Lean pricing

Martin Reichenbachwww.pricing4startups.com

David Leeswww.storyhome.com

About @MktgMartin

www.pricing4startups.com

www.beactivepass.com

www.the-venture.info

Informatik LMU

2008

Simon-Kucher

2010 2014

becoacht

2015www.gruender-voucher.de

Motivation

Price is driving cashflow and thereby keeps our businesses alive

Getting our price model right is massively increasing our chances of success

Changing from a free-for-all model to a profitable model will require large value improvements in

our product

Exception: You‘re only counting on a large investment – and how many will get this?

What is the goal of lean pricing?

Communicate what my companydoes well - in a customer-friendly

language

Offerings and prices that arereflecting my customers

willingness-to-pay

Offerings that are scaling with mycustomers‘ growth

Additional features that have a specific value to few customers

Barriers to entry for people that I want as a customer

Elements to create a great pricing model

Customer intelligence

AKA

„Who is my customer?“

Value metric

AKA

„How does my customer look at the value of my product?“

Price tag

AKA

„How do I determine the willingness-to-pay for my

customer?“

Purchase model

AKA

„How does my customer purchaseproducts in my segment?“

Lean pricing

Customer intelligence

Basic questions :

Who is primarily paying for my product?

This is important especially for marketplace models

Am I selling to end customers or companies?

Advanced questions:

Is there someone else that might pay for the product?

In case I‘m B2B, who is my buyer?

Which needs do I solve for my customer, i.e. what is the value my product generates for my

customer?

Hint

Deep dive: Which customer need is being solved through my product?

Value metrics

Value metrics always start with „pay per…“

A month is not a value metric, but a purchase model

Based on my industry, a large amount of value metrics are applicable

Example SAP: A small piece of SAPs value metrics list

Named User ConcurrentUser

Active User Revenue Location Employee Data object

CPU GigaBytes Devices Master record Contract Account Barrel of Oil Equivalent per Day

Defining a great value metric

Basic questions: Which metrics…

… reflect my customers‘ value perception?

… help my company to grow with my customers‘?

… helps differentiating customer segments?

… are understood well by my customer?

Advanced questions: Which metric(s)…

… align revenue with cost and risk?

… synchronize payment with consumption?

… allow me to differentiate from competitors?

Storyhome - Value Metric

Model 1 Model 2 Model 3 Model 4 Model 5

Name Pay per minute Pay per recording Pay per userPay per family

monthPay per playback

ExplanationPay per minute stored on the

server

The user has to pay based on the

number of stories recorded

Each user has to pay a monthly

fixum independent of usage

Each familiy has to pay a certain

amount to use the system

The user has to pay based on the

number of playbacks

Evaluation 4.09 3.29 3.87 4.04 2.67

Purchase model choice

User Value Purchase Model Products

ImmediateOne-off monetization (w/o money back guarantee) Retail, On-premise software

Portfolio / Product line pricing Fashion labels (Hugo vs. Hugo Boss)

Increases with time

Subscription model: Limited Free Trial, also Feature / Menu-based pricing

SaaS, Telecommunication

Advertising-based monetization: Product or service is free, revenue from ads and critical mass

Content marketers / bloggers, Facebook, Google

Free product, put pay for services (CAPEX to OPEX) OpenSource software provider, Aircraft Engines, Surgical Robots, Business Coffee Machines

Razor blade model Printers, Soda Stream

From purchase model to packaging

Entry Professional Expert Enterprise

Packaging: SaaS project

Leader

Filler 2 Filler 2

Filler 4

Filler 5

Filler 1

Leader 1

Leader 2Configuration

upon request

Filler 3

Platform Platform Platform

XX€ /

month

XX€ /

month

XX€ /

month

From XX€

/ month

Approaches to identify my price tag

Cost-plus

Price = (Fixed cost + variable cost) * (1 + Markup) Very often used by startups selling physical goods Retail examples: Fridges: cost plus 25 per cent / Branded clothing: cost plus 135

per cent / Jewelry: cost plus 250 per cent or more

Competition-based pricing:

Prices are based on the current competition, e.g. average across competition Often used for service pricing in startups and established companies

Value-based pricing

Prices are based on perceived value by the user Rarely used in a relevant fashion by any company Factors for Value based pricing (among others): Convenience, Brand, Fashion &

Trends, Monopolies and cartels, Pure perceived value Supply and demand

Apply discount schemes:

Volume tiers Cumulative discount Pre-payment discounts

Road to value based pricing: Van Westendorp

https://de.surveymonkey.com/s/5CG5PTG https://de.surveymonkey.com/s/2S3YTKF

Vorstellung GRÜNDER-Voucher

Lokales Gutscheinheft für München

20 exklusive Angebote von ausgewählten, meist lokalen Sponsoren aus den

folgenden Bereichen:

Design | Print | Event-Management | Anwälte | Steuerberater | Beratungsleistungen (u.a. UX-

Consulting, Pricing) | Performance Marketing | Outsourcing-Anbieter | Co-Working Space | PR

Typische Angebote sind freie Dienstleistungen, 50% Discount auf Startup-Pakete,

Kostenfreie PR-Meldung etc.

Das Gutscheinheft ist auf 500 Stück je Ausgabe limitiert

Gesamtwert aller Gutscheine liegt bei ca. 2.000 EUR

Weitere Infos unter www.gruender-voucher.de

Bitte fülle folgenden Fragebogen aus! https://de.surveymonkey.com/s/2S3YTKF

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Van Westendorp results – Gründer-Voucher

The Van Westendorp result can identify price thresholds. The methodology also shows take rates at varous price levels.

% of Respondents

too expensive

reasonableToo cheap

At what price do you think the Gründer-Voucher booklet would be ....

Price level €

expensive

Lower price limit

Upper price limit

Price perceived as normal

Price for market penetration

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INEXPENSIVE

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TOO EXPENSIVE

Van Westendorp results – StoryHome

The Van Westendorp result can identify price thresholds. The methodology also shows take rates at varous price levels.

% of Respondents

too expensive

reasonable

At what price do you think the StoryHome service would be ...

Price level €

expensiveUpper price limit

Price perceived as normal

Kickstarter Price Testing