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How to Define Tech Product Pricing Strategy by Salesforce Sr. PM

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What is the importance of defining your product goal and vision and how pricing directly impacts the behavior of your customers? Learn from this presentation.

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How to Define Tech Product Pricing Strategy by Salesforce Sr. PM

  1. 1. www.productschool.com How to Define Tech Product Pricing Strategy by Salesforce Sr. PM
  2. 2. FREE INVITE Join 30,000+ Product Managers on
  3. 3. COURSES Product Management Learn the skills you need to land a product manager job
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  5. 5. COURSES Data Analytics for Managers Learn the skills to understand web analytics, SQL and machine learning concepts
  6. 6. COURSES Digital Marketing for Managers Learn how to acquire more users and convert them into clients
  7. 7. Frank Sibo Li TONIGHT’S SPEAKERS
  8. 8. How to Define Tech Product Pricing Strategy Frank Sibo Li 2/7/2019
  9. 9. Disclaimers Setting some housekeeping rules before we begin This talk is out of my own personal capacity and not as a representative of Salesforce.com or Amazon Web Services. The opinions and thoughts here are expressed solely as my own and not of any other organization.
  10. 10. About Me Senior Manager, Product Management Senior Product Manager, Technical Products Master of Business Administration Frank Sibo Li www.linkedin.com/in/franksli
  11. 11. Overview Setting expectations and context Today’s talk will be relatively high level. The goal is to provide insights and spark conversation. It is not supposed to be exhaustive nor the end all be all for pricing. Many of the topics that I discuss are not mutually exclusive and most innovative products do multiple things. Again, this presentation is to bring ideas and concepts. What we will be discussing today: 1. The importance of defining your product goal and vision. 2. How pricing directly impacts the behavior of your customers. 3. Examples and how to set up pricing strategies for subscription and usage based products.
  12. 12. Tech Products Before Software distribution used to be different Do you remember having to go a store to buy software? Making software used to be a linear process. Developers made it and then had to physically package and distribute it. It used to be difficult to patch, upgrade, or iterate on.
  13. 13. Tech Products Today Think about the tech products you use today. How often are there updates, patches, or changes? Why do you think this is? Why not just sell a product once and forget about it? You got paid after all.
  14. 14. All About the Customer Customer Experience & Multiple Engagements Wait, do all products need to earn revenue?
  15. 15. Product Vision & Strategy
  16. 16. Product Goal You’ve probably heard this a million times... What is the goal of your product? It is important that you identify this early on in the product development process. It will drive what your product is/does and subsequently its pricing. For instance, many product’s goals are to NOT generate direct revenue. A single product may look to achieve multiple goals (with some level of prioritization) and may have multiple or different combinations of
  17. 17. Indirect Revenue Advertisements, Sponsored Content
  18. 18. Indirect Revenue Stickiness of the ecosystem iMessage: makes the Apple ecosystem that much more sticky. Buying an Android or a windows PC means that you will have to give up iMessage and resort to being… one of those green text messengers… Google Slides, Docs, & Sheets: They are there to promote the use of Google Drive and to enhance the Google ecosystem. Yes, there is also a paid version for Businesses.
  19. 19. Indirect Revenue Data There are many products out there whose sole purpose is to gather data about you. What is this data used for? ● Providing you better advertisements ● Making the ecosystem stickier (by telling you new songs or playlists) ● Recommending products you may want to buy ● Or just selling it.
  20. 20. What do these have in common? Customer Experience & Multiple Engagements These are just some examples of some products that generate indirect revenue. The only way that these products can reach their goal is to create a compelling customer experience so that the user returns and engages with the product multiple times.
  21. 21. All About the Customer Customer Experience & Multiple Engagements Now let’s talk about Direct revenue
  22. 22. Product Goal You’ve probably heard this a million times... What is the goal of your product? It is important that you identify this early on in the product development process. It will drive what your product is/does and subsequently its pricing. For instance, many product’s goals are to NOT generate direct revenue. A single product may look to achieve multiple goals (with some level of prioritization).
