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Almost all conversations about pricing make the same mistake: they assume that we all have the same goals. Your goal might be to squeeze as much money out of yo

Almost all conversations about pricing make the same mistake: they assume that we all have the same goals. Your goal might be to squeeze as much money out of your customers as you can. That's totally fine, and completely ethical, but it's not my goal. I'm guessing many people are similar to me. I want my business to be profitable. I want to get rich off of it. But I want my customers to get even richer. I want to know for a fact that I'm leaving money on the table for my customers to capture for themselves. I suspect that in the long run this will actually be a good business decision (happier customers now = more word of mouth) but even if it isn't, I still think it's the right decision for me. That's why I don't raise my prices.

SteliE 13y ago
I hear you. What I'm saying is not "leave zero customer surplus" I say don't create value purely by lowering prices. More specifically from the post: "Focus fanatically on this: offering more value to every single customer than you extract from them with your pricing. Do that by constantly adding more value to your customers life instead of lowering your prices and discounting your product heavily."
- jandrese 13y ago
  Isn't this the road to expensive bloated products full of feature that few people need? I know I get annoyed when some well designed tool adds a ton of features that don't really make it any better for me, and becomes more expensive in the process. Heck, it often becomes worse overall because all of those extra features make it slow and buggy.
  - gacba 13y ago
    If you are adding features for features' sake, then you are not adding value. Bloated products result when you add features without understanding their value to the customer base you serve. Of course, it could be that you serve such a diverse customer base that adding in "valuable" features creates bloat as a side-effect (Hi Microsoft Excel!), but for a SaaS app that is less than 3-5 years old, I think you'd be hard pressed to fit in this category.
    - _delirium 13y ago
      I think you're less likely, but some people really do just need dead-simple things priced as cheaply as possible, so it's not necessarily a wrong decision, at least for some customers in some markets, to offer them something cheap and bare-bones and not really innovate much beyond the initial offering. I think that may be my favorite category of SaaS, something that does one thing with barely any options, and charges me barely any money to do it, but keeps up the service and a stable API reliably, and periodically drops prices as their own costs drop.
filearts 13y ago
This reminds me of a bit of an epiphany I had back in University. At the time, groups in our class were playing some sort of national business simulation game. I was sure that I had optimized my business to produce the 'best' widget at the lowest cost in a market dominated by other high quality widgets. Week after week, my business' position grew worse. Finally, I spoke to my teacher who had a very simple message (paraphrased, it was ~7 years ago): "Its not about having the best product, its about finding the untapped segment of the market," he said. After that, I reoriented my business to attack a segment of the virtual market that was not being heavily targeted. That very week, my company made a complete turn-around. In other words, I created a product that was well adapted for a specific segment of the market. In the context of the linked article, I think the message is that there is an equilibrium between value provided by a service and the price at which people are willing to pay. If your product is worth more to your users than you are charging them, then you have not optimized this equilibrium. Now, IF you are able to offer your service at a cost that is significantly lower than what your target customers are willing to pay, there is a strong likelihood that competition may try and capture some of this margin. This does not at all violate the equilibrium principle because as new, lower-cost providers arrive, the price-point for users will naturally be lowered.
- wlievens 13y ago
  SimCountry?
  - filearts 13y ago
    I honestly can't remember the name, but it was not SimCountry. I hardly remember the game, only the realization that you can either try and outdo competitors face-to-face or simply go where they aren't and capture the value from underserved segments of the market.
    - vinceguidry 13y ago
      Sounds like Capitalism / Capitalism 2.
jakejake 13y ago
I didn't get anything from the article about squeezing maximum money from every customer. No customer wants to feel like they're being gouged. But, neither do they want to see a good service go out of business because the owner felt guilty about the price. One thing I know is that if you charge $49/month inevitably somebody will tell you the price should be $9.99/month. If you charge $9.99 then somebody will tell you it should be free. The point is that there will always be a tiny minority of people who want your service for a price that isn't sustainable. You can't base your business plan off of these people. You have to base your prices off of the value of your service as well as the cost it takes for you to provide that service.

SteliE 13y ago

I hear you. What I'm saying is not "leave zero customer surplus" I say don't create value purely by lowering prices. More specifically from the post: "Focus fanatically on this: offering more value to every single customer than you extract from them with your pricing. Do that by constantly adding more value to your customers life instead of lowering your prices and discounting your product heavily."

jandrese 13y ago
Isn't this the road to expensive bloated products full of feature that few people need? I know I get annoyed when some well designed tool adds a ton of features that don't really make it any better for me, and becomes more expensive in the process. Heck, it often becomes worse overall because all of those extra features make it slow and buggy.
- gacba 13y ago
  If you are adding features for features' sake, then you are not adding value. Bloated products result when you add features without understanding their value to the customer base you serve. Of course, it could be that you serve such a diverse customer base that adding in "valuable" features creates bloat as a side-effect (Hi Microsoft Excel!), but for a SaaS app that is less than 3-5 years old, I think you'd be hard pressed to fit in this category.
  - _delirium 13y ago
    I think you're less likely, but some people really do just need dead-simple things priced as cheaply as possible, so it's not necessarily a wrong decision, at least for some customers in some markets, to offer them something cheap and bare-bones and not really innovate much beyond the initial offering. I think that may be my favorite category of SaaS, something that does one thing with barely any options, and charges me barely any money to do it, but keeps up the service and a stable API reliably, and periodically drops prices as their own costs drop.

filearts 13y ago

This reminds me of a bit of an epiphany I had back in University. At the time, groups in our class were playing some sort of national business simulation game. I was sure that I had optimized my business to produce the 'best' widget at the lowest cost in a market dominated by other high quality widgets. Week after week, my business' position grew worse. Finally, I spoke to my teacher who had a very simple message (paraphrased, it was ~7 years ago): "Its not about having the best product, its about finding the untapped segment of the market," he said. After that, I reoriented my business to attack a segment of the virtual market that was not being heavily targeted. That very week, my company made a complete turn-around. In other words, I created a product that was well adapted for a specific segment of the market. In the context of the linked article, I think the message is that there is an equilibrium between value provided by a service and the price at which people are willing to pay. If your product is worth more to your users than you are charging them, then you have not optimized this equilibrium. Now, IF you are able to offer your service at a cost that is significantly lower than what your target customers are willing to pay, there is a strong likelihood that competition may try and capture some of this margin. This does not at all violate the equilibrium principle because as new, lower-cost providers arrive, the price-point for users will naturally be lowered.

wlievens 13y ago
SimCountry?
- filearts 13y ago
  I honestly can't remember the name, but it was not SimCountry. I hardly remember the game, only the realization that you can either try and outdo competitors face-to-face or simply go where they aren't and capture the value from underserved segments of the market.
  - vinceguidry 13y ago
    Sounds like Capitalism / Capitalism 2.

jakejake 13y ago

I didn't get anything from the article about squeezing maximum money from every customer. No customer wants to feel like they're being gouged. But, neither do they want to see a good service go out of business because the owner felt guilty about the price. One thing I know is that if you charge $49/month inevitably somebody will tell you the price should be $9.99/month. If you charge $9.99 then somebody will tell you it should be free. The point is that there will always be a tiny minority of people who want your service for a price that isn't sustainable. You can't base your business plan off of these people. You have to base your prices off of the value of your service as well as the cost it takes for you to provide that service.