In this week’s podcast, we were joined by Dan Balcauski, Founder and Chief Pricing Officer at Product Tranquility. Dan sheds light on the common misconceptions around pricing and gives valuable advice on aligning your pricing strategy with your business objectives.
Hey goie welcome back I can’t tell you how happy I am that you’re back for this week’s episode I bet everyone listening is happy too a thank you so much I missed you and all of our listeners and I haven’t had a chance yet to congratulate you on getting the speaking
Slot of the year at MTP conference in London that is awesome I’m definitely going to be right at the front so I can Heckle you properly I would expect nothing less and thank you very much for that I’ve spent the last couple weeks completely freaking out and really
Getting started on the talk it’s going to be a good one but it’s uh it’s it’s a bit freaky but what have you been up to well I went on a free diving course which was awesome but actually I wasn’t feeling great and it turns out I had
Coid so I’ve just been recovering from that over the last couple of weeks but honestly there’s a lot of fun stuff to learn about breathing when you’re doing free di course and it was great to step out of my comfort zone in a new way and
You just can’t put a price on an experience like that well that’s interesting I mean I wonder what the price for a course in a niche specialist subject should be isn’t that isn’t that the kind of thing you cover in your D J at BBC Maestro yeah it is exactly but I’m not
Sure I’m a pricing expert just yet so this week we’ve got someone who absolutely is we’re chatting with Dan Bowski founder and chief pricing officer at product tranquility and we covered absolutely loads of stuff and we both got some really good guidance from him during the chat so let’s not waste any
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Weekly curated newsletter mind the product also offers free product tank meetups in more than 200 cities there’s probably one near you Dan thank you so much for joining us on the podcast how are you doing this week I am doing doing fantastic Randy it’s good to be here thank you for
Having me it’s a pleasure so for anyone who doesn’t already know you can you just give us a quick introduction uh what do you do in these days and how did you get into the world of well not product but but pricing yeah well uh
Like I said it’s great to be here my name is Dan Bowski I run a consulting firm based in beautiful sunny Austin Texas where I help high volume B2B SAS CEOs toine pricing and packaging for new products I’ve spent my entire 20y year career in software started more on what
You might call the value creation side than the value capture side that I’m on today ver as an engineer and then Engineering Management ultimately I became a lot more fascinated by how products created customer value and turned into dollars and cents for the business uh also just temperamentally
The code never cared how mad I got at it it still wouldn’t run so I I realized that maybe the software engineer route wasn’t the long-term best path for me ultimately you know those interests led me to pursue an NBA I didn’t realize at the time I was quite lucky with my just
Choice of graduate program it was widely recognized Excellence of marketing I didn’t find out till very recently that many business programs have courses in pricing so I received a lot of my theoretical grounding and pricing there um and then during that internship during grad school worked for a very
Successful Silicon Valley startup where one of the questions on the CEO’s desk was should they pursue a premium model and so kind of right away I got thrown into the world of pricing tldr we may come back to it later but I do not recommend premium in the B2B SAS world
So that May uh be a holy war I am happy to continue fighting uh down the line but we’ll just leave it at that right now know after business school ultimately I I took a series of product management product strategy roles increasing levels of seniority ultimately was had a product a startup
And then about four years ago decided to go off on my own and uh give a hand at Consulting so I’ve been doing that and now all I do is you know have the privilege of helping you know B2B SAS CEOs and their teams build profitable businesses and fulfill companies
Missions fantastic so before well aside from fremium we’ll get to that later what else do people get wrong about pricing you know this this is kind of a a mystery and a dark art for lots of us so what is the most common thing you see
That people get wrong yeah it’s a dark art I think only if you keep thinking of it as a dark art it’s got more science to methodology to it than maybe most people look at but I think the number one thing I see is when it comes to assass pricing most Executives think
That what you charge determines your success in fact who and how you charge determines your success so I would spend a lot more of my time on what the price tag goes on and little time on what number goes on the price tag okay so let’s start with the the basics um or
From the foundation like how do you know that your pricing is right like what are the signals that you are getting it right or getting it wrong um well depending upon you know where the company is in their life cycle right they may have there’s going to be
