For the June Women in Product meetup, three expert speakers covered the precarious topic of how to price your product(s).
If you’re currently going through (or have just been through) a pricing strategy with your company, you’ll know the pain of getting it right — or very wrong.
A lot was covered in the short space of one hour. It was jam packed with nuggets of wisdom for anyone who has ever thought about, or been involved in pricing talk. Each speaker had a unique approach so I thought it best to delve into their thoughts in detail.
Simon Mainwaring, Head of Product at Rezdy & Co-organiser ProductTank & Product Camp Sydney
Julian Connor, Senior Product Manager @ Domain Group
Rebecca Cooper, Product Manager @ Ansarada
Simon: Head of Product at Rezdy
In the words of Simon: “If you can get pricing right, it will make or break your product.” Pricing has the highest impact on growth and can be a huge lever for your business. Most startups take 30 minutes, set and forget and that’s the pricing strategy complete. (Sweats a little).
Pricing begins with the customer
Simon talked us through three common approaches:
- Cost Plus Pricing: Take the cost of building product + add a % on top — risk at being blindsided at ongoing costs
- Competitor-based pricing: This is more about copying what your competitors are doing.
- Value-based pricing: Articulate the value of your product to gauge what your customers are willing to pay.
Value based pricing seems the most obvious, however there are pros and cons. The Pro is that by conducting thorough research, you understand the willingness to pay and get better at developing high quality products and amazing customer service. The cons is that it requires time and dedication. For example: the last project Simon was involved in went for 6 months before they rolled out their pricing strategy.
Spoiler alert: it’s not quite a science. The most important thing a startup can do is to find the value metric. This determines what the customer is actually buying and how you could measure that.
SaaS businesses across the world already do this. For Stripe, they charge based on a percentage of the transaction. Intercom charges per user and per lead. These are all great examples of value metrics.
Key takeaway: Choose a metric that means something to your customers. It has to be clear and simple. A good value metric provides expansion opportunity.
Pricing in practice: A Case study
Skyfii: Initially the price point was determined by competitor-based pricing.
The old pricing was based around access points. Simon and his team realised as you reached scale, that the prices skyrocketed. This could cripple the product and its organic growth. They devised that Skyfii needs a much more scalable value metric. Realising this, the team did model interviews, surveys and loads of market research.
They decided on a dual metric. Customers understand price based on number of locations and stores — not access points. By simplifying the pricing model and charging per store, it helped simplify sales and pricing process. The overall pricing strategy change took lots of research and 6 months.
Speaker 2: Julian O’Connor — Senior PM at Domain
Julian began his talk by stating: Pricing doesn’t start with price, it starts with value. All value isn’t created equal, hence why we have to focus on monetisable value (we’re onto a theme for the evening!)
How you pitch your value matters, and it matters a lot. Articulate the value you provide for customers in their language and in terms that reflect their worldview. If you can do this concisely, you’re onto a winner..
Anchor points & price
Julian referred to anchor points: a point of reference our customer have about something was worth. If a coffee in a cafe was priced at $1 you would turn around and walk out. If another cafe priced the coffee at $100 you might consider this a really great coffee!
Anchor points are a frame of reference, and a mental model for users. When they arrive at a product, they need a sense of what something is worth to make choosing easier.
Key takeaway: Figure out what anchor points are in an existing landscape. Benchmarks are important. What is their budget and spend. An option is to ask at the end of an NPS service. And if they score highly: how much are they willing to pay?
Pricing case study: Job site Indeed
In Australia, there were two major job boards at the time. Each had a pay-to-post pricing model. For the popular job site SEEK, this looks like $300 per listing. When Indeed came along, their model was different. Indeed’s bread and butter is aggregating jobs for free, where anyone can find all advertised jobs across platforms through search.
They monetised through their users and offering sponsored jobs. Indeed was doing pretty well globally, except in Australia. Within the ANZ market, SEEK has a lot of high brand awareness. They’ve got all the job content because they’ve been a monopoly player for so long. And they do a really good job with their brand and content.
Their pricing technique is volume discounts: they incentivise employers and recruiters to put lots of jobs up and reward them with a preferential price. On top of this, they introduced very specific terms & conditions. To qualify you need to give them all your jobs on their site. They use this condition around the price to give them an edge, and protect their core traffic.
Adding extra value
The trick is to identify segments, offer credits to drive trials to try the product. One way of doing this is by building extra value into the trial. What else can you bundle in to demonstrate value and get them bought into your product?
Key takeaway: Build value into the trial. A smart pricing model can take a company from good to great.
Product managers need to be involved in pricing
PM’s have a holistic view and understand users, their problems and the value of the solution better than anyone, along with the dynamic changes in the tech industry. PM’s need to be involved in pricing.
Speaker 3: Rebecca Cooper: Ansarada
Having most recently gone through an overhaul of pricing at Ansarada, Rebecca knows all too well the pains of changing an established model.
Ansarada modeled their initial pricing model on their competition. That pricing model took Ansarada to 80% market share across their core markets.
However, as the company and market matured, Ansarada realised that customers found their pricing confusing, expectations were frequently unclear and this led to refunds, unhappy customers and salespeople focused on rescuing relationships rather than selling.
“Our sales team are too busy handling pricing contracts and not enough time on selling. They don’t price based on value. We struggle to compete with our product, and your competitors are undercutting you. We don’t want to reduce our cost down to our competitors.”
What a lot of companies fail to recognise is that there are significant psychological factors that go into pricing. Ansarada engaged Price Intelligently to help with the overall strategy and analysis. Upon research, they found the lower end of the market prefer a flat fee. So the project team put together pricing principles:
- Limit amount of variables
- Flat fee and differentiate on features
- Increase recurring revenues
- Easy to understand, explain & calculate
- Future focussed, and can’t have a negative effect.
- Wanted to focus on feature differentiation. How we could provide value that people would want to know more.
But even with research, Ansarada knew that their revised pricing model contained unvalidated assumptions and it was too risky to implement wholescale across their core markets. The new pricing model is currently being tested as experiments in regions where Ansarada is developing market share. We’ll know it’s a success when we see Ansarada roll out the new pricing model in Australia.
Key takeaway: What worked yesterday won’t necessarily work today. Experiments and research is key to determining your pricing model.
What is Women in Product?
This Meetup (also held in Melbourne and London) is a place for women to openly talk and discuss all topics related to Product Management, Product Design and Product Development. We started this group to provide support and mentorship for women who are looking to meet other women in Product Management.
Attending a Women in Product Sydney event on a school night — is completely worth it! The Sydney meetup meets once a month, and also holds dinners and hands-on workshops.
To attend the next meetup, head to the Women in Product meetup page.
Special thanks to Ivy who helps me refine and finesse every recap I write.