If you try to buy things, it's sometimes desperately frustrating that no one will just quote you a simple price. They have different pricing tiers, and want a salesperson to talk to you so they can pretend to give you a "special" discount, and all sorts of BS.
I'm sure these things work, but they also alienate customers sometimes. People have founded entire businesses on offering clearer pricing schemes.
It's a funny world when Elon Musk will openly display "$90M to send 6.4mT of your shit into geosynchronous orbit"[0] and yet millions of businesses selling things that are far less expensive and far more fungible want you to "contact our sales team for a quote".
Elon Musk is transparent about SpaceX prices because they are much cheaper than the competition. There is no similar clarity of pricing with Tesla Motors or SolarCity. With Tesla Musk has a habit of advertising the price of the base model after tax credits have been subtracted, which is kind of misleading.
The rule is to be clear about pricing when it works in your advantage and to obfuscate otherwise.
The price for a Tesla including all options is easily available on the website. You don't have to contact a sales person to find out the price. I have no idea about Solar City.
Pricing for solar panels is quite complex. The price will mostly involve:
- The state of the roof (does it need reinforcing? will the installers need scaffolding?)
- The complexity of the installation (lots of little roof sections with earth tiles and 2 or 3 transformers? Or a plain and simple one-transformer south facing asphalt roof?)
- Does the crew need to drive 5h from headquarters? Or just 1h?
- A 3kW installation may be worthwhile in some locations but not in others.
And finally since solar city depends on the performance of the panels (which they sell as debt), they must ensure that your house will be a good candidate. If it's not, they don't want you as a customer.
But there can be! Say, they entice customers to bid into a collective launch and then scheme you into all kind of price conditions depending on your load, service priority, or whatnot.
...actually, the more I think about it, this may be a business idea in itself, for the poor suckers who don't afford a solitary launch!
Putting x tonnes into geosynchronous orbit is about as fungible as it gets. There wouldn't necessarily be any custom work at all (in practice there's integration work but if you're using a standard satellite bus that can be pretty standard).
That's already more known unknowns than most software vendors have. 95% really boils down to "x licenses of package y, options z and w, additional support at n dollars/hour", which you can put on your website just fine. The "sales teams" are often glorified speech-to-text lackeys that just feed your numbers to an excel sheet, read back the result and then make you believe you're getting special treatment.
It's different for software that actually needs integration of some sort (SAP, most of the IBM portfolio, …) but SaaS startups doing this shit are just deluding themselves.
The costs for ERP, large CRM and similar projects are often implementation costs (in the widest sense of implementation - not just "developing stuff"). The licensing costs are significant but can be a small percentage of the overall costs.
Pretty much every company that doesn't display pricing doesn't get my business. There is invariably a competitor that does display pricing and I'll have bought that before the sales rep gets back to me. My philosophy/hunch is that reducing friction equals providing value. I always aim to provide value at every link in the value chain and reducing friction (displaying clear pricing and minimal click instant signup) is an easy way to do that.
Going through this right now. Just got quoted $1400 higher for the same unit I bought last year from the same people. Nevermind that it is for the 2nd floor and wouldn't get used as much and should presumably be a much smaller unit.
In the consumer space I 100% agree. Having worked in enterprise though the "no pricing" scheme is par for the course. You don't see SAP prominently displaying their prices online, and for good reason.
Pricing for the enterprise can be an incredibly complex thing. License management as well.
I used to work for a company that provided custom pricing software for highly complex products (did you know a semi truck can have over 4000 options?). They charged hundreds of thousands for a custom pricing software solution - but it was mostly a custom job, some off-the-shelf software but mostly a ton of customization for that particular customer and their very complex business needs.
So no, you can't just charge a flat rate like it's a box of Fruit Loops.
That's not "pricing for the enterprise" you're describing, it's pricing for customizations. Yes, each customization can be negotiated separately and when there can be "over 4000 options" it makes sense to not display them all but to guide the client through. This may be a case where complexity may warrant private interaction (or at least it used to be that way as nowadays the entire array of option complexity can be left to be sorted out with a software application).
Yes, I wasn't trying to put them in antithesis, I was trying to point out the wider context, and yes, I agree with you (that the narrower context automatically involves all of the wider encompassing context). The meaningful distinction is that customization warrants contact requirement, for both big enterprises and individuals.
>we believe strongly in a core message of the Lean Startup movement: We want to talk to people.
What if people don't want to talk to you? This should be entirely opt-in. Intercom makes this a seamless experience.
A certain large segment of people want upfront pricing information with no human involved. If you can't give exact pricing because your product/service is too complicated at least give some example setups and their respective costs. This way at least we have a ball park figure to anchor our thinking. No one wants to waste time exploring unfeasible (due to cost) options. Otherwise it becomes a turn off because it starts to feel like a negotiation rather than an exchange.
because most of the cost is going to involve customization/implementation services of some kind - you don't just buy SAP, run an installer on your PC, and start using it.
They do alienate customers, and for a lot of companies this is on purpose. Try finding a price for one of Oracle's or IBM's enterprise products on their website - you won't - their products aren't designed for the casual browser, they are designed for directors who have budgets in the hundreds of thousands or millions of dollars range (where strangely the price ends up pretty similar to the budget). This is the type of person they want as a customer, and so all their marketing and sales process targets this type of person. It's not worth it for them to target the small fish, so they purposely push this type of customer away.
