What's in a price? How to price your products and services

Transcript

1. What's in a Price?
   How to price your products and services
   

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2. My name is Michael Herold.
   Please tweet me @mherold or
   say [email protected].
   

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4. We help creatives do
   their best work.
   

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5. We are hiring.
   

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6. Questions?
   Tweet @mherold during the talk.
   

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13. We were launching a
    new product ...
    

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14. and planning to price it at
    $99/month.
    

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15. I asked, "How did we
    decide on that price?"
    

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16. Can you guess what the
    answer was?
    

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19. What is missing from this
    picture?
    

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21. What if you
    ...
    

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22. What if you
    have a side gig?
    

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23. What if you
    are a solopreneur?
    

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24. Pricing your first product is
    ...
    

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25. Pricing your first product is
    scary.
    

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26. Pricing your first product is
    hard.
    

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27. Pricing your first product is
    full of angst.
    

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28. It doesn't have to be.
    

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29. How can we make it easier?
    

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30. How can we go from
    ...
    

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31. How can we go from
    !
    

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32. How can we go from
    !
    to
    

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33. How can we go from
    !
    to
    ☺
    

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37. What's in a price?
    

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49. What does this graph
    mean for us?
    

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50. Supply is largely
    controlled by us.
    

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51. Demand is largely from
    the customer.
    

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52. We need to figure out
    demand to understand
    how to price.
    

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53. It's time for an
    abstraction.
    

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57. Economics is applied in
    many disciplines.
    

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58. Economics is applied in
    finance.
    

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59. Economics is applied in
    accounting.
    

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60. Economics is applied in
    political science.
    

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61. Economics is applied in
    neuroscience.
    

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62. Economics is applied in
    market research.
    

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63. Market research uses
    economic principles to
    build models for
    understanding
    customers.
    

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64. Van Westendorp's
    Price Sensitivity Meter
    

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65. The price sensitivity meter is
    ...
    

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66. The price sensitivity meter is
    easy to use.
    

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67. The price sensitivity meter is
    easy to understand.
    

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68. The price sensitivity meter is
    lightweight.
    

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69. The price sensitivity meter is
    based on surveys.
    

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71. Process
    

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72. 1. Decide on your pricing scale.
    

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73. Aim for 25-40 steps.
    

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74. Capture both impossibly
    high and impossibly low.
    

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75. Pricing a granola bar
    Step Maximum
    1 $0.50
    2 $1.00
    3 $1.50
    ... ...
    20 $10.00
    

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76. 2. Survey your audience.
    

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77. Start with a
    detailed explanation
    of the product or service.
    

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78. Start with a
    demonstration
    of the product or service.
    

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79. Four questions
    

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80. At what price do you begin to think the product
    is so inexpensive
    that you would
    question its quality?
    

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81. At what price do you begin to think the product
    is a great deal for the
    money?
    

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82. At what price do you begin to think the product
    is getting expensive, but
    you still might consider
    it?
    

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83. At what price do you begin to think the product
    is too expensive to even
    consider?
    

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85. 1. Too cheap
    2. Cheap
    3. Expensive
    4. Too expensive
    

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86. 1. Too cheap
    2. Cheap
    3. Expensive
    4. Too expensive
    

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87. 1. Too cheap
    2. Cheap
    3. Expensive
    4. Too expensive
    

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88. 1. Too cheap
    2. Cheap
    3. Expensive
    4. Too expensive
    

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89. Ask the questions in both
    increasing and
    decreasing order.
    

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91. 1. Too expensive
    2. Expensive
    3. Cheap
    4. Too cheap
    

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92. 1. Too expensive
    2. Expensive
    3. Cheap
    4. Too cheap
    

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93. 1. Too expensive
    2. Expensive
    3. Cheap
    4. Too cheap
    

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94. 1. Too expensive
    2. Expensive
    3. Cheap
    4. Too cheap
    

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95. If you get impossible
    answers, correct them.
    

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97. Now it's time for some
    ...
    

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98. Now it's time for some
    statistics.
    

