is getting fired for wasting money on the purpose it was already budgeted for.
csa 7y ago
> This is all about tricking people, and nothing about designing pricing to match the value provided. Hmmmm... maybe. That said, I would say that they are more often just a way for a company to price their products in a way that more accurately reflects the value to the purchaser. The easiest example of this is anchoring. The difference in a pricing page that offers 100-220 and a page that offers 100-220-500 is typically very large, and that’s true even if no one selects the 500 option! Having that high end third option effectively gives folks the permission to select a more expensive option that probably has more utility for them and/or their organization.
- pdonis 7y ago
  > Having that high end third option effectively gives folks the permission to select a more expensive option that probably has more utility for them and/or their organization You're assuming that just, you know, telling your customers about what extra features they get in the more expensive 220 option isn't enough to persuade the ones for whom it would genuinely add value to choose it. Which means either you aren't communicating your features effectively (and you should fix that instead of worrying about hacking your pricing page) or you think your customers aren't capable of judging what's in their own best interest given accurate information, so you have to manipulate them for their own good. The GP, by saying "this is all about tricking people", is simply expressing what to me is highly justified skepticism about the latter position.
  - renewiltord 7y ago
    Or maybe adding the 500 option is the way to communicate your features most effectively. i.e. it presents the top-end of what's possible and accurately showcases where your more expensive option is.
    - pdonis 7y ago
      > maybe adding the 500 option is the way to communicate your features most effectively. Not if nobody actually buys it, which was a premise of that particular example.

by gk1 7y ago

thomk 7y ago

Can you expand a bit? I'm genuinely curious about your experience helping customers price products.

gk1 7y ago
Two examples of many, to illustrate there's more to it than playing Malcom Gladwell with the price points: == 1. A software company that most people here would recognize (and many use) asked me to find out why corporate/enterprise users weren't upgrading from the free and low-cost plans to the upper tiers. After extensive research and customer interviews, I identified five main benefits their enterprise users were getting from the platform. The twist: Four of those five benefits were available on the free plan. And the "premium" features on the top plans were of no use to them. No wonder they weren't upgrading. Soon after, the company overhauled their pricing plans to capture more value ($$) from the benefits they provide. This was a major breakthrough for them and led to fantastic outcomes. === 2. Another software startup, smaller than the one above but still recognizable by a good fraction of HNers, was losing potential customers because their pricing tiers were based on # of servers. Because 1) EC2 and Docker were becoming a thing at the time, so pinning the price to "number of servers" resulted in some absurdly high quotes for not-so-large teams, and 2) the legacy/incumbent providers pinned their pricing to data volumes, so the people who wanted to switch found it hard to compare pricing and see that this company's plans were a better value. We changed the pricing to be based on data volume and designed the tiers to be a bit lower than the big incumbents and to not encourage current customers to downgrade. === And sure, while this was all going on there were designers and product marketers busying themselves with optimizing the pricing pages for conversions. However, a good outcome for them would be a 5–10% increase in signups, whereas the outcomes from the two examples above were measured in seven-figure increases in ARR and VC rounds.

gridlockd 7y ago

Why would you design a price for "value provided"? That's highly subjective to the user. Users also generally only pay for what they expect to pay, not the value they're getting. For instance, some utility might save hundreds of hours and thousands of dollars over the course of its usage, which is tremendous value. Yet if the average user expects that it should cost no more than, say, twenty dollars, that's what they'll be ready to pay. This is why anchoring is beneficial, it gives you the opportunity to tilt that expectation a little bit. Is that "tricking the user"? Arguably, but since you can't know the value users will actually get out of your product, any claims in that regard will fall under "marketing BS" as well. Pick your bullshit wisely.

perennate 7y ago
This why GP is saying pricing is one of the biggest levers for increasing revenue. If you're charging $20 for the service and focusing on tricks like these, then you'll not make as much compared to realizing that utilities are willing to pay much more and focusing sales efforts on them.
- tptacek 7y ago
  Which is to say that they're both potentially sort of right, but that the blog post is talking about tactics and not really addressing strategy.
gk1 7y ago
In my view, if you're charging $20 for a utility that demonstrably saves companies hundreds of hours of labor, then you're leaving a whole lot of money on the table.
- gridlockd 7y ago
  The $20 figure may be more appropriate to the average consumer, but the same principle applies to companies. However, then it gets way more complicated because more people are involved in the purchasing decision and the users aren't necessarily the ones deciding the purchase. Getting a small purchase through is exponentially easier. Most companies aren't actually all that efficient, they are very good at creating busywork. Lots of human factors are at play. Changing workflows is a tough sell. Also, what's a "demonstrable" saving? Sure, I can sing the praises of my product, of course I will. I can bring testimonials. The person at the other side will not take it at face value. They have a budget, they have an expectation of how much to spend. They can't just add my promised savings to their budget. Nobody is getting fired for wasting money on the purpose it was already budgeted for.

csa 7y ago

> This is all about tricking people, and nothing about designing pricing to match the value provided. Hmmmm... maybe. That said, I would say that they are more often just a way for a company to price their products in a way that more accurately reflects the value to the purchaser. The easiest example of this is anchoring. The difference in a pricing page that offers 100-220 and a page that offers 100-220-500 is typically very large, and that’s true even if no one selects the 500 option! Having that high end third option effectively gives folks the permission to select a more expensive option that probably has more utility for them and/or their organization.

pdonis 7y ago
> Having that high end third option effectively gives folks the permission to select a more expensive option that probably has more utility for them and/or their organization You're assuming that just, you know, telling your customers about what extra features they get in the more expensive 220 option isn't enough to persuade the ones for whom it would genuinely add value to choose it. Which means either you aren't communicating your features effectively (and you should fix that instead of worrying about hacking your pricing page) or you think your customers aren't capable of judging what's in their own best interest given accurate information, so you have to manipulate them for their own good. The GP, by saying "this is all about tricking people", is simply expressing what to me is highly justified skepticism about the latter position.
- renewiltord 7y ago
  Or maybe adding the 500 option is the way to communicate your features most effectively. i.e. it presents the top-end of what's possible and accurately showcases where your more expensive option is.
  - pdonis 7y ago
    > maybe adding the 500 option is the way to communicate your features most effectively. Not if nobody actually buys it, which was a premise of that particular example.