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Your Price is Wrong: Pricing Your Products for Maximum Return, Alan Albert, MarketFit at ProductCamp 2017

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Voted "Best Session" by attendees at ProductCamp Portland 2017, Alan Albert presented Your Price is Wrong: Pricing Your Products for Maximum Return.

A 1% improvement in your pricing can boost profits by more than a similar change to any other part of our organization. Yet most companies price their products poorly, leaving a lot of money on the table.

The value of your products depends solely on how valuable your customers think they are.

What if you could measure your customers' perception of the value of your products?

Fortunately, you can measure your customers' perception of value. Qualitatively and quantitatively.

And if you do measure your customers' perception of value, you can use this insight to create far better pricing models. You can generate more revenue, greater market share, and more profit.

So why leave money on the table?

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Your Price is Wrong: Pricing Your Products for Maximum Return, Alan Albert, MarketFit at ProductCamp 2017

  1. 1. marketfit.com alan@marketfit.com @A_Albert Presentation copyright © 2017 Alan Albert All rights reserved Alan Albert How to price your products for maximum return Your Price is Wrong 1
  2. 2. How much do you pay for a coffee? 2
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  10. 10. Tall Grande Venti Trenta 10
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  27. 27. How much do you pay for a coffee? 27
  28. 28. How to price your products for maximum return Your 28
  29. 29. Product Management Marketing Development Customer Service Manufacturing Design Quality Assurance Strategy CEO B2B Products & Services B2C Products & Services Startups Bootstrapped Venture-funded SMB Fortune 500 Cognitive Psychology Computer Science $1B Advisor Investor Director Chair Databases Personal productivity Business intelligence E-commerce Financial services Social networking Education Knowledge Management Home Grocery Shopping Online security Real estate software Video software Value Added Reselling Process Control Non profits Publishing Brick & mortar retail Personal computing Enterprise software SaaS / Cloud computing Industrial technology Software development UI / UX Information architecture Input / output devices Mobile devices Corporate strategy Corporate partnerships Marketing automation Online marketplaces Pricing strategy Consulting services 29
  30. 30. Alan Albert marketfit.com alan@marketfit.com @A_Albert Strategic Services for Measurable Growth MARKETFIT Advisory Services Consulting Services Market Research Strategic Pricing Strategic Innovation Corporate Strategy Product / Marketing Strategy Business Coaching 30
  31. 31. Agenda How we think about pricing Customer values Value-based pricing Pricing for maximum return 31
  32. 32. “ The single most important decision
 in evaluating a business is
 pricing power ” Warren Buffet 32
  33. 33. Why is pricing important? Price COGS Volume SG&A 0 5 10 15 0.3% 1.7% 9.2% 10.4% Source: SMC 2010 1% improvement of… Causes profits to increase by… 33
  34. 34. How is pricing set? Competition Cost Plus or 
 market-based Asked Customers Guessed 0 25 50 75 18% 21% 24% 52% Source: 2013 Price Intelligently survey. Respondents were allowed to select more than one response. 34
  35. 35. How NOT to set pricing ? Competition Cost Plus Ask Customers Guess Your competitor 
 sets the price Your costs set a floor for your price Your customers 
 set the price Just wing it They don’t know the right price either Don’t let your costs 
 set a ceiling You’re at their mercy Why would anyone want to do this? 35
  36. 36. ? If pricing is so important… Why are we so bad at it? How can we do better? 36
  37. 37. Agenda How we think about pricing Customer values Value-based pricing Pricing for maximum return 37
  38. 38. What is value? What we care about when making a buying decision From the customers’ perspective — not the seller’s 38
  39. 39. What do we pay for? 39
  40. 40. PRODUCT VALUES FEATURES BENEFITS 40
  41. 41. PRODUCT VALUES FEATURES BENEFITS 41
  42. 42. What determines value? 42
  43. 43. What determines value? Context Value Layers Differentiation Special Cases 43
  44. 44. Context Where? When? Why? Who? 44
  45. 45. You can create value by changing the context of the experience Context 45
