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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 valu

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.
tptacek 7y ago
I'm not Greg Kogan, of course, but... It is indeed highly subjective to the user. So, part of the job of marketing is, segment your market, decide which one is most lucrative, target them with pricing that optimizes the outcome for that segment, and then adjust the product packaging to give yourself the most flexibility to attempt to repeat the process with the next segment of customers. You learn the value your users get from your offerings by talking to them. From 10+ years of watching this conversation recur on HN and talking to people running businesses, it seems like probably one of the most common mistakes business owners here make is trying to target an overly broad group of customers, and setting a very low ceiling on their prices to make sure everyone in that group can afford the product. That never seems to work well. On the other hand: setting a price for your product that only works for customers who can put it to extremely lucrative use? That's a strategy I've seen succeed a bunch. It all depends on your product and your company; you can win big with fixed (maybe low) prices and a huge, undifferentiated customer base, if the stars align. They seem not to most of the time.
- gridlockd 7y ago
  I don't disagree with you at all. Segment your market. Focus on the most lucrative group first. When you have done all that, apply the usual tricks. That all implies that there is such a lucrative group that has the expectation to pay a handsome sum for your product. It implies that there is no competition that has already driven the price into the ground. If your product is truly novel and there is no competition, better set a higher price. You can always go lower and see how much more revenue you can get. Over time however, competition will show up and put the price closer to cost, or even below cost. Users will no longer expect to pay the older prices, so they won't - no matter how much value they get.
pdonis 7y ago
> some utility might save hundreds of hours and thousands of dollars over the course of its usage Yes, "might": > you can't know the value users will actually get out of your product So the problem you have is that you think (but don't know) that your product is much more valuable to your users than they think it is (since they're only willing to pay $20 for it). You're not going to fix that problem by hacking how your pricing is presented on a web page. Which is why people view trying to fix it by hacking how your pricing is presented on a web page as "tricking the user". > This is why anchoring is beneficial, it gives you the opportunity to tilt that expectation a little bit. If your program is actually worth thousands of dollars to the user, but they're only willing to pay $20 given their current knowledge, you don't want to tilt their expectations by "a little bit". You want to tilt their expectations by a couple of orders of magnitude. Which, as noted above, is not doable by hacking how your pricing is presented on a web page.
- gridlockd 7y ago
  > So the problem you have is that you think (but don't know) that your product is much more valuable to your users than they think it is (since they're only willing to pay $20 for it). No, the problem is that whatever you think your product is worth is irrelevant. What matters is your costs, that puts the bottom on the price, unless you want to burn cash for growth. Your customers expectations are the ceiling. Of course all your customers are not alike and maybe there's 10% that would pay so much more to outperform the other 90% in revenue. That's when upselling comes into play, or maybe you want to focus only on the 10% entirely. > If your program is actually worth thousands of dollars to the user, but they're only willing to pay $20 given their current knowledge, you don't want to tilt their expectations by "a little bit". You want to tilt their expectations by a couple of orders of magnitude. Which, as noted above, is not doable by hacking how your pricing is presented on a web page. It's not doable at all. Nobody who expects to pay $20 for something will shell out $200 for it, unless they have looked everywhere and figured that everyone else charges in the same ballpark, or that you are the only option and they really need your product. Anchoring isn't magic, it's the same kind of trick that makes $9.99 appear substantially cheaper than $10.00. It'll give you a slight boost.
  - 7y ago
david_w 7y ago
Consumers are expert at detecting what has value for them. Putting the "correct" price on it means locating it on the can-pay / will-pay / will-pirate normal distribution of price vs profit chart you've seen . If something saves me thousands of hours, I am not likely to both miss that fact and stay in business to be a customer for long. Sellers have a harder problem figuring out what consumers value. The solutions to that are things like collecting useage data, eating your own dogfood or BYOC (be your own customer), outright feature requests, competitor's decisions ( which are market-proven value assignments) etc. Also 0.xxx versions serve this purpose- it's partially a pre-market exploration of the value of features before a pricing / version segregation attempt is made . There's just no way consumers doesn't know what they value when they use it or its not there. There is a class of things which consumers dont' know they value because they've never had it to value in the first place (Pinterest, Instagram) but that's a different thing than assigning different values to different aggregates of established features.

