Product Strategy: Nailing Your MVP and Pricing

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In this presentation to University of California Santa Barbara (UCSB) Technology Management Program, Jim Semick of Product Discovery describes how you can use market validation to discover your MVP and Pricing.

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  • I was lucky enough to be a part of the core team developing the concept and business model.
  • Why else would we splurge on a dinner out yet clip a coupon for a can of soup?Why else do studies show that people feel better when they pay more for the same medicine?consumers are price 'sensitive' - and won't buy it they think the price is too high – this is elasticity.Demand for a product is inelastic if consumers will pay any price for the product. A price increase will not hurt demand for the product demand curve, why it’s not linear. Why lowest price might not always be good.But it’s not that easy. People are weird.It’s all a guess.The penny effect. – the minute you charge anything, the demand curve drops dramatically..
  • There is a relationship between price and the perception people have about your product. We see it every day from wine to cars to bottled water.You can influence the perception of your product by increasing (or decreasing) its price. Studies have shown that patients have less pain when given drugs that cost more – this is the placebo effect in action. For a great book check out Predictably Irrational by Dan Ariely, who outlines this effect well. Think about intangible values do customers getby choosing your product or service? These are related to how your product makes your customer feel. They are usually defined using adjectives such as important, powerful, savvy, attractive, smart, etc.
  • Tip 1: Interview the decision-maker. For consumer products, this is often straightforward. However, if you are pitching a proposed solution for a business, make sure you are talking with the person who writes the check or has significant influence over the decision. Sure, interviewing users is an essential part of development, but at this stage, you are trying to determine if someone has pain, which in turn leads to whether they will buy your product. If you are early in the customer discovery process and do not yet know who the buyer is, start with the person you think has the biggest problem, and ask them to walk you through the steps of a hypothetical purchase in their organization. They will lead you to the person with buying authority.
  • Then sit back and listenAsk if they’ll buy. This tip may not be relevant if you are in the early stages of customer discovery where you are attempting to identify problems. However, if you are further along in the process and have a product hypothesis, get this question on the table early – you do not need to have specific pricing to learn a lot. Ask something like “If this were available today would you buy it?” Then take a deep breath and let them talk through their rationale.
  • – You may be surprised
  • Ask them to do the return on investment calculation if they had your product. This gives you a starting point for a price.
  • Challenge them (nicely) with your questions and you will gain a ton of insight – and a potential early customer. I have conducted a number of interviews where the prospect thought through the purchase process and were a probable buyer by the end of the discussion.
  • These are my philosophies and they’ve worked well for me. Some startups break the rules, and that’s great. But if you do, make sure to experiment to find the best model.
  • Lean startup doesn’t mean jumping without validating. You need to validate your assumptions about the price and revenue model before you get too far into the process.
  • They have a different cost model than you.They have also likely been in business longer and may have legacy costs that you will not have.Their customers may not like their pricing model 
  • Product Strategy: Nailing Your MVP and Pricing

    1. 1. Customer Discovery: Nailing Your MVP and Pricing Jim Semick UCSB TMP ENGR 190D (Creating a Market-Tested Startup Business Model), March 2013
    2. 2. How Did You Decide Your MVP and Pricing?
    3. 3. Case Study:
    4. 4. The Challenge • 50+ competitors in the online meeting space • Well-known #1 competitor • Us: A small team with limited resources
    5. 5. Market Validation Evidence from real customers before we build it
    6. 6. What we discovered about other solutions • Hard to use • Feature bloated • Difficult to budget with complicated pricing • Pricing was a disincentive to using solution
    7. 7. Weeks of Business Model & MVP Discussions
    8. 8. MVP Feature Them Us Screen Sharing Video VoIP Recording
    9. 9. Pricing • “All you can use” pricing • Unlimited meetings for monthly subscription • Participants free We aligned pricing with customer values Pricing became part of our Purple Cow
    10. 10. More Interviews Would they actually buy it?
    11. 11. Tips for Discovering the MVP
    12. 12. Focus on a Narrow Market Segment
    13. 13. Interview to Get to MVP 1. Explain the solution and features. 2. Explain what it will NOT do for them. 3. Ask if they will buy. 4. Iterate. Iterate. Iterate.
    14. 14. Define Your MVP Then cut it in half.
    15. 15. Tips for Discovering the Right Price
    16. 16. Align Pricing with Customer Business Value
    17. 17. (Sort of) Ignore the Demand Curve Quantity Price$$ Buyers are Irrational
    18. 18. Perceived Value Matters
    19. 19. Tip #1 Make Sure You are Talking with a Decision- Maker
    20. 20. Tip #2 Ask: “Will You Buy?” Then Listen
    21. 21. Tip #3 Ask what they think is a fair price
    22. 22. Tip #4 Have them do the ROI calculation
    23. 23. Tip #5 Negative Sell
    24. 24. Top Pricing Mistakes
    25. 25. Pricing Mistake #1 • Building your product (and burning cash) without a pricing model Please don’t give it away for free while you figure it out
    26. 26. Pricing Mistake #2 • Pricing based on your costs rather than customer value
    27. 27. Pricing Mistake #3 • Pricing using the same structure as the competition
    28. 28. Pricing Mistake #4 • Acquisition costs that are higher than lifetime value
    29. 29. Thank You! www.productdiscovery.com jim@productdiscovery.com

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