Selling Products and Services 2013

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  • 1. 5 — Selling Products From Code to Product gidgreen.com/course
  • 2. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 2 gidgreen.com/course
  • 3. Desktop software From Code to Product Lecture 5 — Selling Products — Slide 3 gidgreen.com/course
  • 4. In-app purchases From Code to Product Lecture 5 — Selling Products — Slide 4 gidgreen.com/course
  • 5. Software as a service From Code to Product Lecture 5 — Selling Products — Slide 5 gidgreen.com/course
  • 6. App store products From Code to Product Lecture 5 — Selling Products — Slide 6 gidgreen.com/course
  • 7. SaaS and mobile app growth From Code to Product Lecture 5 — Selling Products — Slide 7 gidgreen.com/course 0 $5 billion $10 billion $15 billion 2006 2007 2008 2009 2010 2011 2012 Software as a Service Mobile applications
  • 8. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 8 gidgreen.com/course
  • 9. Payment models From Code to Product Lecture 5 — Selling Products — Slide 9 gidgreen.com/course $0 $20 $40 0 6 12 18 24 30 36 Revenue Month One time Subscription Pay as you go
  • 10. One-time purchases •  Payment = ownership •  Low transaction costs •  Unstable cash flow – Publicity bursts – Upgrades •  Problem of ongoing costs – Technical support – Online elements From Code to Product Lecture 5 — Selling Products — Slide 10 gidgreen.com/course
  • 11. Subscriptions •  Payment = membership •  Periodicity – Monthly, quarterly, annual – Discounts for longer •  Stable cash flow – Forgotten subscriptions •  Problem of churn – Active or passive From Code to Product Lecture 5 — Selling Products — Slide 11 gidgreen.com/course
  • 12. Pay as you go •  Payment = usage – No easy money! •  Credits or after-billing – Credit expiry? •  Volume discounts •  Semi-stable cash flow •  Problem of tiny customers – Minimum credit purchase From Code to Product Lecture 5 — Selling Products — Slide 12 gidgreen.com/course
  • 13. The free version •  Cournot theorem – Price ⟶ marginal cost – Marginal cost ≈ zero •  Engine of publicity – Everyone loves free •  Get people ‘hooked’ – No barrier to usage – Upsell later on From Code to Product Lecture 5 — Selling Products — Slide 13 gidgreen.com/course
  • 14. Time limited From Code to Product Lecture 5 — Selling Products — Slide 14 gidgreen.com/course
  • 15. Capacity limited From Code to Product Lecture 5 — Selling Products — Slide 15 gidgreen.com/course mailchimp.com
  • 16. Feature limited From Code to Product Lecture 5 — Selling Products — Slide 16 gidgreen.com/course freshbooks.com
  • 17. Collaboration limited From Code to Product Lecture 5 — Selling Products — Slide 17 gidgreen.com/course highrisehq.com
  • 18. Ad supported From Code to Product Lecture 5 — Selling Products — Slide 18 gidgreen.com/course
  • 19. Making freemium work •  Problem: moving off free – Fixed value notion – Search for alternatives – Especially time limits •  Possible solutions – Data lock-in – Increased usage over time – Collaborative momentum From Code to Product Lecture 5 — Selling Products — Slide 19 gidgreen.com/course
  • 20. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 20 gidgreen.com/course
  • 21. $0 $5 $10 $15 $20 0 200,000 400,000 600,000 800,000 1,000,000 Price Sales volume Demand curve From Code to Product Lecture 5 — Selling Products — Slide 21 gidgreen.com/course $4 × 500k = $2m $12 × 125k = $1.5m
  • 22. $0.0m $0.5m $1.0m $1.5m $2.0m $2.5m $0 $5 $10 $15 $20 Revenue Price Optimal price From Code to Product Lecture 5 — Selling Products — Slide 22 gidgreen.com/course
  • 23. Optimal price $0 $5 $10 $15 $20 0 200,000 400,000 600,000 800,000 1,000,000 Price Sales volume From Code to Product Lecture 5 — Selling Products — Slide 23 gidgreen.com/course $5.77 × 370k = $2.13m
  • 24. Demand curve reality •  Low prices look bad – Charge more, sell more? •  Curve not so smooth – $x.99 effect – Competing products •  Curve unknown – Testing possible, sometimes From Code to Product Lecture 5 — Selling Products — Slide 24 gidgreen.com/course
  • 25. $0 $5 $10 $15 $20 0 200,000 400,000 600,000 800,000 1,000,000 Price Sales volume Multiple price points From Code to Product Lecture 5 — Selling Products — Slide 25 gidgreen.com/course $4 × 250k = $1m $8 × 125k = $1m $12 × 125k = $1.5m Total = $3.5m
