7 ms·

What We Can Learn About Pricing From Menu Engineers

57 points by terpua 17y ago

gaius 17y ago
"Menu engineer" is a job title now?!
- rwolf 17y ago
  Job description: regurgitate chapters from pop econ books. edit: the strange phrasing "Ariely also..." in the second section makes me think the writer was regurgitating pop econ chapters themselves, and then decided at the last minute to find a "menu engineer" to say them instead.
- edw519 17y ago
  Only on trains.
- smokinn 17y ago
  Which makes me happy that "Engineer" is a protected title in Canada.
  - lamby 17y ago
    I've always been curious why people get so upset when people adopt this word outside of its, uhhh, less than traditional context. When did titles suddenly become important around here?
    - minsight 17y ago
      Would you get mad if your "Medical Doctor" wasn't? Or your "Lawyer" wasn't qualified? Or perhaps the "Engineer" who designed the trusses holding up the stadium where you see a ball game was just an unqualified amateur?
      - lamby 17y ago
        I was primarily talking about labels, not qualifications, but I do feel they are connected. There are plenty of people who call themselves "tree doctors" yet medical doctors have no problem with that (and certainly don't go all tribal and True Scotsman about it). Perhaps the difference is that in the public eye, the term doctor is synonymous with the qualification, whilst "engineer" has yet to reach that status?
        smokinn 17y ago
        It's because in Canada the term Software Engineer has a very specific meaning. It means you did a 4 year Software Engineering programming program at an accredited university and then worked under a professional engineer for a certain number of years (I think it's 4?) and then passed your accreditation examination. I'm Canadian and I have a bachelor's degree in Computer Science. I don't call myself an Engineer because other than being against the law, I have a certain respect for the amount of work the people who earned the title went through. Also, if they majorly screw up, (though this isn't nearly as likely in software, it's usually happens when bridges or buildings fall down) an Engineer can have his accreditation revoked. Which is why legally calling yourself an Engineer in Canada, software or otherwise, has a certain status associated.
easyfrag 17y ago
Organizations will always come up with ways to encourage buying more (or paying a higher price), but the strategies are a moving target because a given market will learn and adjust (albeit slowly). I would argue that the MRSP "trick" no longer works because almost no one expects to pay it anymore. Using some of these tactics could backfire depending on how educated or savvy your target market is. Think of spam messages, those over the top tactics used to work on more people, now for most educated people that type of hard sell doesn't work. Of course it all depends on the target market, if you're selling blankets with arms the bar is a little lower.
nazgulnarsil 17y ago
the impression of utility is more important than actual utility. what does the extremely high priced option (50k in the example) signal to the customer? that someone out there is deriving 50,000 + x value from that service.
- lsc 17y ago
  depends on what you are selling, as a previous poster said, and who you are selling it to. My experience selling to computer nerds has been that we are a very rational and price-sensitive bunch. we shop around, and we want objective measures. Actual utility, much like truth during a court battle, is a big advantage. Sure, it's not overwhelming, but it helps a lot. If you are providing actual utility, your customers will do your marketing for you. Personally, I think the choice depends a lot on what you are good at. If you are good at marketing and have little technical and/or engineering skill, sure, you will get more out of marketing. But the opposite can work too. Personally, I'm always very amused by people telling me I should raise my prices. I started out selling FreeBSD jails (with an actual utility close to my current $8 product) for $40 each. I rented two. Switching to xen, then dramatically dropping my prices (well, and a few years of actually, you know, learning what I was doing) helped me a lot. Marketing is easy when you have obvious and objective advantages over competing products. You can yammer all day about this or that or the other, but if you can point at your price sheet and say 'hey, look- I'm kinda like that other guy, only 1/4th the price' well, for price sensitive customers, that's a difficult to refute reason to give you a shot, especially if the advantages your competitors cite for the price premium are not immediately testable. Differentiation is only in your interest if you are better at marketing (and/or have higher costs) than the competition. In my case, the competition is much better at marketing, and my costs are such that I can dramatically undercut them while making a profit, so it makes sense for me to just focus on providing a decent product while occasionally saying "Hey, look at me. I'm kindof like the competition, only 1/4th the price!"
  - nazgulnarsil 17y ago
    the point of the higher priced option is that it doesn't cost you any current customers while potentially bringing in customers who wouldn't have otherwise used you though. like the article said, even if the premium option just adds a bunch of management-appeal language with no objective value, you still might be able to get it into the hands of the engineers who work under them (at companies where idiots make the purchasing decisions) that might otherwise not had the option. secondly, the view that undercutting (for the same objective value) will always be interpreted correctly by the customer is a little naive. In reality you often don't want to undercut your competition by too much for exactly the same reason my initial post was about: perceived value.
edw519 17y ago
My very first customer was the boss of a friend of mine. I asked my friend what his boss was willing to pay. "It doesn't matter," my friend replied, "Just charge him 50% more than what you really want and let him negotiate you down. As long as he thinks he's getting something from you, he'll be happy, and you'll get whatever you want." Great advice.
- tomjen2 17y ago
  Way back, my grandfather used to haggle in the local shops (back when they where still worked by their owners, haggling was possible). What he didn't get, was that the shopkeepers knew he was going to haggle and so adjusted the price upward. So yeah, that trick definitely works.
bmelton 17y ago
"My hunch is that most companies could increase revenue by simply adding a very high-end offering, even if they never sell a single one of those expensive units." This strikes a parallel to something 37Signals once said, many moons ago, though I believe I had misinterpreted their point. When they said it (or when I read it,) I assumed it meant that you should definitely throw a premium option out there because there are some people who always buy the premium option... even those who wouldn't consider buying a less-than-premium option. It honestly never occurred to me that its primary purpose is to make the other prices look smaller by comparison.
- callmeed 17y ago
  I think there is an aspect beyond simply a perceived savings–especially if your web app is B2B. In our two main products we sell more of the mid and higher priced options. My theory is that business owners (especially sole proprietors) like to think of their company and needs as bigger than they actually are ... "I can't get just the start/basic/hobbyist/limited plan. I need the veteran/professional/unlimited/premium plan." So, in our experience, customers may not always buy the highest offering, but they will rarely buy the lowest offering.
  - lamby 17y ago
    > business owners (especially sole proprietors) like to think of their company and needs as bigger than they actually are Do you think that's an aspirational viewpoint, or that they are actually poor at judging their needs?
adamc 17y ago
Isn't this kind of like being evil to make more money? Exploiting flaws in the way people reason about price is not the same as delivering value.
- lsc 17y ago
  is it evil to try to charge as much as you can? I would argue no. Certainly, in the case where my product is limited, such as when I'm selling my time, I put effort into that. Is it evil to spend time trying to charge more for the same product rather than spending that time making a product that is worth more? maybe. It's certainly not admirable. I explained in a previous comment that I think not differentiating, and instead competing on price and value can be a good strategy, especially when industry margins are high.
  - nintendo1889 17y ago
    I work in computer repair as a sole proprietorship, and if I charge too much I won't get repeat business. But you can't always judge if someone will refer more customers to you or give you repeat business.
    - lsc 17y ago
      when I say 'charge as much as I can' I mean 'set my hourly rate as high as possible' where the hourly rate is set before the work is done (and usually before we meet)