Different symptoms that I that we may see right so I think one of the questions is how early in your pricing or how early in your product or or company Journey should you really be absolutely focused on pricing and what I tend to see is that look pricing is one
Of these things that’s people always have questions about it’s always not quite per perfect uh but early on in a company’s trajectory say if you have a startup right it’s three founders in a room they’re probably spend it all of four hours on a Saturday kind of coming
Up with their original pricing and packaging and then maybe never think about it again and it’s one of these things that yeah it might not be ideal but early days you’ve got so many say pre-product Market fit and I generally dislike that term for other reasons but
That’s another holy war we may not get into have time to get into but in General right you’ve got like are we actually solving a problem does anyone care about and maybe your pricing and packaging aren’t optimized by the way I’ll often whenever I say pricing I almost always mean pricing and packaging
But I usually just truncate that to pricing uh but the problem is is that look priceing is probably not what’s going to kill you in the early days it’s because your priceing is absolutely wrong it’sa you probably built something that nobody wanted or nobody needed right it’s very rarely that I see
Something uh that that no but what is interesting in the early days is really understanding something like what’s your price positioning because that’s a strategic decision that we don’t often really think of but you know it it has less to do with research and just where
Do I want to play if we think about so a common uh company like Southwest Airlines in the US like they decided that they were going to be compared against you know not only the other airlines but but bus Fair as a competitive alternative so what is the
Price point at which you are inviting relative competitive comparisons right and so we can think about the you know The General auto market in you know again that we’ve got your sort of your super low entry level players uh from you know say your Toyota Corolla your Market entry player your Toyota Camry
Then you get your premium segment now you’ve got your Lexus your BMW Mercedes maybe your Tesla mods you’ve got your luxury segment right none of that has to do with it’s not that the Toyota Corolla product manager sitting there being like hm I wonder if we should price test you
Know against Lamborghini and Bugatti it’s like that’s that’s the wrong like you’re not you’re that there’s a strategic element there that you’re you’re making a decision um but ultimately look when when companies are sort of humming along and they’re getting to a certain uh level of growth look there’s all sorts of different
Symptoms of of reasons they might come to us but like ultimately like are they meeting their goals is pricing getting way of those goals if I think about pricing and packaging you know either it can be you go continue using the Auto industry at allergy either it could be a
Lubricant in your in your go to market engine or it could be like pouring sand in your gas tank because it’s going to affect part of customer acquisition costs uh deal uh length uh in terms of your your sales Cycles uh in terms of your conversion rates in terms of
Obviously the actual Revenue you know and expansion both original new business and expansion so uh like our you know looking at those goals is pricing ultimately getting way like have you recently done a change like a change or an increase and has it succeeded why or
Why not uh you know why are we losing deals like what role did Price play compared to other factors and I think one thing I didn’t maybe explicitly talk about this early in my in my introduction but one of the things that I pretty much play exclusively in the B2B space these
Days um and big difference between B2B and b2c is in B Toc prices often number one decision criteria of of of a purchase but in B2B it’s somewhere in the third to seventh most important characteristic you imagine right there’s the old adage of no one ever got fired
For buying IBM there a reason it’s like well I don’t care that IBM costs more it’s like my job’s on the line I don’t want to be the guy or gal that recommends something that actually doesn’t work or or you know I have social capital at risk um I might lose
My job I don’t like ultimately I don’t care that they cost you know twice the the next best person even the other person says they can do even better things than the others right um and so that’s that’s those are different things that we want to keep in mind Dan you you
Said earlier on that you truncate pricing and packaging to just pricing and you said a lot of stuff in that answer that probably conflated the two things pricing and packaging can we just be really clear before we keep going what is packaging what do you mean by
That yeah no it’s a great question and I think it’s something that you know when I really got deep into the weeds and pricing it’s something I don’t think is relatively crisply defined and so when you start trying to learn about this space it’s another area that can be
