Is Your Pricing a Dot or a Triangle?
Most product managers I know secretly (or not-so-secretly) dread pricing. Price too high, and you risk alienating customers; price too low and you’re undervaluing yourself and making it harder to raise prices later.
We stress so much about that number that we tend to forget that “price” isn’t a single number to our customers. When customers consider “what something costs”, they’re actually measuring three main drivers:
Money: The obvious one. What am I going to pay in dollars and cents?
Mental energy: How much do I have to think about this?
Time: How long will it take to learn/deploy/configure?
As you can probably guess, these points aren’t independent. The reason “free” is so psychologically powerful is that it entirely removes the “money” axis and strongly reduces the “mental energy” axis.
I don’t have to think about “free” at all. Paying even one cent - that requires some mental energy. I need to enter a credit card number, or remember my PayPal password.
For someone who works in a large-ish company, a $500 purchase may be very low mental energy - they can charge and reimburse it without additional work. A $501 purchase might mean writing up a description, asking for pre-approval, getting a signature, having to write up a purchase order… a huge increase in mental energy over an additional dollar.
Time and money are related when the product requires expensive consulting, or steals an expensive internal resource from whatever they were working on previously. Also, long deployment cycles can mean paying for a service for months before starting to see the benefits.
Which shape should your pricing triangle be?
Market maturity and customer priorities determine how high or skewed your triangle can be.
Commodity Product, Mature Market
For example, a product in a mature market that has seen commoditization can’t be very high on any dimension. If I’m looking at, say, dryer sheets, I’m not going to choose an option with a higher price tag, or a set of warning labels and detailed instructions, or one that increases drying time.
I just don’t care enough. Some dryer sheet maker would have to come up with a truly disruptive innovation before I’d even consider increasing my “cost” on any axis.
New Technology, Early Adopter
On the other hand, take the first-generation MP3 players. They were expensive. You had to find software to rip your CDs, and then often another piece of software to load the music onto them. It probably took 45 minutes to load up my Diamond Rio for the first time with a whopping 45 minutes’ worth of music.
The early adopter is okay with spending more money, expending mental energy, and spending time futzing with this new product. Everyone else… is not. This has led many a product down a bad path.
Cash-Poor, Time-Rich
If your target customer is a high school or college student, this is what your triangle may look like. Don’t incur costs trying to make the installation faster or the instructions easier - do whatever you can to make it free or cheap.
Time-Poor, Cash-Rich (or adequate, anyways)
Why does Amazon OneBox exist when BitTorrent is out there?
Because to this audience, it’s not worth the time of searching for a specific episode among a bunch of crap, waiting to download, dealing with corrupted files… when you could just pay a couple bucks and get your missed TV show with One-Click.
For this market, don’t worry about your pricing being too high. (If it is, you won’t permanently scare people off; they’ll come back when you adjust it.) Worry A LOT about how to make the purchase a no-brainer. Write better documentation. Streamline your checkout process. Invest in making deployment incredibly fast and easy.
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October 12th, 2009 at 1:35 am
Excellent post.
Its amazing the prices that can be charged to time-poor, cash-rich consumers particularly for personal services, as long as the product quality is high. They do not have time to shop around and consumption is often part of their persona.
October 12th, 2009 at 9:20 pm
Love it! Thank you for breaking this down Cindy. I think this in itself is a good hurdle for products contemplating a ‘free’ business model; ad supported bm aside.
Cheers.
Ethan
October 14th, 2009 at 9:19 am
Eric Sink also wrote a good article about Product Management: http://www.ericsink.com/articles/Product_Parent…;
This reminds me of the stories about Marissa Mayer at Google tracking the number of words on the home page. She’s got all the tech chops in the world and she’s focused on the user experience, on how 50 bajillion people use the product.
Good to see you writing more again, you were missed during your blog hiatus!
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 10:43 am
Thanks, I appreciate that. I am making an effort to write more frequently, so hopefully there’s more to come.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 11:12 am
There is a lot more to a product manager than meets the eyes. This is a great artical that really cover some of the details.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 12:20 pm
Can’t help thinking that someone like this is a rare beast. But, to add to the hot list, how about, Willing to Get Dirty; someone ready and able to get inside a problem or issue and do whatever it takes to sort things out.
Thinking about it, if you replace the Product Manager specifics you’re pretty much describing what it takes to be effective in any role in a technology startup. Love it.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 12:36 pm
As a marketer and someone who works with early stage startups, I can’t agree more.