I do hate when small companies do it though. I'm looking for a new AC unit and so few dealers will just give me a price straight away. I just want to enter my credit card and have it delivered.
You're right about the target audience, but wrong about the reason.
They don't quote a price because the cost of the product they sell makes up only a small percentage of the overall cost. The vast majority comes from consulting and product customization, which is billable by the hour. And since you don't know the prospect's exact need during the initial engagement, providing pricing would be silly.
Source: I work in that exact market. When a prospect asks for a price up front, they basically fail lead qualification. As the saying goes, if you have to ask how much it is, you ain't the target audience.
It's also because it releases less information into the public domain about how the industry works. Less information = greater competitive advantage. It's harder for new entrants to determine 'reasonable' pricing and to position their offerings.
With Oracle and IBM you often can't even figure out what the damn thing does. I have had several occasions where senior management told me to check out that really cool technology they saw. I went to the website and tried to find out what it does and couldn't figure it out.
Not even just Oracle and IBM. When I was considering the offer from my current employer, I was perusing their Web site to try to find out about the product I would be working on. I read a couple of whitepapers and such, and for the life of me couldn't figure it out (though in this case, I suspect someone with more domain knowledge than I had might find the whitepapers sensical).
> It's not worth it for them to target the small fish
Actually they do target the small fish, that's why they won't publish prices. The idea here is that $big_co may pay $5m for $software, but $small_co will get the near equivalent for $100,000. $big_co doesn't want to feel it got ripped off, so secretive pricing all around.
Also, this pricing allows for a lot of negotiation, volume pricing, and "we'll beat the competition" tactics. Now the competition needs to also engage in secretive pricing to stay competitive.
> Try finding a price for one of Oracle's or IBM's
> enterprise products on their website
Not to defend these two but in some cases for IBM you will, if you know the incantation and buzzwords, find the price. For example WebSphere Application Server and WebSphere MQ can be looked up because IBM deals in PVU's (processor value unit) and bundled licenses that include support. They do provide a PVU calculator. Of course, you'll have to register to get more information or download a demo. It's frustrating but not impossible.
Or try with Microsoft... if you're in Italy it's impossible to know (as a final user) any price for anything else than a single copy of Office or Windows...
I would argue that IBM's business is selling golf courses and Orlando software-and-wine conferences to CEOs, for having witnessed it, because honestly, which sysadmin would accept to run such horrible pieces of software (IBM Rational Suite or IBM FileNet), let alone... pay for it, really? It looks like nothing more than corruption of officers on fiduciary duty.
Secret pricing is exactly how they conduct that business: With no public price, employees can't challenge IBM's consultants to provide the value they're charged for. If all from Atlassian to SpaceX publish their pricing, any other behaviour should trigger a SEC investigation.
Other smaller companies act like this, too. Was invited to a steak lunch for automic's UC4 (job scheduling) at a fancy dinner far away from anything relevant and at no point, during a two hour talk, was anything of substance actually said. They were trying to sell us UC4 (we already owned it, ffs) yet they didn't even show us the damn interface! Everything was fluff upon fluff upon fluff. And the execs - wearing some of the most expensive suits and watches I've ever seen - friggin' loved it.
The best part is that they brought in McDonald's UC4 engineer to talk about how good it was. When we asked him how they automated its deployment and where they got their init scripts from, since UC4 didn't include any (wtf), his answer was that it was basically his full time job to deploy it by hand, since he didn't know how to automate anything. Somehow he turned his lack of skill and McDonald's apparent lack of good tech leadership into a positive thing - which the execs also loved. These are the kinds of people making large, absurdly expensive software decisions for multi, multi billion dollar companies.
I have nightmares of trying to figure out their database schema. 2-6ish letter German acronyms for table names....
I've had similar experience with CA and the Autosys product. Great lunches, nice cocktails, and weeks of arm twisting to get to speak with actual engineers and get into a tech session. Forget about DB schema, we ended up figuring that out on our own. This was a product we already owned.
In comparison, BMC was up front with an engineer during the eval and provided us with great documentation including the DB schema. We didn't go with them or others in the automation space for... reasons... but it was a very different experience.
[edit: Why the downvotes? My experience with another 800-lbs gorilla confirms the parent comment]
Yep. In complete fairness to the guy, it sounded like he knew the work was unfairly shoveled onto him. That fairness can't be extended towards his management, though.
There's also the rather odd "Sign up to see prices."
I did sign up to see what Autodesk Maya cost in my country's currency. At the time, in $US is was $3,995 for a single seat. In my country, it was around $US12000.
I did what any good person with a goodly amount of cash in the bank would do - I said "$#@! it," and bought a house instead.
THIS. When I go to a website that doesn't have prices listed and you have to "Call for a Quote" I move on. I know the prices are going to be garbage and it's not worth my time to deal with the idiots on the other end trying to scheme me into spending money with their company.
I'm ok with a mix of transparent and bespoke pricing -- it sucks to see 3 options with set prices, where you actually need something different and are willing to pay.
The ideal is some kind of pricing calculator, though. 3 packages and a custom quote generator, or "call".
That's fair with custom things but when you're on a lab hardware site looking at a centrifuge for a home lab and you're curious how much it costs and they have "Call for Quote" listed, it's just infuriating. There's no customization. I want the centrifuge as pictured. How much is it?!
