Strategic Pricing For Start Ups (ProdCamp NYC)


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A short version of my talk on thinking through software pricing from the customer's POV, especially for B2B or IT audiences. How do we quantify value/benefits? Trade-offs between commitments and pricing. Plus two real-life examples we worked through live with the Product Camp NYC attendees.

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  • Be honest and humble. Most startups breathe their own smoke.
  • Strategic Pricing For Start Ups (ProdCamp NYC)

    1. 1. Strategic Pricing for Start-ups, New Products and Innovations<br />Rich Mironov, CMO, Enthiosys<br />Product Camp NYC<br />July 18, 2009<br />
    2. 2. Agenda<br />Introductions<br />Basics and theory<br />Thought experiments<br />Quick case study<br />
    3. 3. An Unapologetic Product Guy<br />CMO at Enthiosys, agile product mgmt consultancy<br />Business models/pricing, roadmaps<br />Innovation Games® and customer needs<br />Agile transformation, interim PM executive<br />Repeat offender at software prod mgmt<br />Tandem, Sybase, four start-ups<br />Chair, Agile 2009 PM/PO track<br />Founded first P-Camp<br />“The Art of Product Management”<br />
    4. 4. “Pricing is almost never about the number. It’s about the model.”<br />
    5. 5. Bottoms-Up or Top-Down?<br />We’ll be focused on market pricing (bottoms-up)<br />“What the market will bear?”<br />Considering pricing models and specific prices<br />Companies also need top-down<br />Justifying R&D investments, projecting revenue<br />“We need higher prices to hit break-even sooner”<br />Iterative<br />Intersection of market, business model, costs…<br />
    6. 6. Where Does Pricing Fit?<br />Price is rarely the headline<br />Part of the business model<br />How do we make money? Revenue/profit forecasts<br />Supports core value proposition<br />“Our product/service saves you $$$$…<br />…and we want 15% of the savings.”<br />Often an obstacle to buying<br />Too complex<br />Much too high (sticker shock) or too low (desperate)<br />Free (no reason to trade up)<br />Wrong value exchange model<br />
    7. 7. Company Approaches<br />Big companies that do serious pricing analysis <br />General Mills, Goldman Sachs, United Airlines, Toyota<br />Startups built on a pricing strategy<br />, NetFlix, ZipCar<br />Companies that don’t handle pricing strategically<br />Nearly everyone else<br />
    8. 8. New and Mature Markets<br />Outside threats, late- comers<br />Compete on price and features<br />Mature markets<br />Let 1000 Flowers Bloom<br />New markets<br />New pricing models<br />Dominant pricingmodel<br />
    9. 9. Pricing Your Start-Up<br />Why will customers buy?<br />Make more money, save money…<br />What’s the natural unit of exchange?<br />How do they derive value? What does the competition do?<br />Can you split off a profitable segment?<br />What’s your business model?<br />Recurring software revenue, professional services..<br />Test, trial-close, get your hands dirty<br />
    10. 10. Think Like a Customer<br />Customers buy products to…<br />Make money, save money, reduce risk<br />Promote themselves, feel important…<br />How do they describe value?<br />Quantify it for them<br />Prospects don’t have the time to do your homework<br />Assume you can capture a fraction of value<br />B2B: often 5% to 15%<br />Consumers often driven by fashion, not analytics <br />
    11. 11. Business Model Framework<br />Customer Value Analysis<br />Identifies Value<br />Licensing<br />Terms and Conditions of Use<br />Type of Value Exchange<br />The way you make money<br />Pricing<br />How much money you make<br />Profit Engine<br />Causes More Money-Making Events<br />Enforcement<br />Protection of Rights<br />Customer ROI Model<br />Quantifies Return<br />A framework of interrelated choices that help you create offerings that provide maximum value.<br />11<br />® 2009 Enthiosys<br />
    12. 12. Software Value Exchange Models<br />Time-based access (e.g. unlimited/month)<br />Transaction (stock trade)<br />Metered (seats, CPUs, named users)<br />Hardware (appliances, dongles)<br />Service (virus updates, support)<br />Percentage of incremental revenue/savings<br />Data-driven insights<br />Charity?<br />12<br />
    13. 13. Customer Commitments<br />“by the drink”<br />“by the month”<br />No commitmentHigh variable costs<br />Lower volume<br />Uncertain usage<br />Optional<br />Actively manage costs<br />NEED CONTINUOUS MARKETING<br />Big commitmentLow/no variable costs<br />Higher volume<br />Predictable usage<br />Required (cost of business)<br />Low cost control effort<br />HARD INITIAL SELL<br />
    14. 14. Avoid Creating Pricing Problems<br />DON’T…<br />Make price the primary issue (usually)<br />Over-complicate the sale<br />Require customers to be smart<br />Change prices too often<br />DO…<br />Support the business model/plan<br />Reinforce (charge for) key benefits<br />Pick natural units<br />Make correct ordering easier<br />
    15. 15. Agenda<br />Introductions<br />Basics and theory<br />Thought experiments<br />Quick case study<br />
    16. 16. Exercise: Consulting Services<br />Your last start-up just closed, so you are suddenly a consultant. A prospective client needs market analysis, MRD, a pricing model.<br />What are your pricing objectives?<br />How to structure a project?<br />Risks for you? For client?<br />
    17. 17. Possible Objectives<br />Work at any price<br />Food on the table<br />Loss leader<br />Underprice first assignment, get follow-on work<br />Good reference for other clients<br />Become indispensable<br />Push for a full-time position later<br />Gain market experience<br />What will the market bear? OK to lose assignment<br />
    18. 18. Some Consulting Pricing Models <br />Per hour, no limits<br />Per project<br />Per hour with project ceiling<br />Fixed price for initial sizing (“pay me to estimate”)<br />Milestones (progress payments)<br />Equity (pre-IPO stock)<br />Customer sets value at end<br />Shared savings (portion of ROI)<br />Free (experience, reference, try & buy)<br />
    19. 19. Risks in Consulting Models<br />
    20. 20. Workshop Exercise: Teleportation<br />Founders: MIT physicists with local VC<br />Software plus expensive custom hardware<br />Some arbitrary product limitations<br />Inanimate objects only (no people)<br />Under 40 pounds, under 18” diameter<br />2000 mile limit, arrival +/- 3 inches<br />High power requirement (15 kW)<br />15 second recharge time<br />Non-military, non-government<br />
    21. 21. Pricing Take-Aways<br />Market pricing starts with audience’s pain<br />Pricing model aligned with pain<br />Units make sense<br />Savings &gt;&gt; price<br />KISS<br />Must support business model<br />Complex pricing plans impede sales process<br />Invest in research if you can<br />Competition, interviews, historical databases<br />
    22. 22. Strategic Pricing for Start-ups, New Products and Innovations<br />Rich Mironov, CMO, Enthiosys<br />Product Camp NYC<br />July 18, 2009<br />