Product pricing considerations - Older version
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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.
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Product pricing considerations - Older version
- 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 $ $$$ Jay Kruemcke - Product Camp Austin - http://kruemcke.com 5
- 6. What is your product market power? Market position ⎼Entry with no competition ⎼Weak with competition ⎼Existing but competitive ⎼Market leader Price elasticity Market segments Target markets Market maturity Jay Kruemcke - Product Camp Austin - http://kruemcke.com 6
- 7. Product Pricing Strategies • Skimming ⎼Grab all you can – Quick! • Penetration ⎼Lower price to grab market share • Loss leader ⎼Sell low to encourage other sales • Limit pricing ⎼Protect against competition • Product mix strategy ⎼Total number of products available to customers • Tiered product pricing ⎼Different price points for similar products. Price Value $ $$ $$$ 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 Jay Kruemcke - Product Camp Austin - http://kruemcke.com 8
- 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 Jay Kruemcke - Product Camp Austin - http://kruemcke.com 16