I've had people come out to my house and quote me on a project. I've then called them back and told them that it was out of my budget, to which they've then quoted me a cheaper price, hoping that it's within my budget. I've then told them that they should have given me their best price from the start, and I can no longer trust them, because they've already lied to me once.
This happens more often than not, and I usually eventually find someone to quote me a price within my budget on the first visit. I understand that that is typically how business is done, or more specifically haggling, but I don't want to haggle. Even if it is outside of my budget, I'll postpone the project until I get the money, and then call back whichever vendor didn't budge on price the first time (and had the lowest price, of course).
Somebody revising a quote doesn't mean they were lying the first time around.
You may not care for negotiation, but that doesn't mean it is dishonest. Items and services don't have a "real" price, they are only worth what people will pay for them.
As I said, I do understand that. However (and I should have noted this in my original comment), I always tell them up front that I don't like to haggle, and would like their best possible price up front. I also tell them that I am comparing it with at least two other vendors (I always get at least three estimates). Therefore, when they do reduce it, they were lying the first time.
I am always very honest with them, and expect the same. Heck, I don't even hesitate to pay them when they screw something up. I pay them promptly, and then hope they will do the right thing.
While items and services don't have a "real" price, they do have a "best" price.
EDIT: I'd also like to add that, while the article focuses on consumer pricing, I am different when it comes to B2B pricing. E.g. I would quote a successful law firm more than a mom-and-pop shop for consulting services. Back when I was an entrepreneur, I actually lost a couple of contracts because my quotes were too low.
"Somebody revising a quote doesn't mean they were lying the first time around. You may not care for negotiation, but that doesn't mean it is dishonest."
There is a divergence in moral values in here, and even if you think someone should accept a certain view on negotiation, it is, however, especially when there is no visible benefit at all for them, their choice to refuse to do so. The commerce has on its core the idea of mutual benefit and this haggling-justling violates the sense of mutual benefit. It is only natural to expect less trust from your "customers" when you've treated them this way.
Very true - if a company/service requires me to get in touch with a sales guy, wait for a callback or watch a live presentation, product demo or similar, I'll definitely look elsewhere.
Unfortunately this seems to be common practice whenever you deal with products/services that target businesses.
With years of experience from dealing with "ask for quote" businesses, this strategy is by now an immediate k.o. criteria for me when considering anything.
I may return for your offer only after spending considerable time of not finding any more transparent business (quite rare, but possible for very customized products like renting glass fiber for an office).
In practice this never happens and I've been a much happier customer ever since - with my business life cleaned up from 95% of dealing with crappy sales reps.
The other side being that, depending on the good, if you have a salesperson, you can often, ironically, get a better price overall.
Recent case in the point: I was in the market for a Herman Miller Embody. I would've ordered it online at retail for ~$1500, but I wanted it ASAP so I went to a local HM dealer to see if they kept any in stock (they didn't). While there, the sales person got me a more-upgraded version of the Embody for less than $1000 by invoking dealership and small business discounts. Effectively, I made $500/hr during that trip to the HM dealership.
The downside of this experience was that, contrary to my original intention, it took about 5 weeks for the chair to arrive. :\ It would've shipped faster if I had paid full retail from the HM store online.
Of course, it's going to depend on the good, but considering that salespeople usually have a strong incentive structure to get your sale to go through them instead of an online retailer or to a competing business, they really will pull out all the stops to keep you around.
It just depends, there's no rule of thumb for it (although there are obviously wrong cases).
For example,you provide SaaS which is applicable to a wide audience, from personal account and tiny teams, to large companies. It's totally fine then to have public pricing for smaller use cases but need to get in touch with sales person to get a larger plan. In this case, your needs probably don't match typical plans (you need a lot of X, and no Y), and the amount of money is big enough to be negotiable. That's cool, since you don't buy these things willie nillie every few days.
Speaking of salesmen themselves, it varies a lot from my experience. Some will send you 10 emails during 14 days trial with live demos and trying to arrange a call and shit I don' care about. They do nothing at all to make the sale happen, just annoy a lot. While others just ask for your needs, ask a few questions for clarifications and about potentials needs and give a quote, not trying to arrange pointless calls. I have no problem with this kind of salesmen.
Good luck getting legal to approve the contract that comes with the simple price, or billing to pay the simple price without a purchase order being raised etc etc.
I agree with you on the small end of the spectrum - but there is a reason many "Enterprise" level plans are "call us" because the level of hassle involved can be directly tied into the cost you can charge.
Tom Whitwell's post isn't arguing for obfuscated pricing. His argument is that pricing is subjective, and the actual number itself is largely irrelevant from the perspective of an individual consumer. Pricing can still be clearly defined and emotional at the same time. This is the basis of the psychology of price anchoring.
The phenomenon is called anchoring[1], and it works like this: the first price we see anchors our thinking about additional information. This is why furniture stores have a perpetual sale.
"Oh look, this $2500 sofa is only $1899.99 right now. What a great deal!"
One experiment had respondents use the last two digits of their social security number as the initial price for a bottle of wine or other good. This completely-arbitrary price had a strong correlation with the price they were willing to pay for the item.
The effect is described in greater detail in Thinking, Fast and Slow[3]
The most surprising thing I learned from this is that even juxtaposing two options will help you get higher pricing. When thinking of product and service pricing, for me it's difficult to invent three different options sometimes, so it's relieving to know that I could create just two and it will get me most of the way there.
