Step 16: Set Your Pricing Framework
Basic Pricing Concepts Five Waves of Customers Workshop Outline Overview Basic Pricing Concepts Five Waves of Customers Workshop January 14, 2019
Overview This step: Use Quantified Value Proposition and Business Model to determine a first-pass framework for pricing your product January 14, 2019
Overview Pricing Framework Balance between attracting as much revenue as possible while still attracting as many customers as possible. January 14, 2019
Make estimate of Pricing Framework Ongoing and interactive process Overview Make estimate of Pricing Framework Ongoing and interactive process Very likely to change (e.g., gasoline, airline tickets) Goal: use pricing estimate to calculate Lifetime Value of An Acquired Customer and Cost of Customer Acquisition Use BOTH to determine profitability January 14, 2019
Basic Pricing Concepts Five Waves of Customers Workshop Outline Overview Basic Pricing Concepts Five Waves of Customers Workshop January 14, 2019
Basic Pricing Concepts Cost should NOT be a factor in deciding price Set price based on value customer gets from product Do NOT use cost, instead use quantified value proposition Determine how much value customers gets Charge some percentage of that (e.g., 20%) January 14, 2019
Basic Pricing Concepts Use the Decision-Making Unit and Process to Acquire a Paying Customer to identify key price points E.g., if DMU has $1000 purchasing limit, do NOT charge >$1000 January 14, 2019
Basic Pricing Concepts Understand Prices of Customer’s Alternatives Based on customer’s perspective! Products available How much customer would pay Include status quo Very important data to collect! January 14, 2019
Basic Pricing Concepts Different Types of Customers will Pay Different Prices Prices should vary depending on customer type (more later) E.g., discounts for early adopters E.g., full price for late majority January 14, 2019
Basic Pricing Concepts Be Flexible with Pricing for Early Testers and “Lighthouse” Customers Early customers will collaborate to improve product Lighthouse customers influence others to purcahse Allow pricing flexibility for both! Discounted upfront costs Low-cost trial period Keep prices confidential Never give away for free! January 14, 2019
Basic Pricing Concepts Always easier to drop price than to raise it Better to price high, offer discounts .. Than to price too low January 14, 2019
Basic Pricing Concepts Five Waves of Customers Workshop Outline Overview Basic Pricing Concepts Five Waves of Customers Workshop January 14, 2019
Five Waves of Customers Technological Enthusiasts Early Adopters Early Majority Late Majority Skeptics January 14, 2019
Five Waves of Customers Technological Enthusiasts First people to buy product Love technology, willing to try Probably sell just one Will likely pay more January 14, 2019
Five Waves of Customers Early Adopters May want to feel like they got a deal Requires lots of attention and service Build this into pricing framework! January 14, 2019
Five Waves of Customers Early Majority Where you’ll start scaling This is the price most think of first! January 14, 2019
Five Waves of Customers Late Majority Later in process Like conservative pricing / plans Take on less risk (product is established) January 14, 2019
Five Waves of Customers Skeptics / Laggards Very late to process E.g., friend who still has flip phone.. January 14, 2019
Five Waves of Customers Technological Enthusiasts Early Adopters Early Majority Late Majority Skeptics Consider these waves within pricing framework January 14, 2019
Basic Pricing Concepts Five Waves of Customers Workshop Outline Overview Basic Pricing Concepts Five Waves of Customers Workshop January 14, 2019
WORKSHEET: Initial Pricing Framework Six criteria to consider: Workshop WORKSHEET: Initial Pricing Framework Six criteria to consider: Value Creation (not costs) Customer Acquisition (DMU) Nature of Customer (waves) Strength of Core (pay premium for top talent) Competition (other options?) Maturity of Product (new / risky vs. proven / established) January 14, 2019