with Laurier Mandin and Dan Balcauski
Nearly all product companies grapple with pricing. What model is the best fit? How do you maximize the market value for a novel product without losing customers when it comes time to pay?
Dan Balcauski has spent 15 years helping product makers solve exactly these challenges. As founder of Austin, Texas-based Product Tranquility, Dan has guided many products from new concept incubation through successful launches and transitions. He helps high volume SaaS companies assess pricing practices and optimize pricing and packaging, guiding his clients to make the most impactful pricing decisions and communicate value convincingly to decision makers.
Product Tranquility Website: producttranquility.com
Graphos Product, The Product Marketing Agency website: GraphosProduct.com
Laurier: Hey, product people. If you’ve struggled with pricing your product to sell more and be maximally profitable, this is the episode you’ve been waiting for.
Welcome to Product: Knowledge, the podcast about creating and marketing products people truly need.
I’m Laurier Mandin, president and lead consultant of Graphos Product.
Pricing strategy is essentially about selling for as much money as possible, as many times as you can. But it’s a lot more complicated, because every customer might have a unique perception of the value your product provides, and the way you position your product plays a huge role in buyers seeing the biggest value and appreciating it enough to stick around and recommend it to others with similar needs. Dan Balcauski has spent the last 15 years helping product makers with exactly these challenges. As founder of Austin, Texas based Product Tranquility, Dan has brought many products from new concept incubation, through successful launches and transitions. At Product Tranquility. He helps high volume SaaS companies assess pricing practices and optimize pricing and packaging, guiding his clients to make the most impactful pricing decisions and communicate value convincingly to decision makers.
I’m delighted to have Dan as today’s guest on Product: Knowledge. I started our discussion by asking Dan to explain the sometimes-confusing relationship between price and value.
Dan: Laurier, all pricing problems come down to an understanding of value. Pricing is merely how a buyer and seller split up value in a transaction. So understanding the value you’re creating for your customer is fundamental to the pricing exercise.
Laurier: And how do we work out that value? How do we know what the value is for a product, especially a product that doesn’t exist? It doesn’t have competitors. It’s never existed in the marketplace before.
Dan: That’s a very interesting question. And I usually take a Jobs To Be Done approach. So I didn’t invent Jobs To Be Done. It has many famous fathers: Clayton Christensen, Ted Levitt, Tony Ulwick among them. There are very rarely products that don’t have any competitors. They might just not be the competitors you think of. I often will use the example that Facebook competes with cigarettes.
So even the first social network had a competitor out of the box. From a Jobs To Be Done perspective, we have to put our selves in the shoes of our customer. Try to understand the struggles they’re facing the particular context that they’re in. So if we use that example, I’m frustrated, I’m working on something hard, difficult.
I’ve got a psychological itch to stop working on this hard thing and take a break. I could go open up a Chrome tab and surf Facebook, or I could go outside and smoke a cigarette. I don’t recommend either, by the way, just want to make that clear.
Laurier: Thank you.
Dan: in that case. What we’re looking at is emotional value.
Creating a reduction of anxiety. Creation of peace of mind. It’s a mental state. When we’re thinking about value, often we get focused on the functional aspects. Does a particular product or service help us get a task accomplished? Does it help us increase revenue, decrease costs save time, but there’s also these emotional components as well.
And so it’s very helpful for product managers or product marketers or founders of companies to think through both of those components when they’re trying to understand value. And I can elaborate at length about that.
Laurier: I’m going to ask you to just a little bit about Jobs To Be Done because it’s closely related to positioning and it’s closely related to product market fit. How can people understand in a simplified way what Jobs To Be Done is for their product, and how they can boil things down, distill things, to understand what the ultimate Job is that their product does.
Dan: Sure. So Jobs To Be Done is a framework that helps us understand why customers bring products into their lives, which as you could imagine for the concept of pricing is a pretty important question you want to answer. The core tenet of Jobs To Be Done is that people hire a product.
So imagine that each product you see on the store shelf or that you see as you’re surfing around the web in the B2B software world, those products all have resumes, and customers are evaluating resumes like they might be evaluating someone to hire full-time for their company. And the core part of it is that customers are in specific contexts. Those contexts, the situation that arises, that create the problems and create the motivations and the outcomes customers are trying to achieve.
So Jobs To Be Done helps us focus on not specifically the customer, but on the problem and the context they are trying to solve.
Laurier: Yes. And it’s very, outcome-based. You’re looking at not just the function that’s being performed, but what is the outcome that’s delivered by the product? And is this the best, most effective, most cost-effective, highest ROI way of getting that outcome?
Dan: I mentioned before, there’s a few different types of Jobs. So there’s the concept of a functional Job. So these are the tasks that users want to accomplish. And then there are emotional Jobs, and these emotional Jobs can be further broken down into personal Jobs. So Jobs that help me feel a certain way, or social Jobs, Jobs that change how I’m viewed within a social community.
So we use a simple example, like booking travel for a vacation, and I use Airbnb. The functional Job is I need to be able to find a place to stay on my vacation that meets my budget. That’s a very functional Job. However, there’s also the personal Job. So I want to make sure that the person I’m staying with, I can trust.
I want to feel safe. So that’s an emotional Job as well as a social Job may be, I want a way to show my trip on Instagram. Promote how much of a traveler I am, or be able to give back to the community by giving a review so that other travelers have a better experience than I did. And maybe I found some tips and tricks or do’s and don’ts along my travels, that raises my status in the community.