It is also crazy to think how relational it all is. I don't really need that extra $7 beer at the bar, "but who cares, we're having fun". Whereas paying $8 a month to the New York Times took me months and months to decide on because I wasn't used to paying for it, even though I'd been a reader for years.
But you're also getting something for it in perpetuity.
People, I find, are simply irrational when it comes to monthly subscriptions. I'm a student with <1000E income and a monthly cost <20E doesn't even register; as long as I get something from it I want. If it's not big enough to induce a lifestyle change, what's the problem? So often I see people use Spotify and complain about the commercials, and I'm just like 'What is wrong with you? Literally nothing would change if you spent that money and clearly you would benefit from it. Why do you not do it?'
Let's turn it around. If you invest 120 dollars into your retirement fund every year for the next 40 years, you'll end up with 33.5k. Instead, you spent 4.8k. The person who listened to a few commercials is up 40k on you at retirement.
This is an extreme example (after all, you're not going to spend 10 dollars on Spotify for the rest of your life), but the principle of the matter stands: Money saved now will be worth more later thanks to compounding interest. In a sense, the dollars you earn today are the most valuable dollars you'll ever earn.
It's up to you to make the judgment call on a case by case basis whether you'd like to live in the moment, or whether you'd prefer to save. Everybody draws the line somewhere (I personally have a Spotify subscription), but to call it irrational is... a bit irrational.
How does that play at the negative interest rates times?
Anyway, all that is true, and I did know that when younger. What nobody tells you is that there are a few times when your income grows faster than an exponential. Everything you save up before of one of those few times is basically worthless.
Anybody's main goal should be to have as many of those income growing events as possible. Not giving-up everything when young because of compounded interest.
Yet, this thing is not predictable, thus it's always good to save a bit. It's a balancing act, not a clear-cut good vs. bad situation.
People don't invest every single dollar they have into a fund. You're always going to have a bit of money laying around, why not put it to use?
And even if one went with it: I'll be up by a multiple of 33.5k because I spent money on things that put me in a better mood to work on myself and lead me to better jobs etc. etc.
Is it possible that you now (like most consumers) have been conditioned to expect apps to be free? Meanwhile, nobody expects anyone to give them a pizza or a beer for free.
I guess you've never gone to university then, because those places don't function without free pizza. It is the only reliable way to get students (and postdocs) to attend your event.
(Yes, I'm aware that attendance is the "price" for the pizza, but let's just say that cold pizza can still be had for free.)
While that's an interesting edge case, what I probably should have said is that pizza and beer is something adults expect to exchange money for, as opposed to apps.
Those two cater needs of different levels on Maslow's hierarchy. People don't have to pay for air and sometimes even for (clean enough) water, but if they'll have to they will pay for that before paying for some $5 digital artifact.
I've noticed that I'm more open to spending money on food rather than things like apps/music etc. Buying a $2 app is a week-long decision for me. Whereas I regularly spend ~$10 on a pizza when I'm bored.
I'm the same and it doesn't really make any sense. Ok food is physical and tasty, but you enjoy it for maybe 15 minutes vs a game that could provide 100s of hours of entertainment?
The difference is uncertainty. With pizza, you know pretty well what you are going to get. With an app, 90% are crap, 9% are ok but not what you personally prefer, 1% are great. So, gambling $2 with a seemingly 1% chance of greatness feels like an app costs $200. The reality is not that bad. But, it's all about how it feels.
On top of that, it's not even really about the money. You don't want to feel bad about getting tricked into paying for a crap app. You'd feel like a sucker. It would be frustrating. People do all kinds of mental gymnastics to avoid feeling embarrassment and frustration --to the point that it's dangerous to call out a scammer because they are likely to get geniunely indignant and angry to avoid feeling the embarrassment of their obvious lie. Procrastination to avoid possible frustration is very, very common.
And that's exactly why guarantees are so effective for sellers. It takes that risk off the customers shoulder, and due to the "Oh, it'd be embarrassing to refund this app, since that means I made a mistake", very few people actually go through with the guarantee.
One pitch I found pretty neat goes roughly as follows.
Buy <product> now, and if within (30|90|365) days you at any point feel unsatisfied with it, feel free to ask for full refund, no questions asked, and you get to keep our <marginal cost 0 infoproduct>, valued X$, as a gift from us for trying it out.
Short breakdown of it.
"Buy <product> now" - bog standard call to action
"(30|90|365) days" - if the product is any good, longer guarantees usually reduce returns, since they give more time to grow on the product and forget the guarantee date.
"feel unsatisfied" - eg. you don't even need a reason to return it
"full refund" - that's pretty d'uh now, try a 110% refund for extra excitement
"no questions asked" - eg. we're not going to hassle you for trying to use this. you will not feel stupid.
"get to keep <infoproduct>" - even if you opt out, you get something
"valued X$" - with a home made infoproduct, that value is pulled straight from the posterior, but gives a value anchor
And suddenly that 3000$ product seems less risky than a 2$ app.
Another reason to offer this money back guarantee when selling products online: you're already doing this whether you want to or not. Your customer's credit card company will usually offer a chargeback within 90 days, and then you'll cop the penalty fee for the chargeback. You may as well offer the same guarantee as the cards do, but encourage the customer to come to you instead. You'll avoid the fee and potentially get intel on what problems customers are having with your product.