Ultimately very confusing because it’s not uh I think the the pricing uh industry has a lot of work to do still to sort of standardize these terms but I’ll use you the I’ll give you the examples of the terms that I use so this goes back to what I said before of you
Know it’s not what you charge in term of sucess it’s who and how you charge so the what you charge refer to is your price level that’s usually what people think of as pricing and then what we’re talking about packaging it’s this element of how we charge and I really
Think of it in four different elements so I use the analogy of McDonald’s so say I go to McDonald’s and I go to buy a Big Mac okay so now I buy the Big Mac ma the Big Mac is my price metric I pay per
Big Mac right um we have this in the B2B SAS world I pay maybe per user or per API transaction or per amount of data stored but that’d be my price metric it’s a Perpetual transaction I I pay you I pay the McDonald’s cashier a set
Amount of money they give me a hamburger there’s no implication of of future payments being exchanged uh right within that transaction the transaction is complete that’s what we’d call a Perpetual model so this is our pricing model but you might think in the subscription World we’ve got
Subscription pricing we have as pay as you go or utility based model like you might have for your electricity company or other other utilities it’s been very uh popular you might have uh auction based pricing models like you have for Facebook and Google their ad inventory right so those would be price models
That’ be the second one so we got price metric price Model then if I think about uh my decision to upgrade this I’m GNA gonna get a coke with my with my uh McDonald’s meal uh if I’m going to get the small the medium or the large I’m
Going to pay a different price for each of those but if you think think about my price per ounce that changes right and so that the price per ounce of the of the large drink is actually much less than what I’d pay on the if I get the
Small drink we think of that’s example of a price vence so price fenes will come in terms of either volume Identity or time we see this all the time uh with other price fenes for example if I take the bus I may pay one price uh but a a
Student or a senior citizen uh because they’re you know they’re different by their identity they’re a different person will will show some uh identification and pay a different price right so this price fence and then we have this idea of you know if I at the McDonald’s drive-through again and I I
Uh decide to get a value meal or a Happy Meal this would be example of an offer configuration or a bundle so how are multiple disparate uh features or uh sets of components put together in a way that makes it easy for our buyers to uh buy a Consolidated group of things right
So that speaks to uh a specific use case right and so there’s a whole Art and Science that goes into properly creating those offer configurations or bundles you might think like oh it makes a lot of sense if I have my my my burger my French fries and my Coke together but if
I take out the Coke and put in a coffee I might actually drop the willingness to pay of that overall bundle because coffee with my burger kind of actually sounds disgusting and I’m a big coffee drinker uh so so there is an art and a science to how we actually construct
Those as well right and we think about all those elements together we you know we’ve we haven’t even talked about price level but those other elements tend to be much more important and much more difficult to change but it can also help us reinfor our overall Value Story that
We’re trying to tell and Dan when you’re um you know you talked about all of the different options there and how you can create like various different or you have these various different variables to create like multiple different options to try with your customers I think particularly referring to like B2B
Um SAS businesses how do you effectively do pricing research in order to understand what these VAR Ables for your business could be like where people are going to find added value and what they’d be willing to pay for that like what questions can you or should you be
Asking yeah well there’s there’s a lot that goes into answering that question so um what I think makes sense is we’ll kind of zoom out a little bit well F I think first thing that I I want to dissuade folks from is especially in a B2B context because a lot of times
People are like oh well you know obviously if your audience is a lot of you know product managers product leaders AB testing is very popular um I do not believe AB testing in a B2B SAS scenario is appropriate um we didn’t uh touch on it but you know there’s some
Elements of what defines an effective price and uh some of those things are that it’s transparent it’s consistent and fair and I think AB testing your pricing kind of violates all three of those uh core tenants of of what good pricing is um so so then the question is
Well what does a what does a pricing research process look like it it depends what questions we’re trying to answer but overall you could think of it in terms of a general three-step process so first of all we want to get General alignment of what is the objective that