57 points by terpua 17y ago

gaius 17y ago

"Menu engineer" is a job title now?!

rwolf 17y ago
Job description: regurgitate chapters from pop econ books. edit: the strange phrasing "Ariely also..." in the second section makes me think the writer was regurgitating pop econ chapters themselves, and then decided at the last minute to find a "menu engineer" to say them instead.
edw519 17y ago
Only on trains.
smokinn 17y ago
Which makes me happy that "Engineer" is a protected title in Canada.
- lamby 17y ago
  I've always been curious why people get so upset when people adopt this word outside of its, uhhh, less than traditional context. When did titles suddenly become important around here?
  - minsight 17y ago
    Would you get mad if your "Medical Doctor" wasn't? Or your "Lawyer" wasn't qualified? Or perhaps the "Engineer" who designed the trusses holding up the stadium where you see a ball game was just an unqualified amateur?
    - lamby 17y ago
      I was primarily talking about labels, not qualifications, but I do feel they are connected. There are plenty of people who call themselves "tree doctors" yet medical doctors have no problem with that (and certainly don't go all tribal and True Scotsman about it). Perhaps the difference is that in the public eye, the term doctor is synonymous with the qualification, whilst "engineer" has yet to reach that status?
      - smokinn 17y ago
        It's because in Canada the term Software Engineer has a very specific meaning. It means you did a 4 year Software Engineering programming program at an accredited university and then worked under a professional engineer for a certain number of years (I think it's 4?) and then passed your accreditation examination. I'm Canadian and I have a bachelor's degree in Computer Science. I don't call myself an Engineer because other than being against the law, I have a certain respect for the amount of work the people who earned the title went through. Also, if they majorly screw up, (though this isn't nearly as likely in software, it's usually happens when bridges or buildings fall down) an Engineer can have his accreditation revoked. Which is why legally calling yourself an Engineer in Canada, software or otherwise, has a certain status associated.

easyfrag 17y ago

Organizations will always come up with ways to encourage buying more (or paying a higher price), but the strategies are a moving target because a given market will learn and adjust (albeit slowly). I would argue that the MRSP "trick" no longer works because almost no one expects to pay it anymore. Using some of these tactics could backfire depending on how educated or savvy your target market is. Think of spam messages, those over the top tactics used to work on more people, now for most educated people that type of hard sell doesn't work. Of course it all depends on the target market, if you're selling blankets with arms the bar is a little lower.

