Need to price a new product but don't know where to start? This presentation explains some of the key considerations to create a pricing strategy for your new product. The presentation was created for ProductCamp Austin 20. This presentation updated Feb 13, 2018. Slideshare does not allow updates of presentations so I had to delete the old one.

1. Product pricing considerations
Jay Kruemcke
jay@kruemcke.com
http://Kruemcke.com
ProductCamp Austin 20
February 2018
productcamp
AUSTIN
Product Camp Austin 20 - Session # 31
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 1

2. Jay Kruemcke - Product Camp Austin - http://kruemcke.com 2

3. Prologue
• Introduction
⎼Jay Kruemcke jay@kruemcke.com
⎼Product Manager at SUSE
⎼Long career in product management
• Why am I giving this presentation?
• Assumptions
⎼ Scope is traditional software product (License, Subscription, AAS)
⎼ Competition exists
⎼ Relatively difficult to change the price once set
⎼ Price is elastic
⎼ Customer value based pricing model
⎼ This discussion has to fit into one hour
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 3

4. Pricing – An essential Product Manager task
• Why? Because its really important
⎼Key determinant of product success or failure
⎼Essential component of the product
⎼Usually difficult to change
• What characteristics of “good” pricing
⎼ Facilitates product success
◦ Competitive
◦ Flexible to address different customer needs
◦ Doesn’t leave money on the table or price you out of a desired market
⎼ Simple as possible
⎼ Reflects the underlying product and business strategy
All pricing is a compromise
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 4

5. What is Value based pricing?
Price
Value
Elements of Perceived Value
• Utility for intended task
• Scarcity
• Leadership
• Quality
• Luxury / Status
Elements of Perceived Cost
• Purchase price
• Risk
• Change vs Stability
• Required investments (capital, people)
• Opportunity cost
• OpEx vs CapEx
Price reflects Perceived Customer Value vs Perceived Cost
$ $$$
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6. What is your product market power?
Market position
⎼Entry with no competition
⎼Weak with competition
⎼Existing but competitive
⎼Market leader
Price elasticity
Market segments
Target markets
Market maturity
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 6

7. Product Pricing Strategies
• Skimming
⎼Grab all you can – Quick!
• Penetration
⎼Lower price to grab market share
• Loss leader
⎼Sell low to encourage other sales
• Limit pricing
⎼Protect against competition
• Product mix strategy
⎼Total number of products available to customers
• Tiered product pricing
⎼Different price points for similar products.
Price
Value
$ $$ $$$
Tiered product pricing
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 7

8. Value / Charge Metric
• Typical Software Charge Metrics
⎼Processor capacity available
⎼Number of Users
⎼Named user
⎼Usage per interval
⎼Per device
⎼GB of storage used
⎼Per use
⎼Site license
⎼Two part pricing
◦ Fixed portion
◦ Variable portion
⎼Add ons
Selecting a charge metric
• Existing product / product line metric
• De facto industry standard
• Provides competitive advantage
Charge metric requirements
• Has to relate to the customer value
• Have to be able to measure
• Simple as possible
• Customers have to understand
• Sales people need to understand
• Scale with demand
Price = Charge metric X price per unit
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9. Licensing Models*
• Perpetual license
⎼You can use the product forever
⎼Customer uses capital budget to purchase
• Product Subscription
⎼You have maintain a subscription to use the product
• Support Subscription
⎼You purchase support and/or fixes for a set period
⎼Open-source software fits this model
⎼Perpetual licenses often have a support subscription component
• Consumption
⎼You pay based on usage
*Subject to Terms and Conditions
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 9

10. How to get started?
• Understand your current pricing
⎼Existing product or product line
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 10

11. Understand your pricing in relation to your competition
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 11

12. How to get started?
• Understand your current pricing
⎼Existing product or product line
• Look at your competition or similar offerings
⎼But consider that different pricing can be an advantage
• Talk to your sales channels
⎼Identify problems and potential opportunities
• Build a pricing model spreadsheet
⎼Project revenue for different volumes
⎼Evaluate against competition
• Socialize proposed pricing
⎼Validate with sales channel and other stakeholders
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 12

13. Pricing Adjustments
• Segmentation
⎼Different price for different customers
• Channel discount
⎼Encourage reselling
⎼Market Development Fund rebates
• Volume discount
• Customer appreciation discount
• Promotional pricing
• Bundle pricing
• …
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 13

14. Terms and Conditions / Terms of Use – Protection for the vendor
• A legal agreement between the provider and the customer that governs the
use of the product and the responsibilities of both parties
⎼ Allowable use
⎼ Redistribution / resale
⎼ Ownership of the product
⎼ Limitation of liability
⎼ Disclaimer of warranties
⎼ Termination
⎼ Customer responsibilities
⎼ Vendor responsibilities
⎼ Prohibited actions
⎼ Charge metrics
⎼ …
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 14

15. Last words
• Pricing is one of the key tools Product
Managers have – don’t be afraid to use it
• The pricing model should align with the
customers perception of value
• Tiered pricing is often a good approach
• Be sure to get buy in from the sales channels
before making changes
• Promotions and adjustments can be used to
vary the price as a short term tactic
Jay Kruemcke - Product Camp Austin - http://kruemcke.com 15

16. Thanks!
Jay Kruemcke
jay@Kruemcke.com
http://kruemcke.com
@phastflyer
Product Camp Austin 20 Session # 31
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