The need is so evident because you need a bridge between the Dev team and the Business side.
For me, the ideal Product Manager should:
1) be hand-picked by the CEO (they must share the vision and the PM should have the CEO’s full faith).
2) be both technical and business oriented
3) be customer driven
and
4) be able to be put in front of customers, press, partners, etc.
Product Managers are critical to startups and I wish that we’d see more of them in there sooner.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 1:20 pm
Great post Ben. I would say that the biggest skill that makes the difference between an OK Product Manager and a great Product Manager is having enough technical background to know what you’re asking of the dev team and being able to ballpark how big of a project a new idea will be and determine if it’s worth it.
While my business partner and our other developer might disagree, I spend a lot of time parking or flat out shooting down many ideas. I still write all of them down though for future reference as technology always gets more efficient. A 3 month project one day could be a 3 week project a year later. The nice thing about being a bootstrapped startup is that it’s very easy to make decisions when every dollar counts.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 1:30 pm
More often than not it looks like this:
What does a Product Manager do?
1. Nothing
2. Gets paid.
I’m a firm believer that a Product Manager should be someone who has also at one point actually worked closely with the product itself.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 2:28 pm
Is Your Pricing a Dot or a Triangle? http://is.gd/4jsh7
This comment was originally posted on Twitter
October 14th, 2009 at 2:49 pm
Did you mean this tweet? Great article btw, i was trying to assess my own role in my startup! =)
https://twitter.com/mingyeow/status/4739908948
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 4:45 pm
Is Your Pricing a Dot or a Triangle? http://is.gd/4jsh7 RT @koopmans Great stuff! Lane.
This comment was originally posted on Twitter
October 14th, 2009 at 6:37 pm
Kristine - Thank you for the comment. I like your addition of #4 - being able to put a Product Manager in front of customers, press, partners. What do others think?
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 6:39 pm
Scott - Thanks for the comment. I believe technical know-how / understanding is important too. I wonder how much people would prioritize that over other skills / qualities?
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 6:41 pm
Ming - That was the one. Thanks for linking to it. I’m a fan of Mr. Tweet. I see a lot of potential with discovery systems like that.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 6:47 pm
It’s essential. A good PM needs to be in touch with clients more than most, if not all people in their startups. They need to be able to steer the ship in the right direction, while the CEO concentrates on funding, business development and so on. A killer team is a CEO and PM that knows how to communicate, and a PM and a dev team that know how to work together. I’m in complete agreement.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 7:06 pm
One of my clients asked for my definition of a product manager. I thought about it and replied " a founder in training|. Basically someone who sees the whole vision and melds tech, product, market, customers into the mix. Very tough job to fill well
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 7:16 pm
Mark - That’s an interesting definition, and I can see how it makes sense. Having said that, I’m not sure a Product Manager has to ever become a founder, or want that. As you know, once you’re the founder you are responsible for a much broader set of focuses. Raising funding, as an example. But I agree that they need a broad vision into much of the company’s operation.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 7:19 pm
thx, what an honour! we actually have something coming up (hint: that is how i found your article), and would love to give you an early look if you are interested. =)
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 7:22 pm
that is the REALLY tricky thing right? i am the PM for my startup, but many times, the amount of satisfaction i get from writing a piece of code far exceeds the amount of satisfaction i get from writing a spec. the former is tangible, the latter is fuzzy. But getting the product insights right is so crucial, far more so than getting a piece of code written.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 9:20 pm
thx, what an honour! we actually have something coming up (hint: that is how i found your article), and would love to give you an early look if you are interested. =)
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 9:22 pm
that is the REALLY tricky thing right? i am the PM for my startup, but many times, the amount of satisfaction i get from writing a piece of code far exceeds the amount of satisfaction i get from writing a spec. the former is tangible, the latter is fuzzy. But getting the product insights right is so crucial, far more so than getting a piece of code written.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 14th, 2009 at 11:35 pm
Well explained job nature of the product manager. I can easily understand how the product manager should be? after reading your blog. Thanks.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 6:05 am
Ming - Absolutely. You can email me at byosko@gmail.com - I have an account on Mr. Tweet already as well.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 6:05 am
Ming - As much as personal satisfaction is important, I think you can weigh those two things by asking, "Which one is more important for customers? The spec/product management work or coding?"