> And that's exactly why guarantees are so effective for sellers... very few people actually go through with the guarantee.
Not always -- many people are shameless jerks. REI used to have a lifetime no-questions-asked return policy, but people were returning worn-out shoes and such, so they had to discontinue it.
I guess it's also training. We have many positive experiences of the "risk" of ordering pizza has turned out well. The number of experiences we have had to psotively reinforce app purchase positive experience is likely two orders of magnitude smaller.
Also, the benefit is more immediate. "I will enjoy this food within the next 30 minutes" is closer temporally than "I will enjoy this app over the course of the next few months or maybe even years".
>The difference is uncertainty. With pizza, you know pretty well what you are going to get.
Two counter-arguments:
People buy enticing stuff off of supermarket shelves all the time though -- things that they are not certain if they'll like them.
Lots of people who have bought and generally like an app (or so they say), still complain for its price on boards, even if it's comparable to a beer. E.g. they ask why a $2.99 app isn't $0.99 etc.
Think you nailed it on the head with your example - with food, you're fulfilling a necessary contract with your body. You have to eat, and even if the pizza is terrible and you're unhappy with it, you've satisfied the necessity of eating.
With the app, not only are you out a few dollars, you potentially commit the sin of wasting your time by not fulfilling any desires. Though the upside is exponential (in relation to the food), so is the downside.
Would be cool if some services allowed you to sign up for one month at a time, with a renewal-by-single-click close to the end of each expiry period, kind of exactly like ordering beers one at a time until you're done.
Seriously! Think about how we deal with Android/iPhone apps.
I go to Five Below or a Dollar Store and stock up on $2-$3 items that are kind of neat even venturing into the $5 range occasionally for "premium garbage" yet I get on the Google Play store and see a really awesome app that fills one of my needs but it's $2! How can someone charge $2 for THAT? They only spent a year working on it and it fits my need perfectly but $2 is too much!
It's really weird, for sure.
I think the hardest part with things like the New York Times is that a lot of us are getting our news from aggregators. I don't give a shit about the New York Times as a company nor any others. I read down through places like Hacker News and click links there. If, occasionally, it's a link to a NYT article, I read it (or don't.. I guess?) but otherwise, if any one of the news sites disappeared off of the face of the globe, I'd be no better or worse off.
Also, $8/mon is nothing when it's one news site but if each site begins charging, using a news aggregator is going to be a very expensive proposition...
There is something to be said though about being able to see, touch, and feel that $3 tchotchke in the store rather than downloading an app with no idea of it's depth or quality (unless there is a brand reputation already).
I think there's something primal about touching/seeing something before buying, and I haven't seen anything digital that even comes close to this sense of grokking the whole thing you're buying in a few seconds/a minute of physical inspection.
I'm curious what the difference is (if any) in effect of the GBB pricing model in a store front versus online marketplace.
"if each site begins charging, using a news aggregator is going to be a very expensive proposition"
Yes, it could be, but that won't happen unless the act of publishing gets regulated (like in China, where even bloggers have to (or will have to) have publishing licenses) and forced upon an artificial asking price.
Tangible objects provide a higher sense of gratification, I suppose. $10-15 USD for a single, one-time, movie ticket or $1-5 dollars for a phone application.
And then there's the whole micro payment economy which is another thing.
You may also enjoy reading about how airline pricing works. It doesn't have an emotional component, but they get away with charging wildly different prices for the same service by having prices fluctuate on a day-to-day basis and some other tricks. It's sort of a "people who can pay, will pay" model, where they can gather from a larger chunk of the demand curve.
I think this is modern tech poking it's holes in our economic model. I know that it costs $some_amount_of_money to make a batch of beer. But there's only so much of it. Sure someone can make another batch, but that costs another $some_amount_of_money.
It also costs $some_amount_of_money to make digital media, yet once created, it can be duplicated indefinitely for free.
At least, that's what always hangs out in the back of my mind.
> “It is not your customer’s job to set pricing. An optimal price is one that is accepted but not without some initial resistance” says Ash Mauyra explains in this great piece.
I can imagine this as general purpose advice but this is no way to build a loyal base. There are some services that I have that I begrudgingly pay for because they price so aggressively that they extract nearly all of the value from my subscription, and then there are services that I'm actually happy to pay the bill because it's such good value. Guess which services I recommend to others, and which services I actively look for alternatives for?
Yep. There's so much bullshit you hear about elasticity of demand and extracting the most amount of profit from your customers.
Yes, if I charge 3 times more, and lose less than two thirds of my customers, I'll make more profit in the short term.
But long term, network effects and the size of my customer base is very important for my ability to make money. Personal recommendations are a very important marketing factor, and having three times the number of customers is worth something even if you make the same profit.
One of the first thing you learn in microeconomics 101 is that demand forms a curve - there will always be people who are extracting more value (and thus willing to pay more) for something, and people who don't (and thus don't buy it). Neither of those groups matter - the only ones that do are the people at the margin - if lose a less than proportional amount of customers by charging more, then you still come out on top. This is also what the quote is alluding to.
If anything peolpe are afraid to explore the curve to find maximum profit. Starting high and giving out discoubts at various level trough the year can help building a model and set the best price if it's not overdone (as in, customer expecting continual discounts)
You have to be very careful with discounts in some situations.
