Entries Tagged 'Pricing' ↓

As per usual in product management one is consumed in thought with pricing. Defending. Setting. Reviewing. Rinse. Wash. Repeat. The biggest challenge of all-things-pricing is determining the price of a new product. Armed with the mantra “value determines price that determines cost”, the task becomes how do you determine value. While I am sure there are dozens of methods with some more scientific than others. This method struck a chord wth me. First have your potential customers review your product either by live demo, actual usage or concept testing. Then have an open discussion about the various use scenarios and benefits. Finally the age old question: how much do think this is this worth? You’ll have to navigate through the “should be free” jokes and “budget constraint” stories and you’ll likely need a seed value for those that truly have no idea. My experiences so far, customers love this conversation. Insight into your innovation, ability to contribute and shape that and the creative process of seeing something for the first time and trying to apply it to their work processes.

For a longer narrative and a refresher “tune” into your handy copy of a Tuned In, chapter 6 “Quantify the Impact”.

At what point do you charge for your add-ons (or plug-ins or add-ins or anything other term that might apply)?

If you follow the edict (yes, edict) that value determines prices that determines cost, then your add-ons have value (assuming the cost is greater than zero) and therefore have a price that is greater than zero. So why offer them for free?

One school of thought is that they are bundled within the price of another component. That is fair, but have you truly factored in the price of the add-ons to increase the price of the bundled product?

Another school of thought is that we offer them for free to encourage additional use, extend the reach or just general goodwill. I wonder though, if offered for free does this truly dictate less value for the customer and de-motivate them from using or is this my product management hat telling me free offers no value?

Any stories to share on the topic?

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Note: The title was lifted from the great Paul Young!
http://twitter.com/ptyoung/statuses/14237728653

We can never have too many pricing lessons. Please read this post from Zendesk – “Introducing New Features, New “Starter” Plan, and New Pricing” and let me know what you think. Where did they go wrong?

I am confused to whether they are raising the prices because the cost of development has gone up or whether they have added value (“we have added new functionality to the service for every week for the last two and a half years”). What I do like (assuming I understand it correctly) – they increase the price per agent as their customers add agents. This seems to lead me to believe they understand that more agents add to the realized value and therefore warrant a higher price point.

I do want to highlight a positive, their CEO responded directly to the thread. Regardless of the quality of his response and the response to his response it will a necessary response to the issue.

Hey guys,

First of all. Yes, we are raising our prices on two of our plans. We now have three plans at three different price points (starting at $9). This is the first time EVER that we have increased pricing. But we have added new functionality to the service for every week for the last two and a half years.

And today we’re launching a lot more functionality for knowledge base and community support. Zendesk has gone from a traditional ticket management system to a complete customer engagement platform, supporting 1-to-1, 1-to-many and many-to-many customer conversations and support interactions. Zendesk is investing heavily in new features and our customers will continue to experience great things with Zendesk.

We will deliver on our promise.

Are we the cheapest show in town? No. But we do think that we have an excellent offering for almost every budget starting at $9 per agent seat. And we do offer to grandfather our existing customers for one additional year at their current price point with all of their current functionality grandfathered indefinitely.

The price per agent has gone up with $10 and $20 on the Regular and Plus+ plans respectively. That’s a 50% increase. Some customers may experience disproportional price hikes due to earlier introductory discounts, and we will look into these accounts on a case-by-case basis.

Let me finally point out, that we have been completely open and transparent about the price changes. We don’t try to sneak it in.

Mikkel Svane, CEO

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Nothing makes my heart skip a beat like seeing a product management generated price list that includes discounts.

Why? No seriously, ask yourself why?

Volume discounts? Does the value of your product decrease when you increase the number of users? Should you not increase the price of your product? I know what you are thinking, the cost decreases. If you are pricing your product based on cost you are either over-pricing or under-pricing. You should spend a day thinking about this – soon!

Sales discounts? The Sales team is going to be asked for discounts and either comply to close the account (likely) or walk away (unlikely). What happens to your discounts? They get discounted even further. I would sooner sell 25 units at the 10% off requested by Sales than 25 units at 10% off the 15% off I already applied to my pricing model.

Please stop. Your product revenue is not nearly as high as it should be.

You will have to sell your product with discounts, but try not to encourage it by building discount based price lists.

Disclaimer: I realize that some products in some industries work differently, but please think about what you are doing with your price list and the applied discounts before publishing it.

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Next thing you know it has been 23 days since your last post. Oddly my subscribers have risen. Thanks for reading! There is lots going on in my life and reading and writing has sadly slipped below my capacity to process. I am hopeful that will change in November, but my travel schedule for the month is already pretty full. We shall see. Generally when I am lost for blog ideas I have a book review to do, but the current book (How We Decide by Jonah Lehrer) is a bit heavy and proving to be a slow read. The upside, I am learning lots about brain activity.

Random Bits:

1. I want to acknowledge a conversation I had a couple of weeks ago about authority vs. influence. His premise was that authority doesn’t exist. Authority alone is not enough to lead and that even in a position of leadership influence will still rule the day. I agree.

2. Regarding personas, I continue to see them not being used. You will lose the battle without them. Also try your best to ignore this post, except for the comments.

3. Regarding vision, I continue to see either no vision or poorly defined visions. You will lose the battle without a vision, largely because it is the key component to strategy. No vision, no strategy. Here is a good blog on product visions.

4. The price of your product is determined by the value it provides, not the cost.

5. Please visit my list of product management events. It is the most comprehensive list of events targeted towards product managers anywhere.

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