  • 26. Customer segmentation •  People know what they want to pay – Give them a reason to pay it! •  Multiple levels – Capacity increases – Extra features – Type of user – “VIP support” •  Clear comparisons From Code to Product Lecture 5 — Selling Products — Slide 26 gidgreen.com/course
  • 27. Customer segmentation From Code to Product Lecture 5 — Selling Products — Slide 27 gidgreen.com/course wufoo.com Solid mid- range product in middle Cheap/crappy option (decoy) Some people always want the best
  • 28. Choosing prices •  Perceived value – Marketing – Support •  Competing products – How do you compare? – Sense of fairness •  Keep it simple •  Don’t lose money per sale! From Code to Product Lecture 5 — Selling Products — Slide 28 gidgreen.com/course
  • 29. Price vs Process From Code to Product Lecture 5 — Selling Products — Slide 29 gidgreen.com/course $1 $10 $100 $1,000 $10,000 $100,000 Impulse purchase Personal credit card Claim back from company Use company credit card Approval from dept head Approval from CEO
  • 30. Justifying high prices •  Lack of competition – Or become the standard •  More features •  Differentiate – Have a personality – Create a tribe – Great support •  Competing on price is dangerous! From Code to Product Lecture 5 — Selling Products — Slide 30 gidgreen.com/course
  • 31. Other price games •  Razors and blades •  Fives and nines •  Supermarket signposts •  Bundling •  Volume discounts? •  Upgrades/sidegrades •  Time-limited sales From Code to Product Lecture 5 — Selling Products — Slide 31 gidgreen.com/course
  • 32. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 32 gidgreen.com/course
  • 33. Credit cards Visa $2,040BMasterCard $901B AmEx $540B Discover $114B US Purchases 2011 nilsonreport.com From Code to Product Lecture 5 — Selling Products — Slide 33 gidgreen.com/course
  • 34. Credit card payment process From Code to Product Lecture 5 — Selling Products — Slide 34 gidgreen.com/course Shopping cart Credit card form Product & Price Payment gateway Card & Amount Payment processor Card & Amount Merchant account Cash − charges Your account Cash − charges?
  • 35. Online payment processors From Code to Product Lecture 5 — Selling Products — Slide 35 gidgreen.com/course Shopping cart Credit card form Payment gateway Payment processor Merchant account Your account Cash − 5 to 10% •  Simplest and easiest •  Paid weekly or monthly
  • 36. Your own merchant account From Code to Product Lecture 5 — Selling Products — Slide 36 gidgreen.com/course Shopping cart Credit card form Payment gateway Payment processor Merchant account Your account Cash Cash − 2 to 5% •  Merchant account approval •  Harder for non-US
  • 37. Collecting card details From Code to Product Lecture 5 — Selling Products — Slide 37 gidgreen.com/course Shopping cart Credit card form Payment gateway Payment processor Merchant account Your account Cash Cash − 2 to 5% •  Control e.g. recurring •  PCI DSS compliance
  • 38. Selling via PayPal •  Pay with PayPal balance – Popular with non-Western customers – You can also use it •  Credit cards also accepted •  Low fees (2.5% to 5%) •  Problem: account freezes – Receive but no withdrawal – You are at their mercy From Code to Product Lecture 5 — Selling Products — Slide 38 gidgreen.com/course
  • 39. iOS/Android app stores •  Controlled software marketplaces •  Hit-driven, e.g. Top 25 paid – Advertise on other apps, not in-store – Promote via free version •  Apple/Google take 30% – No credit card / distribution fees – Same for in-app purchases •  Avg prices $2—$4 (2012) but most free From Code to Product Lecture 5 — Selling Products — Slide 39 gidgreen.com/course
  • 40. Games and games on iOS From Code to Product Lecture 5 — Selling Products — Slide 40 gidgreen.com/course
  • 41. A mix on Android From Code to Product Lecture 5 — Selling Products — Slide 41 gidgreen.com/course
  • 42. Invoicing •  (Semi-)manual process – Only worthwhile for bigger customers •  Paid by check or bank transfer – No %-based processing fees! •  Delivery or payment first? – Customer may expect delivery – Payments need to be chased •  Also: receipts for prior payments From Code to Product Lecture 5 — Selling Products — Slide 42 gidgreen.com/course
