May 31, 2017 update: Samantha Ming covered this event on her Events Podcast. Listen to the podcast on SoundCloud.
“How much do you pay for coffee?” It’s a seemingly mundane question, but a perfect illustration of the challenge behind pricing your product. Naturally, one first thinks of the last coffee purchased at their favourite coffee spot, but there are many different contexts to consider: if the coffee was organic, had “fancy art”, was a cold brew, was made by Juan Valdez, and so-on. So how much is your coffee worth? The answer provided by Alan Albert at this point was, “it depends”, which is the perfect beginning to his presentation on product pricing.
Albert, President of MarketFit and a Founding Director of Open Angel Canada, is no stranger to the challenge of product positioning and effective pricing. In addition to his current position at MarketFit providing expertise to a wide range of companies that includes Chimp and thisopenspace, Alan has co-founded three successful companies, one of which was eventually sold to Apple.
Pricing is the most important factor, but most of us do it wrong
Although improvements in pricing can have the greatest impact on profit for a company, Albert explained that the most common methods of setting price, (e.g. comparing to competition, “cost plus” and asking customers directly,) can all lead companies down the wrong path. Rather than using these starting points for thinking about pricing, the correct place to start is with customer values, or what the customer cares about when making a buying decision. In the words of Warren Buffet, “Price is what you pay. Value is what you get”.
Determining value is complex, and somewhat of an art
The Value portion of Albert’s presentation illustrated the challenging nature of determining value in the eyes of your customers and prospects, but gave some helpful information to support the process of determining value as it pertains to pricing. The different factors that determine value include context, value layers, differentiation, and pricing-itself.
Most important is to recognize that your customers’ values are the most important, not your own perception of value; as such, it is important to measure your customers’ values.
Don’t necessarily strive to charge more, strive for maximum return
Rounding out the presentation were a set of steps laid out by Albert which ultimately lead your company to effectively pricing its product(s). A critical turning point in this strategy can be defining your pricing objective, as striving to charge more is not actually a foregone conclusion; alternative focuses for optimization can include market share, retention, and defending against a new competitor amongst others.
Additional useful points included the importance of segmentation to effectively pricing your product for different customer segments, as well as understanding the relationship between “value metrics” and “pricing metrics”, where customers’ objective measures of value from your product, (e.g. transactions, leads, time savings, etc.,) are related to a metric that closely tracks them and relates them to price.
Bonus: look to the ProductBC community for wisdom
A highly engaging portion of Albert’s session came after the conclusion of his presentation, when he opened up the topic to the room of ProductBC members to offer assistance with each others’ pricing challenges in an open forum. Questions such as “Should you try to change your customer’s perception of value?” and “How is it best to charge for subscription-based services?” produced great discussion amongst members, but perhaps the liveliest discussion came from the topic “how do I come up with a number [for my initial price]?”.