We’re trying to achieve what is the hypothesis that we think we are trying to get answers to what are the straw man sort of pricing and packaging options that we think we want to go test you’d be surprised how many companies haven’t really fundamentally aligned what they’re trying to achieve because we’ll
You know get questions like we want to optimize our pricing and packaging well optimization as a according to any domain only has a meaning in terms of some ultimate objective right you can’t just generally optimize like that doesn’t doesn’t work uh if we think just about price level there’s a different
Price level that you know optimizes for Revenue versus profit right we may be optimizing for customer lifetime value or trying to optimize you know our life our LTB to CAC ratio right there could be a bunch of different things that we could be optimizing for um and getting
The everyone on the same page for what we’re actually trying to achieve is is core because what I found is that if you don’t have that argument uh up front what will happen is on the back end no matter how good your research is basically the people who are hoping it
Goes in a different direction will just end up attacking the research uh which is not what you want right you want to get everyone aligned in the same direction before you go go out and execute um so you know hypothesis goal ignment you know as step one step two
Actually go conducting research and so you I can talk at length about you know how we might actually go do that there’s some you I can give you some some quick High Lev tips and then you know three would just be you know iteration uh and
Then a roll out plan right so obviously this is a big you know might be like oh we’ll just go ship it right um it tends to have there’s a lot of emotional components um both on the internal side as well as the external uh customer side when you’re rolling out this change
Right especially in a B2B scenario we got to make sure we have enablement for marketing for sales like everyone is ready to justify and and speak coherently to it right and so we we may think about doing uh a segmentation of our rollout plan right we want to uh you
Know in a B2B scenario we may have 20% of our customer accounts are 80% of our Revenue which maybe you don’t run into in a BDC scenario so maybe you want to leave those 20% of accounts Until the End once we’ve really streamlined our pitch and understand what the feedback
Has been from the the rest of the market right maybe we want to make sure that you know we we give those customers ample uh updates of kind of where we’re you know where we’re headed right so that it’s not a big surprise when we finally do announce the change right get
Our champions in those accounts to really sort of hey what do you what are we missing here right and but but maybe you’re much less worried about the you know sort of low dollar value uh accounts right so so th just the implementation and rollout phase can
Also be uh very impactful there um so I’m happy to kind of dive into any one of those areas whatever would be most interesting for for you and your audience yeah I mean there’s so so much in that answer and so much to like talk about when it comes to kind of pricing
Research I’m curious like in thinking about the sort of research that customers or like product managers sorry not customers what product managers do well customers do it as well is um uh looking comparative sort of competitors as well you know again sort of more specifically the in the B2B SAS scenario
Do you find that some businesses are kind of hamstrung by being competitive and like constraining the way that they’re thinking about their pricing by what their competitors are doing because actually if you do something if you deviate from what’s the norm in your market then that’s going to cause you
Issues as well yeah yeah no absolutely so the one of the the things that we haven’t touched on yet that I think you’re question is is pointing at is what I generally refer to as pricing orientations pricing orientations are I think very rarely discussed um or at
Least they they’re rarely discussed as a separate thing because they’re they’re kind of the answer to the question of how is pricing done around here what are the things that we really take into account what are the things that we consider when we do pricing so in general uh there’s three primary pricing
Orientation types so there’s cost based pricing competition based pricing and customer value based pricing often referred to as just value based pricing but if we did that then we wouldn’t have our 3c’s and marketers we love our 4ps and our 3c’s and uh Etc so uh but so so
You asked specifically about competitive analysis or competitive being pinned to whatever competition is doing and look I mean these are the way I look at those orientations is there a journey each of them on its own does necessarily give you sort of the full context but you kind of got to know
Where you’re at before you can move to the next level so you know we were talking uh at the beginning about look if you’re really early stage and you don’t really understand you know does our product really solve a problem like which problem like are we going to be
Known for solving like why are customers selecting us but you have a general idea of of how what your costs are like this is where usually where customer or company start is because it’s like well I know to run my infrastructure every month it cost me this and so I’m going