  23. 23. Direct Revenue One Time, Perpetual Licenses Let’s go back to the physical store example. You bought Windows 3.1. Back then, once it was shipped, that was it. Customers paid Microsoft once for the Windows and that was the end of the relationship. Microsoft went right back into creating a new version that they could sell. This is how product management started with Waterfall. But wait, doesn’t this still happen today?
  24. 24. Direct Revenue One Time, Perpetual Licenses Isn’t the video game industry still one time purchases? Buy the game once, and then you own it forever? Yes, this is very true today. Businesses noticed that they were leaving money on the table, so they turned to...
  25. 25. Direct Revenue Add On Sales Expansions, Downloadable Content, Microtransactions (essentially usage), and Add-On purchases. This does not only apply to the Video Game Industry.
  26. 26. Direct Revenue Takeaway ● High initial fixed costs ● Waterfall approach and difficult to pivot afterwards ● Product team focuses on creating new version as opposed to enhancing current product ● Higher barrier to entry for customers (eg. $60 price tag for a game) ● If there are servers or infrastructure to maintain, difficult to provide service as not a revenue stream (think of all the free online games where servers are required to maintain) ● You want your customer to attrite and leave, so you can sell the newer version to increase revenue
  27. 27. All About the Customer Customer Experience & Multiple Engagements
  28. 28. Direct Revenue Subscription Subscription is all about the recurring relationship. Crosses all industries: physical and digital ● Software as a Service (SaaS) - Salesforce, SAP, Oracle ● Membership - Costco, 24 Hour Fitness, Amazon Fresh, Amazon Pantry ● Services - MoviePass, AMC A-List ● Evergreen - Netflix ● Freemium Model - Spotify, World of Warcraft, Tinder, Hulu ● Physical Delivery of Goods Over Time - New York Times, Blue Apron, Amazon Subscribe & Save
  29. 29. Direct Revenue Subscription
  30. 30. Direct Revenue Subscription
  31. 31. Direct Revenue Subscription “The reality is ownership is dead; now it’s really about access and experiences as the new imperative.” Recurring revenue is perhaps one of the most compelling factors in a company valuation. “The more guaranteed revenue you can offer a potential acquirer, the more valuable your business is going to be, because a high percentage of the revenue of a subscription-based business is recurring, its value will be up to eight times that of a comparable business with very little recurring revenue.” In a project, the goal is to finish, whereas with a Subscription, the goal is to accomplish the objective -- and continue to provide value over time. The Customer and the Businesses now have a continuous touch points, which are opportunities to better build trust and provide value over time.
  32. 32. Direct Revenue Subscription Netflix changed the relationship without telling their customer in 2011 by changing its plan. Their stock tanked 80% and lost 800,000 customers because of this change in relationship
  33. 33. All About the Customer Customer Experience & Multiple Engagements
  34. 34. Direct Revenue Takeaways ● All about the customer recurring relationship ● More focus on the churn rate and customer metrics ● Constant need to improve and provide value ● Lower barrier to entry for customers (many can cancel at any time) ● Customers have low commitment ● More cost following than One Time
  35. 35. Direct Revenue Usage Usage is all about the customer consumption (pay as you go) Focus on increasing customer consumption Usage is perhaps one of the more complex pricing models. I can easily spend multiple talks about usage.
  36. 36. Direct Revenue Usage Tiered Pricing
  37. 37. Direct Revenue Usage Included, Prepaid, or Points/etc. Overages or additional purchases
  38. 38. Direct Revenue Usage Dimensions of Usage dictate Customer Behavior Phone Plan: $1 per GB $20 per minute call $20 per text What do you think your customers behave? What customer base do you think you’ll attract?
  39. 39. All About the Customer Customer Experience & Multiple Engagements
  40. 40. Direct Revenue Takeaways ● All about the customer consumption of your product ● Focus on the churn rate and customer metrics ● Constant need to improve and provide value ● Lower barrier to entry for customers ● Customers have low commitment ● Harder for customers to predict ● More cost following than subscription as long as dimension is aligned ● Need a system to manage usage processing
  41. 41. www.productschool.com Part-time Product Management, Coding, Data and Digital Marketing courses in San Francisco, Silicon Valley, New York, Santa Monica, Los Angeles, Austin, Boston, Boulder, Chicago, Denver, Orange County, Seattle, Bellevue, Toronto, London and Online

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