The case that we ran into involved a product that required a fairly large amount of time investment on the part of the user to be valuable. Our customers that were willing to devote a fair amount of up-front time and 30-60 min per day to our tool were getting a pretty massive ROI, both on the time they spent and the monthly subscription cost. Those that weren't putting in the time got very little benefit. But we also found that when salespeople gave discounts for the first few months, our cancelation rate was significantly higher. We were much better off losing potential customers during the sales process because the customers we did end up signing had higher LTV and Net Promoter scores.
The lesson learned was that high/full price increased the investment that customers felt in our product and triggered their impulse to get their money's worth. Discounts signaled customers to make a shallow evaluation of the product and ultimately sabotaged our value proposition.
I'm tackling a very similar issue right now and it's a maddeningly difficult problem to solve. It would be incredibly helpful to bounce some ideas off someone who has been there if its no imposition? My email address in in my profile.
if it's not overdone (as in, customer expecting continual discounts)
I'm still surprised that Steam has so many discounts; they've basically trained me to never pay full price. But I feel no need to play new games right when they're released; maybe there are enough people that do.
I wouldn't see myself as a game buyer at all. So, for me the $5 I paid for skyrim or however much I didn't on other several games I bought is money I wouldn't have spent.
Now the $10 I spent on limbo of different. I didn't wait for a sale. I just bought it. I think steam optimized the revenue from me pretty well. And it all started with them giving me portal (one) for free.
I was actually quite happy when Linux made up half my library; it really put paid to the idea that Linux isn't for gaming. If a publisher doesn't release multi-platform, I just don't buy it anymore. But those deals sucker me in for just about any game that says it's on SteamOS.
They've also trained me to buy a whole bunch of games just because they are massively on sale even though I'll probably never play them. I guess Valve figures this works out better for them overall.
yeah steam was what I had in mind when I wrote that.
but it has changed policy last year or so: before titles got cheaper by time and got discounts on top, so it was usual to find a year old aaa game for 5$ or 7$ in the summer sale, now titles take at least two years before even starting to cheapen in price, and publisher are using the trick of giving out big discount (75% is common) but starting from incredibly high prices (so it ends up never going below 20$)
They are -- the opportunity cost of more revenue. Just because you have low marginal costs doesn't mean you should train your userbase to expect discounts.
My guess is that Steam sales prompt people to purchase when they wouldn't have otherwise. I assume (hopefully correctly) that they're A/B testing this stuff and have data on the results.
I have this feeling with Intercom, that every bit of added value I want to extract next, I have to upgrade my plan or buy yet another plan. Their pricing pisses me off every single time, yet I pay every single time... after insulting them copiously.
They're that good.
Ideally a user should get at least 10x the value than what they paid.
When pricing, I try to go for a price that people pay, but with resistance from X% of leads. Then you can give some/many of them limited-time discounts, which nudges them over the edge.
If you don't price high enough, you don't have room to do that. If you don't have resistance, you have no-one to do it for.
And people are MUCH more likely to buy when there's a time limit and they might lose something if they wait too long.
Any source or reasoning for 10x? I've got some software that saves a certain type of business about 40-70% on tech support measured in time to resolution (and time spent). Plus it provides a large bonus in "can actually solve an issue invested of telling customer to keep trying to repro".
If a tech costs $5000 a month and a company can save on one tech, only price it at $500/month?
Is it not notable how, among all of these examples and thought processes, not a single word was lost on the value provided to the totality of customers, in addition to how much is monetizable?
Obviously the ability to pay quality journalists is a valuable cause, but it irks me that retaining a large percentage of customers/consumers, and the corresponding potential to make much more of a difference in the world, isn't also considered a mention-worthy aim in itself.
Got the opportunity to cure diseases but decides to play mind games for fun instead? In a position to bring awesome tech to the masses but prefers to market it as luxury item to a limited audience? Making lots of profits already but spends serious effort to drive the competitor out of business to earn even more as monopolist? ...good for you, "disruptor".
Journalists .. corresponding potential to make much more of a difference in the world
There very definitely is a market in this - the market for newspapers. Buying a newspaper as a proprietor is a fairly cost-effective way of getting a society to replicate your prejudices; you can get a huge amount of influence for a mere few tens or hundreds of millions of dollars.
If I get told to 'ask the sales team for a quote', then sorry, I'll find another product or service that just provides the information up front. Would I be willing to pay their prices if I talked to the sales guys? Maybe, but it's still an extra inconvenience that's easier to avoid than go along with.
And no offence, but it's very unlikely your product or service is that unique that there's no viable alternatives out there. That don't waste everyone's time.
Yeah, and in addition, "We're going to need time and persuasion to convince you to pay that much."
I really don't have time for that crap. And salesmen generally give me the creeps. I think it's because so many of them are just there for the paycheck, but need to pretend to be interested in what they're selling. Ugh.
True. If you're not willing to show me your price, in a huge font, with big flashing letters, chances are you're secretly a bit ashamed of that price, and I shouldn't be paying it in the first place.
At The Times, we realised that converting customers who paid £8/week for the printed newspaper into customers paying £2/week for the digital edition (often after paying Apple £500 for an iPad on which to read the edition) wasn’t great business. ... So — over two years — we gradually raised the price for those original customers to £6/week.