To 10x that and charge that you know it feels quantitative because you’ve got you know a spreadsheet numbers and you know I the finance people really love it but at the end of the day it’s really qualitative because your markup is a decision there’s not any you know
Finance God that says you deserve an 80% gross margin sir like congratulations uh but look ultimately if we’re trying to not make the mistake of selling $20 bills for $10 like that’s not a good business model um so we want to make sure that look we
Could at least cover our costs right but you don’t want to stay there so what’s the next step The Next Step would be something like you’re pointing to which is a competition based pricing competition based pricing is better right it allows us to also occupy the space that customers
Are occupying right because at the end of the day look customers I’ve never bought a piece of software and asked how many engineering hours how many story points were involved in this this piece of software like that’s never been a consideration like your customers don’t care right um but your customers are
Comparing you against the competition and so you know that helps right but ultimately and your audience of of good product managers will probably know this already I learned this early in my product Journey you want to be very careful as a product manager when your competition releases a giant new major
Feature release and announces a bunch of features you don’t want to be like oh man we got to go copy all those because you have no idea where those come from you don’t know if their product managers are doing their job you don’t know if those were all the nightmare visions of
Their CEO when he got off the golf course and we’re like oh man these are all brilliant ideas and we had to build them right or or they got one you know they they had to build those 10 features because JP Morgan wouldn’t sign the deal
At the end of last quarter unless they Shi them like you have no idea what happened right and so I feel like pricing we end up in the same thing was when we have competition-based pricing and we just get fully enamored with it we just assume that the people
On other side have got past this idea of pricing as a blackbox magic voodoo and that they’ve done their work and done their science and really understand their customers and that they’re playing the same Playbook like ultimately the core of competitive strategy is not playing the exact Playbook as the person
You’re next to that’s a that’s a that gets you in a commodity Market very soon and that’s a bad word in the pricing space uh you do not want to be play going after doing the exact same Playbook as your nearest competitor and so I don’t know any other CEO that would
Outsource their demand generation strategy that would Outsource their product road map why would you do that to your pricing it just makes no sense right so but it is it is better right it gives us a little bit better review and so ultimately then we graduate to this
World of value based pricing where you know we’re really trying to understand at the end of the day like what is the differentiated value that we create above and beyond our nearest competitive Alternatives that allows us to kind of price to the value that we’re really creating for our customers but what i’
Would say kind of just to summarize all that up you don’t get to just skip to Value based pricing um so you have to do the steps in between and you know because I’ll have clients who will say that to me of oh hey well we want to do
Value based pricing I’ll be like great what’s your you know break out your uh cost of goods you know for all these kind of features what drives they’re like oh we don’t know it’s like okay what’s actually we start at the beginning like it’s glad great we have
The ambition um but we can’t just jump there off the Bat Randy what’s the most effective way to learn Lear from the best in the industry connect with other PMs and sharpen your skills why Lily you must be talking about MTP con London happening this year on the 20th of October you know it and this year’s lineup of
Speakers is shaping up nicely we have Tim Harford behavioral Economist award-winning Financial Times columnist data detective and BBC broadcaster he that’s all of those things is just him plus the legend that is Mark Abraham product director at back base there’s also Randy pidu who’s the former CPO at Reliance Health and Claire
Woodcock who’s the director of product from machine learning at Mozilla and many more including a great friend at this podcast that’s right and don’t forget Workshop day on the 19th of October there are seven full day in-person workshops led by experienced product managers who share their secrets and
Tips for success and finally there’s the leadership Forum an exclusive event for senior product leader with carefully curated speakers guests and delicious food so grab your tickets for MTP con London today at mindthe product.com London so Dan I’m I’m curious because I’ve been playing around with pricing for the first time in my career on something and I’ve gone through these steps to a degree um and I went out and I did some van West and Dorp to to try and figure things out and I just got
