**Palle Broe:**

An operator at heart who spent five years building Uber in the UK and SF. Now at Templafy, he plays a pivotal role in shaping pricing, packaging, and operations. Palle is based in New York City and actively participates in the startup ecosystem as an angel investor.

**Stefan Bader:**

The Co-founder of Cello, a platform that empowers businesses to drive scalable word-of-mouth growth by harnessing the enthusiasm of their most passionate users. His entrepreneurial journey includes the exit of an automotive-connected service company to Continental AG in 2017 and he has been recognized in Forbes 30 Under 30 Europe

https://youtu.be/3JnCVagPrzY

byFounders Workshop on Pricing

Pricing Workshop.pdf

• High Level Intro
  • Most founders are charging too little for their product. Sometimes several order of magnitudes less than they should and could.
    • Minivation: an innovation that, despite being the right product for the right market, is priced too low to achieve its full revenue potential.
  • Cost-based pricing (where you take your costs and add a margin on top) does not work for tech and software businesses. You should always look to value-base your pricing.
  • Price is not a number. A price point is a number.
    • Pricing is understanding the perceived value that the innovation holds for the customer. How much is the customer willing to pay for that value? What would the demand be? And how much of that value can we capture?
    • Seen in this light, price is both an indication of what customers value and a measure of how much they are willing to pay for that value.
  • How you should not price
    • Design product → Build it → Market it → Price it
  • How you should price**:**
    • Market it → Price it → Design it → Build it
• The Willingness to Pay conversation
  • Have this conversation with customers very early on in the product development phase.
    • Understanding if customers are willing to pay for your invention, before you commit too many resources to building and launching it, will dramatically increase your likelihood of success. By designing your product around a price, your innovations will stand a far greater chance of surviving and thriving.
    • Figuring how much customers will pay for your product when it is still in the concept stage will make your innovation process far more reliable. You and your company will be far more likely to succeed.
  • Switching from value to price is an easier transition to make in determining customer WTP. Ask questions around value like:
    • “Do you value these products/features?” and then ask why.
    • Or relative questions like "If Salesforce (or similar) was indexed at $100 value (not price), how much value would you think our product would bring to your company?"
    • Help the prospective customer by quantifying the value they're getting from your product (and eventually the payback time):
      • "How much are you spending on A?" → "We can cut your expenses by X%"
      • "How much time do you normally spend to solve B ?" → "Our software automate this part of the workflow, saving you X hours a week"
      • "How many people work on C at your company?" → "Our software helps you free up X people per month" or "Our software lets Y people work this much faster"
      • "How often do you experience critical errors when doing X, Y, Z? And what do you expect they cost you?" → "Our product streamlines processes and removes manual errors, saving you €X per month"
  • Then switch gears to ask questions around price like:
    • "If Salesforce is indexed at $100 in price, where do you think we should be?"
    • “What would you consider an acceptable price?” ← Priced here, people not only love your product, they also love your price. You're leaving money on the table.
    • "What would you consider an expensive price?" ← Your best price point tend to be around this number if you bring enough value
    • "What would you consider a prohibitively expensive price?" ← When you cross this threshold demand will drop significantly.
• Sell benefits, not features
  • “Customers don’t buy products. They buy the benefits that these products and their suppliers offer to them.”
  • Articulate benefits clearly and compelling, and focus on the most important ones. Speak the customer's language, not your language. Get support from marketing and sales teams early in the product development phase.
  • Your benefit statements should be segment specific!
• Customer Segmentation
  • Customer segmentation is crucial to be able to design the right product and the right price. Avoid one-size-fits-all solutions, and start segmenting early!
  • You should build segments based on differences in your customers’ willingness to pay for your new product. Don't base your segmentation on demographics.
  • Smart companies start with a few segments—three to four—and then expand gradually until they reach the optimal number.
  • You need to create segments in order to design highly attractive products for each segment. And you must base your segmentation on customers’ needs, value, and WTP. This way, segmentation becomes a driver of product design and development, not an afterthought.
  • Use the WTP conversation to segment your customers and find the right buyer.
    • When looking at the answers to your WTP conversations, look at the distribution not the average.
      • For instance, for two groups of customers, one willing to pay $20 and another willing to pay $100, if you calculated the average price they would pay, it would be $60. But that would leave money on the high side (the group that would pay $100) and make your product unaffordable to the low side (they’ll only pay $20)
      • You might be better off building the product to a $100 price point or—even better—making two versions, one at $20 (with different features or materials) and the other at $100. Either way, you must look at the distribution to arrive at the right insight, not just the averages.
• Product Configuration
  • Product Configuration: How you package and bundle your product(s) taking both pricing and customer segments into regard
    • Packaging: Designing the product with the right features for a segment—that is, just the features customers are willing to pay for.
    • Bundling: are you selling your products together or separately? When done right, it can increase total profit because customers end up buying more than they would have if you hadn’t bundled.
  • To start at product configuration you need to separate must-have features from nice-to-have features.
    • Leaders: what drive customers to buy a product, what they come for (at McDonalds, the burger). High WTP.
    • Fillers: features of moderate importance. nice-to-have. (McDonalds: fries and soda)
    • Killers: features that will make the customer not buying the product if they are forced to pay for them because they're bundled in (McDonalds: coffee bundled with every meal)
  • Think of your configurations as G/B/B: Good/Better/Best
    • A well-crafted G/B/B configuration will let you steer customers to a choice based on whether they are price conscious (good), quality conscious (best), or somewhere in between (better)
    • Ideally no more than 25% of your customers should opt for the Good option
    • If more than 50 percent of your customers have bought your entry-level product, you most likely have a problem. You should remove features from the Good option and add them to the Better option
    • The ideal distribution of customers for a G/B/B product configuration strategy is 30 percent in good and 70 percent in better and best, with best being at least 10 percent.