4 ms·

Principles of Pricing

261 points by talhof8 4y ago

kensai 4y ago
Interesting wrap-up. Most of these things are probably known eve to certain laymen, but good to have them altogether.
Aulig 4y ago
If you're looking for another in-depth (139 pages), data-driven pricing guide, I can recommend ProfitWells Price Intelligently guide: https://www.priceintelligently.com/hubfs/Price-Intelligently-SaaS-Pricing-Strategy.pdf https://www.priceintelligently.com/hubfs/Price-Intelligently...
- petewailes 4y ago
  I'd second this. It's a bit waffle-y, but the shout for starting with a Van Westendorp PSM is pretty solid. Would like to have seen a mention of Gabor-Granger as that then helps bring a secondary element of profit maximisation into the mix. Van Westendorp is great for understanding what prices the market will accept, but not great for allowing you to model what will maximise your returns. Overall though it's a good intro to the subject.
sedeki 4y ago
Are there other good business resources like this for tech entrepreneurs?
- petewailes 4y ago
  You looking for help with pricing? Or just looking for reading material?
  - sedeki 4y ago
    Reading materials.
    - petewailes 4y ago
      I'll put together a list. Ping me an email - you can find it on my profile.
petewailes 4y ago
I'd say it's worth noting that this only applies to SAAS. There's a giant pile of things missing from this if you have inventory, manufacturing or anything else more complex than software and developers. Pricing is an unbelievably complex subject which this doesn't get close to discussing properly.
m0llusk 4y ago
> ... business ... purpose is ... to survive, and ... to maximise profit ... That is kind of like saying the purpose of human life is breathing. Yes, breathing is critical and fully integrated into existence, but there is so much more to living well. Similarly the purpose of business is to create value. Survival through flows of money comes as a result of that. Money dominated conversations can help, but often miss fundamental issues. For example, there is a big psychological difference between a software service with regular payments versus occasional software releases that can be bought and owned. With the right pricing the two are essentially the same, but customers tend to have very different feelings toward each model.
- SMAAART 4y ago
  I see your point and I agree. Alas, while not perfect, money is the closest proxy to measure value, not so much from the seller's POV, but the buyer's; how much money-value are they willing to part in order to acquire the goods/services being sold.
  - m0llusk 4y ago
    Another example might illustrate the difference better: When Steve Jobs returned to Apple he found extremely diverse product offerings intended to offer solutions optimized for features and cost to all segments of the small computer market. Unfortunately this resulted in a confusing mess that even he was unable to navigate. Which Mac should someone buy? Even Steve Jobs could not figure that out, and that is a sign of a serious problem. The result was a mass consolidation of products. For a time there were high and low end versions of portable and desktop computers and that was it. Deciding between a Mac and a Mac Pro was not confusing or difficult, and this approach worked well with the core values of Apple. The goal of the company was to make computing highly available with systems that Just Worked in predictable and reliable ways. Structuring offerings and price options to make buying decisions easy for people who just wanted a computer caused an immediate boost to both sales and customer satisfaction. So price optimization can mean very different things. In this case what seemed to be a straightforward targeting of market segments resulted in customer confusion that held back both sales and customer satisfaction. The solution involved a product packaging and pricing strategy that was more aligned with the goals of the company rather than tuning prices to reflect the diversity of the customer base. For best results pricing strategies must be integrated with company goals and messaging.
jmacd 4y ago
Bessemer has created a similar roundup/guide: https://www.bvp.com/pricing-course https://www.bvp.com/pricing-course For devs who need to implement some type of system to support all these pricing models, we recently started working on https://priceops.org https://priceops.org
derAndyG 4y ago
Does anybody have a similar article about service or productized service oriented pricing for agencies?
- petewailes 4y ago
  You looking for help with pricing? Or just looking for reading material?
sacrosanct 4y ago
> https://www.principlesofpricing.com/the-price https://www.principlesofpricing.com/the-price The USD 5.00 per month thing is relatively 'cheap' but the designers of the pricing model don't take into account all the other services people are signed up to. This is why super cheap tiers are great, like $1.00/mo tiers where I may not get all features, but at least I get to save some money. Spotify, Netflix, Hosting, Domain Renewals, etc all start to add up.
- Comevius 4y ago
  It's costly and risky to have cheap tiers though. Transactions have a fixed cost, and small transactions tend to be more fraudulent. Fraudulent transactions are not only costly, but if your chargeback rate reaches 1% most financial institutions drop you like a hot potato.