This massive range of things uh people just did not know and to be fair the competitors and comparators in this space are a huge disparity so how do you go about defining or finding out uh the the value of things or the perceived customer value of things so that’s a great question so
Ultimately I think look we have to realize there’s there’s there’s a longer answer to this I’ll give the shorter answer willingness to pay is not a universal constant like planks constant or the speed of light that we can just go out in the world and measure uh
Willings to pay is an outcome so then the question is what is an outcome of like any pricing exercise is ultimately always a intersection or influenced by your costs customer willings to pay customer value and competition and so how things like customer value well we could you know run a survey as One
Way and Van westendorp is you know perfectly legitimate like any of these methodologies have their drawbacks but let’s say we run van westendorp all right let’s just use that as an example and I run I could run two surveys okay what are and get enely different answers why why might that be
Well one if I don’t understand what kind of respondence I’m looking for so one of the elements we haven’t talked about it but one of core elements I start with is you know is my services model for fast pricing Services stand the be the first s in there stands for understanding your
Customer segments there’s no average product for an average person similarly there’s no average price so if I go out and ask a bunch of random strangers what I’m G expect to expect to pay and then I go ask a bunch of another R you know then maybe I I have another random set
Um yeah I may not get the same answers back also if I if I change the way the product is described I may get uh different answers back now look the world of of pricing research and market research has has gone a long way we there’s answers to all of these sort of
Uh sort of Baseline uh objections but you you need to kind of understand that like ultimately we’re asking people to make a judgment call so for example here let’s let’s uh I’ll do it with the two of you so Lily and Randy welcome to the prices right what should a beer
Cost I mean I’m in London so it’s going to be twice the price that Lily pays out in in b I mean I know more about cider cuz I’m from the West country but if you ask me about a beer I would say for a pint of
Beer I should be paying like I would pay maybe 4 for a premium beer and like two pounds for a cheap one and I’m exactly right but here in London it’s going to be closer to six or eight pounds for the beer okay that’s not what it should cost
That’s what it does cost okay excellent well there’s a couple things couple things I want to point out there so one is um you know you you made a distinction Lily on uh there’s a you know a cheap beer versus premium beer right so so maybe you know your version
Of Premium is different than my version of Premium right so if I use that word maybe there’s a different level of interpretation right so we got to be careful in our our research design process that we understand the words that we’re using like uh robust scalable
Right the the marketing world is is full of these words that we easy to use right we may think because oh it’s inherently like everyone knows what easy to use means uh I love uh Tony Ock one of the creators of jobs to be done he has a
Great book I highly recommend your audience if they haven’t read it’s called what customers want and uh he has a a case study in there where they were doing a job to be done study uh I think it was for Motorola and they realized that uh when they broke it down there
Were 22 different definitions that customers had in mind when you said something like easy to use for for a cell phone like so you know say so we have to understand one like okay what like are we are we using price terminology does do you know people
Understand what that is uh you guys mentioned your geographical distribution right are we able to account for that when we get the results back uh Randy you said something interesting you said it’d be somewhere between six and eight pounds uh you didn’t say a precise number which is interesting because we
Should always think about will that’s one of the benefits of the van wendor method is we always should be thinking about willings to pay as a range Even in our own internal Minds we do this all the time be like I don’t know like be
Like I would you go out to eat be like I don’t know I would go somewhere if it’s it’s kind of in the 20 to 30 Buck range but I don’t know if we want to go somewhere fancy right like but you don’t know you wouldn’t say like I’ll only go
Out to eat if it’s below 25.97 right like we don’t we don’t we don’t think that way right and so we need to understand when we do research that way the other thing you guys didn’t talk about is would that price of that beer in London would it be different if you
Bought it in a grocery store versus a pub versus at a concert or or you know uh so what is the context that we’re in right because ultimately context is decisive if if you’re the you know if I’m trying to sell you a bottle of water
Uh and you’re just at a gas station uh trying to you know quench your thirst on a road trip maybe you have one willingness to pay but if you’ve been wandering in the Sahara for a week uh you probably have a very different willingness to pay for that water right