nazgulnarsil 17y ago

the impression of utility is more important than actual utility. what does the extremely high priced option (50k in the example) signal to the customer? that someone out there is deriving 50,000 + x value from that service.

lsc 17y ago
depends on what you are selling, as a previous poster said, and who you are selling it to. My experience selling to computer nerds has been that we are a very rational and price-sensitive bunch. we shop around, and we want objective measures. Actual utility, much like truth during a court battle, is a big advantage. Sure, it's not overwhelming, but it helps a lot. If you are providing actual utility, your customers will do your marketing for you. Personally, I think the choice depends a lot on what you are good at. If you are good at marketing and have little technical and/or engineering skill, sure, you will get more out of marketing. But the opposite can work too. Personally, I'm always very amused by people telling me I should raise my prices. I started out selling FreeBSD jails (with an actual utility close to my current $8 product) for $40 each. I rented two. Switching to xen, then dramatically dropping my prices (well, and a few years of actually, you know, learning what I was doing) helped me a lot. Marketing is easy when you have obvious and objective advantages over competing products. You can yammer all day about this or that or the other, but if you can point at your price sheet and say 'hey, look- I'm kinda like that other guy, only 1/4th the price' well, for price sensitive customers, that's a difficult to refute reason to give you a shot, especially if the advantages your competitors cite for the price premium are not immediately testable. Differentiation is only in your interest if you are better at marketing (and/or have higher costs) than the competition. In my case, the competition is much better at marketing, and my costs are such that I can dramatically undercut them while making a profit, so it makes sense for me to just focus on providing a decent product while occasionally saying "Hey, look at me. I'm kindof like the competition, only 1/4th the price!"
- nazgulnarsil 17y ago
  the point of the higher priced option is that it doesn't cost you any current customers while potentially bringing in customers who wouldn't have otherwise used you though. like the article said, even if the premium option just adds a bunch of management-appeal language with no objective value, you still might be able to get it into the hands of the engineers who work under them (at companies where idiots make the purchasing decisions) that might otherwise not had the option. secondly, the view that undercutting (for the same objective value) will always be interpreted correctly by the customer is a little naive. In reality you often don't want to undercut your competition by too much for exactly the same reason my initial post was about: perceived value.

edw519 17y ago

My very first customer was the boss of a friend of mine. I asked my friend what his boss was willing to pay. "It doesn't matter," my friend replied, "Just charge him 50% more than what you really want and let him negotiate you down. As long as he thinks he's getting something from you, he'll be happy, and you'll get whatever you want." Great advice.

tomjen2 17y ago
Way back, my grandfather used to haggle in the local shops (back when they where still worked by their owners, haggling was possible). What he didn't get, was that the shopkeepers knew he was going to haggle and so adjusted the price upward. So yeah, that trick definitely works.

bmelton 17y ago

"My hunch is that most companies could increase revenue by simply adding a very high-end offering, even if they never sell a single one of those expensive units." This strikes a parallel to something 37Signals once said, many moons ago, though I believe I had misinterpreted their point. When they said it (or when I read it,) I assumed it meant that you should definitely throw a premium option out there because there are some people who always buy the premium option... even those who wouldn't consider buying a less-than-premium option. It honestly never occurred to me that its primary purpose is to make the other prices look smaller by comparison.

callmeed 17y ago
I think there is an aspect beyond simply a perceived savings–especially if your web app is B2B. In our two main products we sell more of the mid and higher priced options. My theory is that business owners (especially sole proprietors) like to think of their company and needs as bigger than they actually are ... "I can't get just the start/basic/hobbyist/limited plan. I need the veteran/professional/unlimited/premium plan." So, in our experience, customers may not always buy the highest offering, but they will rarely buy the lowest offering.
- lamby 17y ago
  > business owners (especially sole proprietors) like to think of their company and needs as bigger than they actually are Do you think that's an aspirational viewpoint, or that they are actually poor at judging their needs?

adamc 17y ago

Isn't this kind of like being evil to make more money? Exploiting flaws in the way people reason about price is not the same as delivering value.

lsc 17y ago
is it evil to try to charge as much as you can? I would argue no. Certainly, in the case where my product is limited, such as when I'm selling my time, I put effort into that. Is it evil to spend time trying to charge more for the same product rather than spending that time making a product that is worth more? maybe. It's certainly not admirable. I explained in a previous comment that I think not differentiating, and instead competing on price and value can be a good strategy, especially when industry margins are high.
- nintendo1889 17y ago
  I work in computer repair as a sole proprietorship, and if I charge too much I won't get repeat business. But you can't always judge if someone will refer more customers to you or give you repeat business.
  - lsc 17y ago
    when I say 'charge as much as I can' I mean 'set my hourly rate as high as possible' where the hourly rate is set before the work is done (and usually before we meet)