Patrick Campbell, CEO of Price Intelligently, shares the best strategies and tactics for pricing a product and what product managers can do to increase the perceived value of their offerings.
Pricing has a significant impact on conversion rates and profitably, but it’s often an afterthought during the product development process. However, it’s the product manager’s responsibility to discover what’s valuable to customers and deliver it as a product and, as Patrick says, “your price is the exchange rate on the value that you’ve created.”
Given the impact an effective pricing strategy can have on a business, I was thrilled to interview Patrick, whose experience includes working for the US Department of Defense and Google, and helping companies like Zapier, Optimizely and SendGrid price their products.
Patrick says pricing is similar to many other aspects of product management: It requires a process, customer feedback and iteration.
What's interesting about it is that pricing isn't hard. I know I've done pricing for a long time now and so that's not lost on me, but what I mean by that is it's very similar to customer development or some of other pieces and kind of your product stack where it just takes a process and it just takes some effort."
I appreciated his emphasis on using customer development to determine what’s truly valuable to various buyer personas.
Your customers, at the end of the day, [are] the only ones who are going to be able to tell you what that willingness to pay looks like.”
He then recommends testing and iterating to determine what price actually yields the best results and shares his best advice for doing so:
You should be really changing your prices, not necessarily the number but your packaging or number of different factors about your pricing every six to nine months. I know that seems a little crazy, but it's one of those things where your product is improving every six to nine months, whether it's positioning, it's package, it's price, whatever it is, and your price being that reflection of value, it needs to adjust."
Patrick also provides advice on how to staff your team:
Normally what we recommend doing is giving pricing to someone as 20% of their job - to basically be a researcher on the pricing front. If you're a larger company, more products, more complexity, you might have to have an actual full-time product manager, someone dedicated to pricing."
You’ll learn some great ideas for pricing your product and increasing its perception of value from this episode.
Here are the highlights:
How process creates better pricing models (4:00)
How customer development and experimentation help determine pricing (8:20)
How Patrick quantifies the value of his products to different buyer personas (11:30)
Patrick’s recommendation for increasing perceived value and corresponding prices of products (16:10)
How Patrick approaches pricing a product with a freemium business model (18:30)
Patrick describes what’s necessary to accomplish before getting started with pricing optimization (22:50)