And so understanding customers context and this just you know how we describe it what’s the context that they’re in um is really important I’m not going to tell you what it cost at the music festival I went to a few weeks back that’s a totally separate category um you guys have mentioned the
Van Western door uh style of research it would be great to just um explain a little bit more about what that is and how it works yeah absolutely so there’s uh kind of broadly when we think about willingness to pay there’s broadly uh kind of two classes
Of question types that we can ask so and those broadly be direct and indirect questioning um and there’s like simulated environments right like so I can go and actually watch people shop right in in a simulated sort of environment Etc but but in General when we’re do thinking about like
Quantitative survey research um so direct would be how much would you pay for this product uh generally uh this I mean this goes back 50 60 years now pricing research have realized that’s a terrible question you should never ask somebody just straight out like what would you
Pay for this um the van westendorp methodology is it’s named after a Dutch Economist who developed the methodology in the 70s and it it it presents a slightly better uh way to ask these questions and what it it relies on the idea aide of a ranged set of questions
So there’s four questions in the survey methodology you’ll find sometimes if I’m doing a deep in-depth customer interview I might only use three of them but generally the questions are at what price uh would this product be so cheap that you would doubt its quality at what
Price uh would you uh this product be considered a bargain um at what price uh would you consider this product to be getting expensive but would still buy it and at what price would this product be prohibitively expensive so why is that beneficial so one of going back to the
Point we just talked about of of Randy and his range for beer is like what he says four to or six to eight pounds or you know whatever the currency is I don’t know if he thinks that’s expensive or if he thinks that’s cheap or if he
Thinks that’s right in the middle and so that’s one of the benefits I’m trying to understand is is you know getting a sense of you know where is that right and kind of the the rule of thumb is that generally most people will uh you know be hap they will actually pay the
Its getting expensive price um but there’s you know there’s ultimately there you know there’s problems with the methodology and even those type of direct questioning methods but they tend to work pretty well and especially given some of the the other uh factors I’ll talk about or we may not get to in in
The SAS World um they tend to be uh quite quite effective uh ways to get uh you know enough information around willingness to pay the other side is or the other uh category is generally what is called indirect questioning methods and so these type of questioning methods
Are uh either we call a conjoint or discrete Choice methods um and so the idea of discreet Choice methods is that we’re not asking people explicitly how much they would pay for something but you know you may have participated in this type of research before where it’s
Like it shows you hey here’s four different types of televisions you know one’s a LG one’s a Sony one’s a you know whatever um you know one’s a 55 inch a 65 inch a you know 75 inch yada yada yada right you could think think of all
The different specs one has 3D this one doesn’t you know and here’s a bunch of different prices and it asks you to choose which one would you choose or choose none and so and then you run through a repeated set of those and the idea is that uh we’re building a uh
Robust statistical analytical model in the background that helps correlate what how you’re trading off choices right choices among sets of features and uh price point as one of those you know in that in the language it price is just another feature um right it has negative utility so it works in the opposite
Direction but uh so those would and and there’s you know a lot of consumer history uh research showing that those tend to be uh pretty robust in terms of their applicability to to you know empirical findings once products are launched they do have drawbacks um and
So they’re not used as much in the B2B space um because there’s you know drawbacks that I probably won’t pull your audience with if anyone else is super nerdy about uh market research like me feel free to reach out I’m happy to have a longer conversation about it
Amazing thanks for explaining that um this has gone so so fast and we I feel like we’ve barely scratched the surface but uh so we might have to invite you back for another part two or like round two of pricing but let’s wrap up on this
One so what metric should we look at to measure our pricing Effectiveness and yeah how how well it’s performing yeah well I think the you know you you probably want to think through a couple of things at the high level right like so we were talking about before like are
