Focus on customers, not competitors, to drive product success.
Are your products not generating the revenue they should be just because you didn’t price them right? Pricing is a key concern of not only product managers and leaders but also the executives of organizations.
Knowing the right price for a product is a challenge, especially if the product is new to the market. But, how to you determine the right price?
If your pricing strategy resembles a dart board, there is a better way. You just need to know the steps and what data to collect to determine the right price.
Our guest, CEO and co-founder of ProfitWell, Patrick Campbell, is a pricing pro and he shares the steps to determining the price of any product. Before founding ProfitWell, he served as an Economist at Google.
Summary of some concepts discussed for product managers
[2:50] How did you become a pricing expert?
I started working in the intelligence community, which is all about using data to hunt bad guys. It was interesting, but I didn’t find government work very exciting as a young person. I got a job at Google in a sales ops role and built a lead scoring model for sales. I then moved into the startup world and started working on pricing. I saw that the people I worked with put so much work into their products but didn’t put nearly that level of effort into pricing. I decided to strike out on my own and focus specifically on pricing and have been doing that for about 6 years.
[6:56] ProfitWell focuses on pricing for SaaS products, but does the philosophy behind it apply to other products?
We primarily serve the subscription space, but we started off agnostic to the company we took on. We’ve worked on with Hallmark, Reebok, and nonsubscription companies in other industries. Our algorithms are fine-tuned to subscription companies, but our content is a good fit for everyone.
[8:16] Can you give us an example of how your model works?
Let’s say we’re starting a CRM or a media site where we’re going to publish content about a specific niche. The biggest thing to understand is that it’s not about your existing data, it’s about getting fresh data from your customers to understand the value from that customer’s perspective. This where people go wrong when they look at things like competitive benchmarks. This approach assumes that your competitors have done their pricing homework, which most have not.
[11:56] How should someone begin thinking about a pricing strategy?
The first thing you have to think about is who you’re targeting and what we call persona-pricing-fit. Start with a spreadsheet that has customer profiles in each column and value metrics in the rows (how do they want to pay, what are their most valued features, etc.). Then just fill in the sections and add your confidence level. This helps to centralize your thinking about pricing and understand who you are building the product for.
[17:04] What comes next in the process?
Next comes validating and adjusting based on what you find. This happens through collecting survey data. You can use market panel companies if you don’t have access to the people you want. In the survey, show them the product and give them a landing page’s worth of information, make sure they understand the information, then ask some pricing questions. You want to understand at what point they feel the product is too expensive and at what point they think it’s too cheap. With enough data, you can put together a pricing elasticity curve and validate your personal assumptions. The big thing to keep in mind is that you’re not trying to be perfect, you’re trying to hedge risk and understand what users value. It’s an interactive process as you grow and change your product.
[23:49] What do you do with the data once you have it?
You should segment it in every way that you can. You’re looking for trends and differences in any place you can identify them. The most important thing is to put a deadline on making a decision for whatever you’re going after. Don’t try to fix everything at once, do one thing at a time and get yourself in a position where you’re making progress rather than sinking into analysis paralysis. It will never be perfect and there will always be work to do.
“Success is a by-product of excellence.” – a coach of Patrick’s
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