On Sunday I attended Product Camp. The topic was Product Management and as many of attendees were from software development field, the discussion was mainly on the duties, skills and challenges of a software product manager and hence typically people talked about the trade-offs that a software product manager need to take for defining and prioritizing features .
However, there were physical product designers as well and during the after-talks it came out that they wanted to understand about how to do product pricing. Though I am not a product manager and have never done the product pricing myself but working with startups, right from their conceptualization, I observed product managers coming up with the price. I hope penning down my observations will help in some way.
Initial internal thought process:
It was a hosted (SaaS) version of an on-premises product. The on-premise product was priced at $400, after doing the math, initially everyone thought that $100 is a really good price. It is just 25% of the price of the actual product plus the customer comes out of all the pain of installing the hardware etc. so everyone is going to welcome this price and the sale is going to break the roof in one day :).
Nothing like that happend :(
Problem: Everything in the idea seems okay. Actually 75% off is a great deal. But no-one came up for purchase. Here are the reasons:
- Existing customers were aware of the $400 pricing of the product. New offer was really good for them but they have already spent the money. There was no point for them buying the product.
- For new customers, it was a new product. They were not aware of the old pricing. And they feel that for a SaaS product, $100 is a big money.
The word 'Market Survey' gives an impression that you need to have a big questioner and have an army of people going around and interviewing people followed by really heavy statistical calculations :).
Nothing like that happened. We just had a few talks with a few people. These people were either potential customers or others who can provide us a sense of spending pattern of potential customers. During the talks, along with so many other things we asked, directly or indirectly, about how people feel they can pay for the product. Following are some of the findings:
- No-one was willing to purchase before a trail
- No-one was willing to pay for a trail
- General feel was to pay only $25 for the product
Bridging the gap between $25 expectation and $100 pricing was the key challenge. We really need to come up with the ideas how to recover the costs (and make profit) while keeping the customers feel good about the price. Here are a few points that helped:
- Free limited time trail
- Batch licensing: This really depend on the product. Our product was such that typically people need more than one license. We imposed a limit of minimum 3 licenses per order
- Free Limited features trail
- Pitch the product for a such a need so that people attach more value to it. For example, a monitoring product suddenly becomes more valuable if it helps you maintain compliance with the law.
While choosing the price for the product one should always keep the end customer in mind.
Mostly it is required to make large volume sale for a break-even.
Innovative marketing ideas always help keeping your price point attractive.