You meeting your goals pricing getting away in those goals um have you successfully tried have you recently tried to do a change and it’s it’s be successful or not um you may have more tactical considerations uh are you do you have too many customers you know buying and staying in your entry level
Plan uh are too few customers upgrading or expanding um do you have sales selling a bunch of customizations right so those would be things that you might want to be keeping an eye on to kind of keep your hone your SP Spidey your PM spidey sense that something might be
Going wrong there but you know when I think about kind of trying to diagnose where we’re at in a in a pricing and packaging space might want to be looking at things like my competitive win rate so there’d be like the number of one opportunities over the total opportunities sliced by competitor um
You know any metric is going to ha you know in this type of category is going to have you know some amount of bias uh you know ultimately you you may have bias from like data hygiene issues where sales reps um you know don’t accurately or consistently tag you know which
Competitors they lost to um you know maybe prospects won’t tell them you know very very often the case they won’t say who else they’re competing against or maybe that they’re not giving you a full list also it’s like if you only have one option in your who do we lose to but
There were five people in the deal you don’t know ultimately who the person went with right what does the poor sales rep do in that case right um and you you win 0% of the deals in which you’re not involved uh so that also creates a
Sample but those are type of things that you know you might want to look at um you know percent of the deals lost to pricing I say A good rule of thumb is that you know if you’re priced you know well uh losing about a third of your
Deals based on pricing um again this may also have data hygiene issues you know so any product manager should should be well aware of that right your price is too high is probably the easiest thing for a prospect who doesn’t want to buy to make the salesperson go away like you
Know just like I hey man I got to have something to put in my CR otherwise my manager well tell them your price is too high because you know they don’t want to be like well actually I didn’t like the way you answered my questions Mr sales
Guy because all of a sudden I’m in a fight and I didn’t want to be in a fight I just want to buy a piece of software and all of a sudden you know um so look for any of these sort of win loss codes
I would always say it’s a good idea to have them be careful you know and and understanding the trends is important um but having a bit of skepticism that they reflect the absolute reality um is is maybe healthy right because a lot of times if you go do proper win loss
Analysis with either say marketing Go Runs it on behalf of of the sales team right or you have a third party uh agency that goes and does it uh you can often find that a lot of those we Lo we lost on price wasn’t actually because
You lost on price but um those could be helpful um and then ultimately you know look I this could keep going I think the last one I mentioned is just things like discounting percentage if you find that your discounting is sort of all over the
Map right I mean I think it’s one of these things especially early stage companies you know there’s definitely a difference I didn’t I didn’t used to have this distinction but I’ve seen enough times now it’s definitely distinction there’s a difference between having a discounting policy and enforcing a discounting policy so you
Can come in and be like oh yeah no we’re not supposed to Discount below you know 15% and you see like well that’s not what the data says it says it’s like you know you got pretty much a roar Shack chart of of you know there’s no you try
To draw a regression line through it and uh you good luck uh there’s no sort of Rhyme or Reason um but you know ultimately you know we could slice that data different ways and can give you a sense of look our do we our Frontline sales folks really feel like they’ve got
No other option right and so we’re having to really you know reset on price um it’s it’s not look the absolute uh you know uh because ultimately you’re you’re not gonna you’re only going to see dis discounts go in One Direction right uh you’re not going to see
Customers coming and paying you 120% of the price that they were quoted uh unless they were very generous I have yet to see that see that happen yet in practice so uh so you do want to augment that with research right so it’s not the transactional uh data can be helpful for
Identifying if there’s a problem but it doesn’t necessarily tell you what to do amazing Dan thank you so much I definitely feel a round two coming up I would love that I’d be happy too and hopefully in that one you’ll tell us how much to price the podcast at yeah maybe
Not I I you know we can have that discussion I’m happy I don’t know if you’ll love my answer thanks again Dan this was great I really appreciate the time thank you for having Me the product experience is the first and the best podcast from mind the product our hosts are me Lily Smith and me Randy silver Lon Pratt is our producer and Luke Smith is our editor our theme music is from hurg based band pow that’s PA Au thanks to Arie kler who
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