Established companies in established markets generally have some standard ways to package and price their new offerings. Product extensions are benchmarked against the existing product line or the other guy’s features and prices. This leaves product managers focusing on “faster, cheaper, better, more.”
In a brand-new market, though, there are fewer guideposts. Close competitors may not exist. Even before final products are ready, you need to define initial packaging and pricing for your fledgling sales force and prospects. Otherwise, the sales team will invent it haphazardly, one visit at a time. Here’s a starter approach that I’ve called “Goldilocks” packaging.
Borrowing lightly from the fairy tale, we want to construct three pricing packages with increasing feature sets. We hope that prospects will think of them as “too small, too big, and j-u-s-t right!” Why three? Huge consumer products companies that measure buying behavior tell us that we like to have three options (whether for hamburger meals or SUV models or external hard drives). When faced with more than three choices, we get confused and may postpone a purchase. With fewer, we don’t notice that each package has any features.
Even more important, we want to sell on features as well as size. Our customers don’t know how much they need (in obscure product metrics like “virus scans per hour” or “GB of trading data”), so we want to offer functional reasons to trade up. The goal of “Goldilocks” packaging is to create three distinct versions that appeal to different buying audiences. Of course, it’s critical to know which of your features are the “must have” items at each level, so that your hungry sales force will have a way to upsell customers into bigger packages.
How About an Example?
Imagine that you’ve founded a start-up targeting the latest generation gap in office communications: Instant Messaging (IM) and its conversational shortcuts. Corporations are being forced to keep audit logs of IM chat — and forty-something IT directors are struggling to understand their twenty-somethings’ crazy IM abbreviations. Here’s a market ripe for innovation.
This is a completely new niche, so prospects can’t size their need. (“How do I know how many MB/sec these crazy Instant Message kids use?”) So, we’d prefer to scale our packages by features as well as capacity. Assuming that our brilliant developers can work miracles overnight, here are a few cool reasons for upsell:
|Entry||– Logs 2 simultaneous IM conversations
– 10 MB storage
– Browser-based archive search
|$2,000 per appliance|
|Department||– Logs up to 20 simultaneous IM conversations
– 100 MB storage
– Can display traditional English equivalent (“k otp g2g” also
shown as “OK, on the phone, got to go.”)
|$6,000 per appliance|
|Enterprise||– Logs up to 200 simultaneous IM
– 20 GB optical storage
– Fault-tolerant, dual-processor
– High-efficiency cache for emoticons
– Email-to-IM bridging. Sets up a translated conversation between Instant Messaging and email users.
(Boss sends “strategic downsizing” email and code geek receives a “chek out MnsterBord” instant message)
|$40,000 per cluster|
Notice that the new features signal their intended audiences. A department manager who is IM-clueless will still need the mid-sized package to learn that “lol cid gmta” means “laughing-out-loud: consider it done. Great minds think alike.” Email traditionalists will buy the big version and deny the IM’s existence. We’ve given each buyer some reasons to pick the one that’s j-u-s-t right. Here’s a hint: upselling features is much easier than estimating some customer’s peak IM usage.
Likewise, broadly different prices help a customer choose quickly. Cash-strapped tire kickers buy low; corporate committees with lists of disaster recovery requirements buy high. We’ve also saved Sales the embarrassment of inventing products on the fly.
Packaging and pricing help our customers buy what we make. In particular, software features are a great way to differentiate your Baby Bear, Mama Bear and Papa Bear packages. That keeps your anxious sales team from selling strictly on price before you’ve established the natural product boundaries of your new market.