Three perennial challenges for entrepreneurs and start-up founders are (1) seriously listening to their markets, (2) building customer-side savings/ROI logic, and (3) whole-product thinking. Tiny companies lack formal product managers, but need to apply some product management thinking to these fundamental product/market needs.
Prof. Kumar Sarangee of Santa Clara’s Leavey School of Business invited Rich Mironov for a guest lecture on Product Market Planning and Strategy class. This talk included a quick overview of what product managers are (what they do), how this fits into the overall business of creating technology, and how to think about pricing software and roadmapping.
One of the first things I ask about with a new product team is “how will a customer justify paying for your product?” An apparently simple question, but I often get blank stares. Here’s a thumbnail of the problem and the process, along with a tiny spreadsheet template.
We recently finished a major pricing exercise with a start-up in the enterprise software space: tuning up their prices, improving their upgrade model, and looking at alternative pricing metrics (i.e. what to meter when quantifying the customer’s usage). A great opportunity to match quantitative models against actual customer behaviors. During the engagement, the client’s sales team identified some real-world messiness that we (as product managers) would prefer to ignore: high-end customers who demand enterprise-wide licenses – instead of limited-use licenses tied to volume. These are sometimes called “all you can eat” or AYCE deals. Let’s describe the situation, then explore a few of the messy conclusions.
During a miserable week of domestic air travel during June, I noticed new fees suddenly appearing for checked baggage and in-flight soft drinks. That caused an announcement about a new airline to catch my eye – an airline offering a radically different approach to pricing. It re-raised a topic that we explore with many clients: shifting the basis of competition by changing pricing units. On June 6th, 2008, a new airline called Derrie-Air started advertising fares based on total passenger weight, with the slogan “Pack Less. Weigh Less. Pay Less.” A flight from Philadelphia to Los Angeles was priced at $2.25 per pound – with each passenger paying based on body weight plus luggage. Thus a supermodel carrying only a…
Price lists are never quite current enough, sufficiently detailed, or cover enough of the awkward special situations that customers raise. So, there’s a tendency for HQ product and pricing folks to do a lot of tinkering on the margins with their price lists. We may be forgetting the “consumers” of price lists, though: sales reps who pay our salaries and customers wondering what to buy. Complicated pricing models may be self-defeating.
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.