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100. Cumulative distribution
     functions (CDFs)
     

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102. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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103. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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104. Respondent Cheap
     1 $1.22
     2 $9.99
     3 $4.88
     ... ...
     

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105. cheap = [1.22, 9.99, 4.88, ...]
     

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106. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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107. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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108. Step Maximum
     1 $0.50
     2 $1.00
     3 $1.50
     ... ...
     20 $10.00
     

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109. Step x
     1 $0.50
     2 $1.00
     3 $1.50
     ... ...
     20 $10.00
     

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110. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     

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111. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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112. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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113. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     scale.map { |x| cdf(x, observations: cheap) }
     

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114. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     def cdf(x, observations:)
     end
     scale.map { |x| cdf(x, observations: cheap) }
     

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115. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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116. A function where the
     right-hand side is equal
     to the probability that a
     random variable is less
     than or equal to x.
     

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117. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     def cdf(x, observations:)
     end
     scale.map { |x| cdf(x, observations: cheap) }
     

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118. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     def cdf(x, observations:)
     count = observations.select { |obs| obs <= x }.count
     end
     scale.map { |x| cdf(x, observations: cheap) }
     

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119. cheap = [1.22, 9.99, 4.88, ...]
     scale = (0.5..10).step(0.5) #=> [0.5, 1.0, 1.5 ...]
     def cdf(x, observations:)
     count = observations.select { |obs| obs <= x }.count
     count / observations.count.to_f
     end
     scale.map { |x| cdf(x, observations: cheap) }
     

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122. Start graphing your CDFs.
     

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123. First, graph expensive
     and cheap.
     

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124. Look for the intersection.
     

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126. Indifference price
     ...
     ...
     

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127. Indifference price
     may be the median price
     in the market.
     

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128. Indifference price
     may be the price of an
     important market leader.
     

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129. Indifference price
     indicates price-
     consciousness.
     

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132. Look for psychological
     thresholds.
     

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136. Next, graph too
     expensive and too cheap.
     

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138. Look for the intersection.
     

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139. Optimal pricing point
     ...
     ...
     

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140. Optimal pricing point
     indicates minimum
     resistance to change.
     

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143. Look for psychological
     thresholds.
     

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147. Graph all four curves
     together.
     

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150. Create not expensive and
     not cheap by inverting
     their counterparts.
     

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153. Then combine them with
     too expensive and too
     cheap.
     

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155. These intersections are
     your points of
     marginal cheapness and
     marginal expensiveness.
     

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159. These two points form
     the range of acceptable
     prices.
     

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163. Graph all curves together.
     

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168. Make your decision!
     

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169. Are prices inherently
     adversarial?
     

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170. Pricing doesn't have to
     be about extracting
     maximum value out of
     your customers.
     

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171. Often, it works out better
     if you price for some
     consumer surplus.
     

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172. Customers can be your
     greatest champions.
     

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173. Gotchas
     

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174. Define your scale before
     you survey.
     

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175. When possible, segment
     your participants into
     logical groups.
     

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176. Further segment your
     participants and
     reverse the order of the
     questions.
     

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177. Make sure you are
     very clear with your
     description.
     

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178. Make sure you are
     very clear with your
     description.
     

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179. Conduct your first
     surveys with a mock up.
     

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183. One simple model.
     

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184. A discipline outside our
     own.
     

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185. Liberate the best ideas.
     

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186. Use them for intentional
     design.
     

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187. Help your customers be
     awesome.
     

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188. Consider thinking of your
     customers as partners
     instead of customers.
     

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189. My name is Michael Herold.
     Please tweet me @mherold or
     say [email protected].
     

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190. Image Credits
     1. Business Model icon by Thomas Knopp, from the
     Noun Project.
     2. Cricket by Ed Harrison, from the Noun Project.
     3. Supply and Demand by Davo Sime, from the Noun
     Project.
     4. Partnership by Vectors Market, from the Noun
     Project.
     

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191. Reference
     Van Westendorp, P. (1976) "NSS - Price Sensitivity
     Meter - A new approach to understanding consumer
     perception of price." Proceeedings of the ESOMAR
     Congress.
     

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