The problem with "do not talk about pricing" is that you're assuming your customers are idiots. There's nothing wrong with having a bunch of profitable idiots as customers, but that's not quite the target audience for a product like newspapers. The simple fact is that the cost of delivering volume to subscribers (one more subscriber) is so teeny tiny small that inflating the price more than a reasonable amount (when in fact you're losing advertising eyeballs) is what's not smart business. Companies that presume I'm an idiot don't get my business.
You cannot talk about pricing without talking about cost. Intelligent businesses are unafraid to be transparent with their variable costs (which for a digital-only newspaper are significantly less than for a print version); what trips prices is the bulky overhead fixed costs: CEO and executive management pay, benefits, and unnecessarily swanky office space.
Realtors are probably the best example of this IRL, operating in an industry that "doesn't want you to talk about pricing" (e.g. negotiated commission at an hourly rate, for example) ... just sign on the dotted line and let them abscond with all your equity in a lump sum payment.
This quote sums it up "When The Times introduced a paywall, the number of people looking at their digital service dropped by 98.7% (from 22m to around 300,000), yet the switch was a huge financial success."
Now that some of the crazyness of Internet Advertising has fallen by the wayside (lower CPCs == less crazyness), it becomes important to pay people who will research things, write eloquently about them, and convey the information you seek. I have really been enjoying Blendle[1] and their model. Happy to pay for decent content, not willing to pay for content I don't read. A good mix.
>When The Times introduced a paywall, the number of people looking at their digital service dropped by 98.7% (from 22m to around 300,000), yet the switch was a huge financial success.
But for how long? I'm fairly certain that once those 300,000 loyal readers kick the bucket that The Times' digital subscription service will too.
How is 22 million regular readers (who will keep coming back and telling their friends about your articles, because they're free) worth less than 300,000 paying subscribers (who for some reason absolutely have to read what's in The Times no matter the price, and would probably have a hard time encouraging others to be so vehement).
Not to mention the types of journalists you will attract with a readership of a very small city, vs the readership of the population of New York State.
"How is 22 million regular readers worth less than 300,000 paying subscribers"
Monetarily. The ad market has only got worse since the Times made the move away from pure ad-funded pageviews, so the ability to turn those 22 million people's eyeballs into a revenue stream has become even less viable than it was when they replaced them with 300,000 paying customers.
"Not to mention the types of journalists you will attract.."
... with an engaged and interested audience who are directly paying to read what you have to say, who aren't merely being driven to your site by clickbait headlines and paid placement? I dunno, would think you'd be able to attract pretty good journalists on that basis...
What we should be aware about pay-walling broad public information is that we're not talking about some pure and simple business model here, with a publisher providing information as good for consumption (for which the clients pay). The act of information dissemination and the ability to reach an audience has value in itself. Interested parties will gladly step in to fill the void left by "independent" publishers gone pay-walled. Will the pay-walled information be of higher quality compared to the free one? Maybe! Actually it's safe to assume that the free information will be "free" only as in "free beer", but who cares? Then there is this bitch called "the network effect" which erodes that pool of "loyal customers" day by day making the pay-walled publishers gradually slipping into obscurity¹. Pay-walling information channels addressed at the broad public is a loosing strategy in the long run, no mater how one twists it under a study or another, and that is exactly because information is not in the same category with the tea lights or some other "IKEA pack".
¹ The publishers are aware of this, that's why they are using pay-walling only per article, after it reaches a number of views. By this they try to balance the the opportunity to get new clients (i.e. monetize the contents) with the risk of a complete audience drain (i.e. loss of relevance).
When I was in college, we bought the absolute cheapest beer per oz we could find as long as it wasn't Red Dog. Not sure where they found college kids fooled by a % discount.
They must have studied a group through hypothetical choices (instead of actual choices that had any weight on their budget), or they did an open study in which the tested subjects could have chosen something based on how they wanted to be seen choosing, or it may be just plain memetics, or any other reason. That is, however, most of the time the close as you can get to the actual human behavior within a reasonable effort (i.e. unless you're willing to go with covert surveillance or something).
While I think this is fine advice for most consumer things (and that generally you should talk about value not price), this falls down in a number of interesting markets. For example, with cloud where I work, the pricing is a huge component of decision making. Many organizations base their decisions on TCO, and that's not crazy. Generally speaking, if you have a commodity (or near commodity) then price is something to talk about.
Very good points in this post, but it seems to me that they are only valid if you look at a single line of products / services at a time.
When you put multiple products/services in one store, that is when your products get to be next to both competing and non-competing (non directly substituable) products, there are other consumer feelings to add like the sum of all things they're going to buy -- whether or not they have a budget, the sum of the things will either look "cheap" or "expensive". And who knows what they will buy next... if they come back at all.
Reminds me how we assign points to tasks in an agile sprit. It takes practice and it helps to have small tasks in relation to which we assign points to the larger ones.
Pricing remains the hardest thing in almost any business.
I learnt from running a part of a furniture chain's website that garbage is often placed with the item people want to move.
Retail I learnt is more about selling profit than selling product or services.
Pricing remains hard, and tricky, and several states like California have made it illegal to display MSRP type pricing, because everything's a great deal.
What a bunch of crap. Of course people spend a lot of time arguing, discussing, even getting emotional about prices. When talking with a company you are client with you basically have two things you need to talk about :
- what you are selling
- how much you are selling it
If I meet a company that does not talk about one of these two things, I'll move along.