  46. 46. Context You can create value by changing the context of the experience Where: On site vs. Laptop vs. Cloud When: Same day vs. Next week Why: Emotional vs. Functional Who: Millennials vs. Baby boomers 46
  47. 47. What determines value? Context Value Layers Differentiation Special Cases 47
  48. 48. Context –– VALUE LAYERS Different Values at Each Layer Product Solution Type Problem / Job to be Done Role / Identity 48
  49. 49. Role / Identity You can create value by targeting different roles or identities 49
  50. 50. Role / Identity single / spouse / provider status-seeker brand-loyal You can create value by targeting different roles or identities user / buyer purchasing agent distributor 50
  51. 51. Problem / Job to be Done You can create value by redefining the problem 51
  52. 52. Problem / Job to be Done You can create value by redefining the problem Lodging: Hotel vs. A place to stay Photos: Capturing memories vs Social sharing CRM: Managing prospects vs. Managing pipeline 52
  53. 53. Solution Type You can create value by changing the type of solution 53
  54. 54. Solution Type Lodging: Hotels vs. Couch Surfing Photos: Film vs. Digital vs. Disappearing CRM: On-premise vs. Cloud You can create value by changing the type of solution 54
  55. 55. You can create value through product innovation Product 55
  56. 56. AirBnB: Rating both hosts and guests Photos: Disappearing images and videos CRM: Integration with other cloud services Product You can create value through product innovation 56
  57. 57. Context –– VALUE LAYERS Different Values at Each Layer Product Solution Type Problem / Job to be Done Role / Identity 57
  58. 58. What determines value? Context Value Layers Differentiation Special Cases 58
  59. 59. There’s always an alternative Differentiation 59
  60. 60. Differentiation “The Competition” D I Y Do nothing There’s always an alternative 60
  61. 61. Differentiation Differentiation from the alternative defines product value If that differentiation isn’t valued, 
 your product has no more value than the competition Differentiation drives pricing power 61
  62. 62. How is your product different from the best alternative? What is the net value of those differences? Differentiation Differentiation defines value 62
  63. 63. What determines value? Context Value Layers Differentiation Special Cases 63
  64. 64. Special Cases Topics for another day Pricing Branding Targeting Channels Marketplaces Others 64
  65. 65. Pricing You can add value via Pricing Pricing models 65
  66. 66. Pricing A higher price can add value, by connoting: Higher quality Rarity / Exclusivity Desirability 66
  67. 67. A lower price can add value, by connoting: A “good deal” A limited-time offer Pricing 67
  68. 68. Pricing Models Pricing models are a great area for strategic innovation 68
  69. 69. Pricing Models Subscription vs Purchase: Salesforce.com All-you-can-eat Subscription: Netflix Adaptive Subscriptions: Slack Membership: Amazon Prime Pricing model innovation creates value 69
  70. 70. What determines value? 70
  71. 71. What determines value? Your customers’ values Your own perception of value is irrelevant Your perception is not your customers’ perception So make sure you measure your customers’ values 71
  72. 72. Discovering Values 72
  73. 73. Agenda How we think about pricing Customer values Value-based pricing strategy Pricing for maximum return 73
  74. 74. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy Start 74
  75. 75. 75
  76. 76. What is your pricing objective? Market share Revenue Profit Retention Defend vs. new competitor Awareness / Trial Choose one 76
  77. 77. What is your pricing objective? Market share Revenue Profit Retention Defend vs. new competitor Awareness / Trial Align your entire team to achieve this one objective Choose one 77
  78. 78. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 78
  79. 79. Segment for Maximum Return Different customer segments… Have different willingness and ability to pay Get different amounts of value from the same product 79
  80. 80. Different willingness and ability to pay Segment for Maximum Return Price sensitive —> Low Margin Value sensitive Quality sensitive —> High Margin 80
  81. 81. Price sensitive —> Low Margin Value sensitive Quality sensitive —> High Margin Segment for Maximum Return Different willingness and ability to pay 81
  82. 82. Value 
 sensitive Pricing predicament Quality sensitive Price sensitive Perceived value & willingness to pay # of 
 Customers Many Few Low High 82