I don’t think they’re mutually exclusive either, but if you put the customer first (which isn’t just thinking about "how to be nice to customers" but how to get more, convert more, get more to pay, etc.) then it helps prioritize things.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 12:11 pm
They are unsung, because the are replaceable cogs. Just like this blog post they are constantly trying to take credit for anything and everything under the sun. The credit should go where it is due, the founders that put blood sweat and tears into the company, and the engineers that slave away.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 1:33 pm
I like this, probably partly because I see myself as a Product Manager-type. :) It’s the role where you have to ask "Why" and not just "What" and "How".
The classic model sees founders as either Tech or Business people. This line of thinking adds Product people as a distinct thing, which is great. How many startups have collapsed because they built out their Technology (over-scaling and over-speccing) or Business (the corporation and all its structures) before they really had a handle on their Product?
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 2:12 pm
They are unsung, because the are replaceable cogs. Just like this blog post they are constantly trying to take credit for anything and everything under the sun. The credit should go where it is due, the founders that put blood sweat and tears into the company, and the engineers that slave away.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 2:17 pm
Ouch. It sounds like you’ve had some unpleasant experiences with Product Managers.
I certainly do give plenty of credit to startup founders - I’m one myself. My point about Product Managers is that their value is under-appreciated in startups, and that deserves attention, along with the importance of Product Managers in startups.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 15th, 2009 at 11:47 pm
Ya it’s depends upon company and nature of product, administration syle to determine the role of product manager, some companies dont have designation ‘Product Manager’ but the works of him done by supervisor of Factory manager, and some works by Marketing manager…..
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 16th, 2009 at 1:48 am
Ya it’s depends upon company and nature of product, administration syle to determine the role of product manager, some companies dont have designation ‘Product Manager’ but the works of him done by supervisor of Factory manager, and some works by Marketing manager…..
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 16th, 2009 at 2:17 am
Great post! Thanx for sharing…
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 16th, 2009 at 4:17 am
Great post! Thanx for sharing…
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 16th, 2009 at 7:15 am
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This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 16th, 2009 at 9:15 am
Try http://www.detailer.pl
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 17th, 2009 at 1:53 am
thanks for the post, this will definitely help me with my startup =)
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 11:14 am
thanx alot
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 11:14 am
This reminds me of the stories about Marissa Mayer at Google tracking the number of words on the home page. She’s got all the tech chops in the world and she’s focused on the user experience, on how 50 bajillion people use the product.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 1:15 pm
This reminds me of the stories about Marissa Mayer at Google tracking the number of words on the home page. She’s got all the tech chops in the world and she’s focused on the user experience, on how 50 bajillion people use the product.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 1:15 pm
thanx alot
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 5:45 pm
It’s great to meet experts who are willing to share both their experiences and knowledge to other people.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 18th, 2009 at 9:00 pm
Thanks for this very thoughtful and detailed post regarding the role of Product Managers. So often, I work with start-up companies and this role is not clearly defined — and you’re absolutely right, the entire business suffers as a result of this oversight. I have never been able to quantify this need as well as you have articulated it here, so I will pass this article along to them. Thanks for the great post!
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 19th, 2009 at 7:06 am
Good article. A product manager in my eyes has to have technical and business expertise, as well as being able to interpret and present a clear vision that everyone can understand.
It’s a very difficult role IMO, you have to be all things to all men in a sense.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 19th, 2009 at 8:09 pm
Great post. While I don’t necessarily agree with all your points, I absolutely agree with the essence of your post. Specifically, the notion that Product Management eludes too many start-ups. Moreover, I pin the blame squarely on the shoulders of the Founder/CEO. A common mistake early start-ups make is to wait too long to formalize the role of product management. In general, product management continues to struggle to find legitimacy in software — let alone in start-ups. Few founders have the aptitude, experience, and courage to delegate product management. Fearing I would run on… I picked-up the topic on my own blog: http://www.quantumwhisper.com/product-managemen…;
It would be great to get your feedback. BTW, I’ll be sure to introduce myself at the next Start-up Camp.
Best Success,
B.
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 23rd, 2009 at 1:18 am
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This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog
October 23rd, 2009 at 3:59 am
Barry – I’ll definitely check out your post.
Out of curiosity, what points DON’T you agree with?
This comment was originally posted on Startup, entrepreneurship & social media insight from Instigator Blog