261 points by talhof8 4y ago

Interesting wrap-up. Most of these things are probably known eve to certain laymen, but good to have them altogether.

If you're looking for another in-depth (139 pages), data-driven pricing guide, I can recommend ProfitWells Price Intelligently guide: https://www.priceintelligently.com/hubfs/Price-Intelligently-SaaS-Pricing-Strategy.pdf https://www.priceintelligently.com/hubfs/Price-Intelligently...

petewailes 4y ago
I'd second this. It's a bit waffle-y, but the shout for starting with a Van Westendorp PSM is pretty solid. Would like to have seen a mention of Gabor-Granger as that then helps bring a secondary element of profit maximisation into the mix. Van Westendorp is great for understanding what prices the market will accept, but not great for allowing you to model what will maximise your returns. Overall though it's a good intro to the subject.

sedeki 4y ago

Are there other good business resources like this for tech entrepreneurs?

petewailes 4y ago
You looking for help with pricing? Or just looking for reading material?
- sedeki 4y ago
  Reading materials.
  - petewailes 4y ago
    I'll put together a list. Ping me an email - you can find it on my profile.

petewailes 4y ago

I'd say it's worth noting that this only applies to SAAS. There's a giant pile of things missing from this if you have inventory, manufacturing or anything else more complex than software and developers. Pricing is an unbelievably complex subject which this doesn't get close to discussing properly.

m0llusk 4y ago

> ... business ... purpose is ... to survive, and ... to maximise profit ... That is kind of like saying the purpose of human life is breathing. Yes, breathing is critical and fully integrated into existence, but there is so much more to living well. Similarly the purpose of business is to create value. Survival through flows of money comes as a result of that. Money dominated conversations can help, but often miss fundamental issues. For example, there is a big psychological difference between a software service with regular payments versus occasional software releases that can be bought and owned. With the right pricing the two are essentially the same, but customers tend to have very different feelings toward each model.

SMAAART 4y ago
I see your point and I agree. Alas, while not perfect, money is the closest proxy to measure value, not so much from the seller's POV, but the buyer's; how much money-value are they willing to part in order to acquire the goods/services being sold.
- m0llusk 4y ago
  Another example might illustrate the difference better: When Steve Jobs returned to Apple he found extremely diverse product offerings intended to offer solutions optimized for features and cost to all segments of the small computer market. Unfortunately this resulted in a confusing mess that even he was unable to navigate. Which Mac should someone buy? Even Steve Jobs could not figure that out, and that is a sign of a serious problem. The result was a mass consolidation of products. For a time there were high and low end versions of portable and desktop computers and that was it. Deciding between a Mac and a Mac Pro was not confusing or difficult, and this approach worked well with the core values of Apple. The goal of the company was to make computing highly available with systems that Just Worked in predictable and reliable ways. Structuring offerings and price options to make buying decisions easy for people who just wanted a computer caused an immediate boost to both sales and customer satisfaction. So price optimization can mean very different things. In this case what seemed to be a straightforward targeting of market segments resulted in customer confusion that held back both sales and customer satisfaction. The solution involved a product packaging and pricing strategy that was more aligned with the goals of the company rather than tuning prices to reflect the diversity of the customer base. For best results pricing strategies must be integrated with company goals and messaging.

jmacd 4y ago

Bessemer has created a similar roundup/guide: https://www.bvp.com/pricing-course https://www.bvp.com/pricing-course For devs who need to implement some type of system to support all these pricing models, we recently started working on https://priceops.org https://priceops.org

derAndyG 4y ago

Does anybody have a similar article about service or productized service oriented pricing for agencies?

petewailes 4y ago
You looking for help with pricing? Or just looking for reading material?

sacrosanct 4y ago

> https://www.principlesofpricing.com/the-price https://www.principlesofpricing.com/the-price The USD 5.00 per month thing is relatively 'cheap' but the designers of the pricing model don't take into account all the other services people are signed up to. This is why super cheap tiers are great, like $1.00/mo tiers where I may not get all features, but at least I get to save some money. Spotify, Netflix, Hosting, Domain Renewals, etc all start to add up.

Comevius 4y ago
It's costly and risky to have cheap tiers though. Transactions have a fixed cost, and small transactions tend to be more fraudulent. Fraudulent transactions are not only costly, but if your chargeback rate reaches 1% most financial institutions drop you like a hot potato.