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.

tptacek 7y ago

I'm not Greg Kogan, of course, but... It is indeed highly subjective to the user. So, part of the job of marketing is, segment your market, decide which one is most lucrative, target them with pricing that optimizes the outcome for that segment, and then adjust the product packaging to give yourself the most flexibility to attempt to repeat the process with the next segment of customers. You learn the value your users get from your offerings by talking to them. From 10+ years of watching this conversation recur on HN and talking to people running businesses, it seems like probably one of the most common mistakes business owners here make is trying to target an overly broad group of customers, and setting a very low ceiling on their prices to make sure everyone in that group can afford the product. That never seems to work well. On the other hand: setting a price for your product that only works for customers who can put it to extremely lucrative use? That's a strategy I've seen succeed a bunch. It all depends on your product and your company; you can win big with fixed (maybe low) prices and a huge, undifferentiated customer base, if the stars align. They seem not to most of the time.

gridlockd 7y ago
I don't disagree with you at all. Segment your market. Focus on the most lucrative group first. When you have done all that, apply the usual tricks. That all implies that there is such a lucrative group that has the expectation to pay a handsome sum for your product. It implies that there is no competition that has already driven the price into the ground. If your product is truly novel and there is no competition, better set a higher price. You can always go lower and see how much more revenue you can get. Over time however, competition will show up and put the price closer to cost, or even below cost. Users will no longer expect to pay the older prices, so they won't - no matter how much value they get.

pdonis 7y ago

> some utility might save hundreds of hours and thousands of dollars over the course of its usage Yes, "might": > you can't know the value users will actually get out of your product So the problem you have is that you think (but don't know) that your product is much more valuable to your users than they think it is (since they're only willing to pay $20 for it). You're not going to fix that problem by hacking how your pricing is presented on a web page. Which is why people view trying to fix it by hacking how your pricing is presented on a web page as "tricking the user". > This is why anchoring is beneficial, it gives you the opportunity to tilt that expectation a little bit. If your program is actually worth thousands of dollars to the user, but they're only willing to pay $20 given their current knowledge, you don't want to tilt their expectations by "a little bit". You want to tilt their expectations by a couple of orders of magnitude. Which, as noted above, is not doable by hacking how your pricing is presented on a web page.

gridlockd 7y ago
> So the problem you have is that you think (but don't know) that your product is much more valuable to your users than they think it is (since they're only willing to pay $20 for it). No, the problem is that whatever you think your product is worth is irrelevant. What matters is your costs, that puts the bottom on the price, unless you want to burn cash for growth. Your customers expectations are the ceiling. Of course all your customers are not alike and maybe there's 10% that would pay so much more to outperform the other 90% in revenue. That's when upselling comes into play, or maybe you want to focus only on the 10% entirely. > If your program is actually worth thousands of dollars to the user, but they're only willing to pay $20 given their current knowledge, you don't want to tilt their expectations by "a little bit". You want to tilt their expectations by a couple of orders of magnitude. Which, as noted above, is not doable by hacking how your pricing is presented on a web page. It's not doable at all. Nobody who expects to pay $20 for something will shell out $200 for it, unless they have looked everywhere and figured that everyone else charges in the same ballpark, or that you are the only option and they really need your product. Anchoring isn't magic, it's the same kind of trick that makes $9.99 appear substantially cheaper than $10.00. It'll give you a slight boost.
- 7y ago

david_w 7y ago

Consumers are expert at detecting what has value for them. Putting the "correct" price on it means locating it on the can-pay / will-pay / will-pirate normal distribution of price vs profit chart you've seen . If something saves me thousands of hours, I am not likely to both miss that fact and stay in business to be a customer for long. Sellers have a harder problem figuring out what consumers value. The solutions to that are things like collecting useage data, eating your own dogfood or BYOC (be your own customer), outright feature requests, competitor's decisions ( which are market-proven value assignments) etc. Also 0.xxx versions serve this purpose- it's partially a pre-market exploration of the value of features before a pricing / version segregation attempt is made . There's just no way consumers doesn't know what they value when they use it or its not there. There is a class of things which consumers dont' know they value because they've never had it to value in the first place (Pinterest, Instagram) but that's a different thing than assigning different values to different aggregates of established features.