  83. 83. Pricing predicament Low price Value 
 sensitive Quality sensitive Price sensitive Perceived value & willingness to pay Many Few Low High # of 
 Customers 83
  84. 84. Low price Many Few Seems right Pricing predicament Willing 
 to 
 pay more Can’t afford Perceived value & willingness to pay Lost Customers! Low High Lost Revenue! Sweet spot Lost Revenue! # of 
 Customers 84
  85. 85. Pricing predicament High price Value 
 sensitive Quality sensitive Price sensitive Perceived value & willingness to pay Many Few Low High # of 
 Customers 85
  86. 86. Can’t afford Pricing predicament Seems rightCan’t afford Lost Customers! Lost Customers! Sweet spot Lost Revenue! Perceived value & willingness to pay Many Few Low High High price # of 
 Customers 86
  87. 87. Solution: Segmentation Different segments… 
 get different amounts of value from the same product Larger companies… have more employees using your product use more advanced features make more transactions with your product 87
  88. 88. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 88
  89. 89. Value Metric Value metric = the unit by which the customer measures value Value metric determines how much a customer is willing to pay Credit: Steven Forth 89
  90. 90. Value Metric Credit: Steven Forth Transactions Leads Impressions Value metric = the unit by which the customer measures value Value metric determines how much a customer is willing to pay New customers Time savings Risk reduction 90
  91. 91. Pricing Metric Pricing metric = the unit by which you set a price Find a pricing metric that closely tracks the value metric Credit: Steven Forth 91
  92. 92. Metrics The value metric comes from understanding your customers Your pricing metric is an important opportunity for innovation Credit: Steven Forth 92
  93. 93. Pricing Metrics in Action • Pricing Secrets Company / Product Value Metric Pricing Metric Google Adwords Ad Effectiveness Pay per click Survey Monkey Survey complexity and sample size # of questions, responses, & some functionality Hubspot Client’s target market size, marketing activity # of contacts, some functionality & add-ons KissMetrics Depth of app analytics Number of app events Toyota Performance, comfort, luxury Base model, engine, feature bundle 93
  94. 94. Segment for Maximum Return Different market segments often have different value metrics To maximize return, identify best metrics for each segment 94
  95. 95. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 95
  96. 96. Enter the Pricing Grid 96
  97. 97. Enter the Pricing Grid Pricing metrics Market segments Prices 97
  98. 98. Enter the Pricing Grid Market segments? Prices? Are these the right… Pricing metrics? 98
  99. 99. Determine pricing objective Segment for maximum return Determine metrics Develop your pricing grid Test, iterate & optimize Value-based pricing strategy 99
  100. 100. Agenda How we think about pricing Customer values Value-based pricing strategy Pricing for maximum return 100
  101. 101. How to Price for Maximum Return Discover and measure what your customers value most Choose the right objective: Market Share? Revenue? Profit? Other? Segment your market based on their perception of value Identify your customers’ value metrics Build your pricing grid with matching pricing metrics Track, communicate and charge for value your customers perceive Test, measure, and iterate to optimize Start here Not here 101
  102. 102. Do you really know… What your customers actually value? What is the value of your differentiation? What are the right segments? What are the right value metrics? What are the right pricing metrics? What are the right prices? 102
  103. 103. You don’t have to guess What your customers actually value? What is the value of your differentiation? What are the right segments? What are the right value metrics? What are the right pricing metrics? What are the right prices? 103
  104. 104. All of these are knowable All of these depend on your customers’ perception of value Your customers’ perception of value can be measured 104
  105. 105. You won’t find the right price
 in the office 105
  106. 106. What’s a cup of coffee worth? Coffee with customers to discover their values? PRICELESS 106
  107. 107. Thank You 107
  108. 108. marketfit.com alan@marketfit.com @A_Albert Presentation copyright © 2017 Alan Albert All rights reserved Alan Albert Your Price is Wrong How to price your products for maximum return 108

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