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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 ...

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) Presentation Transcript

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