So those of you who make purchase decisions for software used in-house... what are your turn-ons and turn-offs? If I'm trying to sell you a product that you find technically useful and exciting, how does pricing play into it? What would drive you away from a buy decision on an otherwise great product?
For the most part, you need to represent value far in excess of the total lifetime cost, which includes half of the transition cost to the replacement.
Say your software is licensed at $10 per person using it per year. In addition to the $10, I need to consider the costs of installation, configuration, first level support, entitlement/license management, and what it will cost me to extract the data and munge it into a usable form when we decide in three years that your competitor does it better.
Now consider that most companies offer lousy support for their products, so I also have to do a test roll-out to a small number of people, manage that, and figure out if it will all be worthwhile.
If you discount based on quantity, can I roll the test group into the main group? If you price in chunks larger than per-user, do I fall between your levels in some disadvantageous way?
Is it any wonder that I vastly prefer standard-protocol based, open-source applications with healthy user communities? No, it is not.
It's software that automates a lot of costly auditing and troubleshooting in complex systems, so the core value proposition is hours that humans don't spend (and reduced downtime). If it can reduce the workload of senior/lead engineers by 5-10%, what's that worth? This sort of thing is really hard to quantify, although I'm sure we'll get more data as it grows.
Does per-seat licensing work best, or something modeling the amount of data being processed? Fixed or floating seats? We're definitely looking at higher pricing, from hundreds to a few thousand per seat annually (not unusual in the market). I'm not worried about whether the product will be loved - we're engineers ourselves, totally focused on the suckiest parts of working on enterprise systems. If our product isn't a pleasure to use, I'll take it as a personal failure. But then we have to sell it. And I'm an engineer solving my own pain points, not a sales guy. That part is new to me!
Everybody prefers predictability. That shows up in the comments on this page about people who hate to see "Call for pricing" on the site: it means that the cost is extremely complex.
Here's a question: will people want to use the software because it makes their lives easier, or will people want to have the software running because it makes their lives easier? That's the difference between a good per-seat plan (where customers want more seats because employees want to use it) or a good per-[quantity] plan, where nobody cares who is running it but the company does better as a result.
Feel free to email me at the address in my profile if you want a deeper discussion.
At my last job at a multi-$Bn corporation, we were pretty price-insensitive. I was charged with finding a vendor for a specific type of software and there was a set budget. I found someone I liked that cost $x, my colleague working with me found someone else that cost $0.3x, but we had some concerns about them delivering on time because it didn't seem like they quite understood the scope. We went with the $x bid because they seemed like a safer bet. In the words of my manager "we already have that amount budgeted, and I don't get anything extra if I save money."
OTOH, I'm now at a much smaller company and a 3:1 cost difference between vendors would have us doing a detailed analysis to be sure that the 3x guys are worth it, and in the end, my gut tells me that we'd go with the cheaper ones anyway.
So... after all that, what would drive me away from a buy decision on an otherwise great product? I'd be leery of buying your product if it's beyond my budget (if I have to fight for budget and the software turns out to be crap, I look like an idiot) or I think you won't be around to support it if it's SaaS or something else that needs ongoing support. I have no problem picking up the phone and asking you to quote me a price if it's not shown. IME, that short phone call can save me $$$.
Don't feel bad, it's a regional thing. In San Francisco, if someone says "The Times" I also assume NYT. But, for example, folks nearer LA, think the LA Times. A lab mate and I joked about making a visualization along these lines (and the more common "Which city is 'The City'?").
Now I'm curious if the Seattle Times is a big enough deal to supplant NYT (presumably yes)...
Not really. Been out here 10 years and "The Times" tends to refer to NYT. Seattle Times is referred to in full generally; the only other competing paper (now dead) was referred to as the PI (post intelligencer). At least in the circles I ran in, which was mostly finance/tech.
It's not just you, and probably not even just an American thing. I personally think of the The Times when I see "The Times", but I'm British, like the author of this Medium article.
I know why it happens, but it's somewhat ironic that The Times is given a made-up regional-sounding name (The London Times or Times of London) to differentiate it from shorthand versions of region-specific titles that are, directly or indirectly, inspired by The Times.
How about instead of anchoring or negotiating or special discounts or sales or any of this nonsense, we have a simple agreement: I, a customer, will give you money for a product/service, and you deliver that product/service as described with no conditions, strings, or other such insulting attachments and we call it a freaking day?
Totally agree, but I think haggling and anchoring have been around for a very long time, at least as long as markets. I don't see them going away any time soon.
It's certainly true that haggling and such have been around essentially forever, but scientific rigor hasn't. There are now entire generations of PhDs who have carefully studied these psychological phenomenon to maximize business' ability to squeeze every last drop of blood out of you. Meanwhile the consumer has been left relatively uneducated and unprepared to recognize and maneuver in this world.
I would say haggling is similar but fundamentally different, that's more between a customer and a salesperson and usually involves more or less them on equal footing (the example that comes to mind first is a car, and the old saying that no one but a sucker pays sticker price). That's a luxury good where the need isn't immediate and the customer can exert some influence, unlike the vast majority of sales situations where the need is apparent and they can't just go to the 'next lot' whatever that might be.
I guess since the revenue optimization ideas kicked in! How do you think something as enticing as revenue could have eluded the desire of "doing it better"?
I'm sure these things work, but they also alienate customers sometimes. People have founded entire businesses on offering clearer pricing schemes.