  • 43. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 43 gidgreen.com/course
  • 44. Customer concerns •  Am I buying the right thing? •  Is the price what I was promised? •  Are there additional costs, e.g. tax? •  How long is this going to take? •  Who are these guys, anyway? •  Is it safe to enter my credit card? •  Will I be able to get technical help? •  Can I cancel or be refunded? From Code to Product Lecture 5 — Selling Products — Slide 44 gidgreen.com/course
  • 45. Entry to purchase From Code to Product Lecture 5 — Selling Products — Slide 45 gidgreen.com/course
  • 46. Entry to purchase From Code to Product Lecture 5 — Selling Products — Slide 46 gidgreen.com/course
  • 47. Choose a version / level From Code to Product Lecture 5 — Selling Products — Slide 47 gidgreen.com/course
  • 48. Order summary From Code to Product Lecture 5 — Selling Products — Slide 48 gidgreen.com/course
  • 49. Customer information From Code to Product Lecture 5 — Selling Products — Slide 49 gidgreen.com/course
  • 50. Payment information From Code to Product Lecture 5 — Selling Products — Slide 50 gidgreen.com/course
  • 51. Subscription concerns •  Will I be able to cancel? – Will it be a fight? – Can I get a payment refunded? •  Can I upgrade/downgrade? – Is there a penalty for that? •  Will the price go up? •  Will I be informed of each payment? From Code to Product Lecture 5 — Selling Products — Slide 51 gidgreen.com/course
  • 52. Subscription concerns From Code to Product Lecture 5 — Selling Products — Slide 52 gidgreen.com/course highrisehq.com
  • 53. Lecture 5 •  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems From Code to Product Lecture 5 — Selling Products — Slide 53 gidgreen.com/course
  • 54. Credit card fraud •  X uses Y’s credit card without permission •  Why do you care? – Y comes after you – You get a chargeback •  Payment processor solutions – Card security code (not on stripe) – Address confirmation – Verified by Visa / MasterCard SecureCode – Fraud detection algorithms From Code to Product Lecture 5 — Selling Products — Slide 54 gidgreen.com/course
  • 55. Risk assessment From Code to Product Lecture 5 — Selling Products — Slide 55 gidgreen.com/course •  If possible, review manually – Big orders – Purchase from “unusual” country
  • 56. Chargebacks •  Customer asks bank for money back – Card was stolen – Product absent/deficient – Friendly fraud •  Full price taken back from you – No recourse without customer signature •  You pay fine, $15—30 – Much higher if too frequent From Code to Product Lecture 5 — Selling Products — Slide 56 gidgreen.com/course
  • 57. Refunds •  Customer asks you for money back •  You can argue, but… – It’s (probably) not worth your time – It harms your reputation – They have chargebacks •  You pay back full price – But no additional fees •  Easy interface at payment processor From Code to Product Lecture 5 — Selling Products — Slide 57 gidgreen.com/course
  • 58. Subscription retention •  Active churn – Try to intercept – Ask why afterwards •  Passive churn – Card failed / expired – Notify and request renewal – Special offers •  Expect average 1—3 years •  Acquisition > Retention cost (generally) From Code to Product Lecture 5 — Selling Products — Slide 58 gidgreen.com/course
  • 59. PCI DSS compliance From Code to Product Lecture 5 — Selling Products — Slide 59 gidgreen.com/course
  • 60. Customer support •  Money = obligation – Threat of chargebacks •  Pre-sales enquiries •  Email + phone is best •  Respond within 1 working day •  Really read / listen – Speak their language •  Never get angry From Code to Product Lecture 5 — Selling Products — Slide 60 gidgreen.com/course
  • 61. Bitcoin: The solution? From Code to Product Lecture 5 — Selling Products — Slide 61 gidgreen.com/course Pros Cons Extremely low cost Very limited support Irreversible Exchange rate fluctuations Pseudonymous 10 min confirmation delay Universally available Government interference? Rapid settlement Easy to steal (like cash) Decentralized Accounting uncertainty
  • 62. Coinbase Offering From Code to Product Lecture 5 — Selling Products — Slide 62 gidgreen.com/course
  • 63. Books From Code to Product Lecture 5 — Selling Products — Slide 63 gidgreen.com/course