So it helps us to frame. We get very focused when we talk about, for example, customer needs or customer problems purely on those functional aspects, but I’m sure, you know, from your time in marketing, Customers make decisions as much on emotion as they do on rational decision. And so it helps us get a broader lens of how customers make decisions about the products they bring it to their lives.
Laurier: You mentioned Airbnb, and that’s a really good example in a number of ways, because that’s a company that started out with a couple of guys renting out an air mattress and recognizing over time, their positioning was not just providing a place to crash. It was not necessarily just providing an option to a hotel, but it was providing a hosted location where you can stay with a resident and you can stay with someone who knows the area and learn, and have a more immersive, better experience than you would if you were staying anywhere else.
And that’s become a central part of the messaging. Once they worked out that positioning and recognized the real reason why people stay at an Airbnb, that’s the Job To Be Done, it’s not just a place to sleep. It’s not an object that you’re going to sleep on. It’s not even necessarily the walls around you when you’re sleeping.
There’s a bigger part and it’s that experiential learning part. Most products need to flush out what that value is and what they really offer that other options don’t offer, that the other things you can hire to do that Job don’t provide as good and as effective and with as much ROI, if it’s B2B, as the product that you’re offering.
Dan: Brian Chesky talks about this at length. When they first pitched to investors the idea of Airbnb, they got laughed out of the room. They thought they had a very clear functional benefit. Oftentimes either homeowners or property managers have these assets that are sitting there not being utilized, and they’re willing to rent them out at a price that would be less than what you’d pay in a hotel or other standard lodging.
Also the functional aspect is I’m staying with a local, so I’ll have a more intimate experience. There’ll be able to show me things that actual locals do versus the front desk of a hotel, sending everyone to the same three restaurants that all the tourists are going to, but none of the locals are going to, but they got laughed out of the room because everyone’s like, well, no one will stay on somebody’s couch.
They’re not going to trust strangers.
Laurier: Who wants to do that? Right?
Dan: And so what they did with that was a few things. If you recall, they had a major investment in helping to get hosts professional photos, because they realized that professional photos upped the amount of trust that people had and staying with that person, it looked more legitimate.
Also. They had an incident, probably six, seven years ago now, where they had some guests who had thrown parties and totally trashed host’s place and they made the blanket million dollar insurance policy for hosts to cover any damage.
Laurier: To de-risk it, Right? Even if the odds were minute that it would happen, nobody wants their huge investment destroyed.
Dan: So even if you have a compelling functional proposition, I think it’s a good case to demonstrate that you do need to look at both, and oftentimes understanding those emotional drivers. In this case, you have a two sided marketplace. So you’ve got the emotional drivers of the guests and the host. Those could be as much a barrier to swiping your credit card and making the booking as the functional benefits that the customer will receive.
Laurier: Yeah. and one of the challenges, you know, is also figuring out what kind of value to put on those benefits. Two of the key areas that you work on are pricing and packaging. And we talked a bit about pricing and it’s kind of self-explanatory despite how difficult it is, but a lot of people find packaging more confusing, or they equate that to simply offering a choice of configurations.
How do you tackle packaging?
Dan: It’s a great question. And I think there’s a lot of confusion out in the marketplace about the concept of packaging. So I really break down packaging into four separate areas. The first one being the price metric. So price metric is the unit of value that you charge a customer for. So in the case of Airbnb, it would be for a single night. So I book a number of nights. I get charged X times the number of nights I’m staying. So it’d be a price metric. The second would be your pricing model or monetization model. That would be something like a one-time transaction, subscription, a pay-as-you-go, maybe you’re Google and you’re having auctions for AdWords.
Those would be the pricing model. Then there’d be the concept of offer configurations or bundles. So often in the world of B2B SaaS, which is the area I play most often in, it would be things like good, better, best offers, you see, of features grouped together so that customers don’t need to think through every single feature and choose from a giant Chinese menu.
And you can imagine the friction that would cause in the sales process as well as for customers to decide what they need. You’ll often see that with car purchases as well. You’ve got the base model, then you’ve got the luxury package, the sports package. I don’t have to worry about every single feature the car manufacturer might offer me. I just pick the one that’s most aligned to my overall values.
Laurier: Exactly. Well, and too many choices can be debilitating for the customer, right. They get analysis paralysis and just walk away. They choose not to buy instead of choosing which option they want to buy.
Dan: A hundred percent. And the fourth item would be what we call price fences or price structures. So this would be the concept that you can charge different customers different prices for basically the same product. So you see this all the time if you go to a Friday matinee movie at 12:00 PM, you’re going to pay less than if you go Friday night at seven o’clock. Because everyone wants to go at seven o’clock.
And so there’s a distinction in willingness to pay for people who can get off work, or maybe the students or retired people who have time in the middle of the workday, and it’s an incentive of a movie theater to have people in the theater. So they would price differentiate that way. Where you see it mostly in the B2B software world is in terms of the volume you buy.
So say I’m applying a particular product. And let’s say we charge per user. Per named user who can use the software, but that first user might be different than if I’m buying a hundred users or if I’m buying a package for a thousand users. At the end of the day, the software is effectively the same thing, but I’ve gotten a volume discount because of the way the price is structured.
So those are the four components of packaging overall, as I think about them.
Laurier: I think of Zoom and Slack for the latter option that you gave, where it’s a per-seat model. I’ve got ask this, I think I already know the answer, but tell me what your take is on freemium and for businesses that start out selling product and trying to acquire users that way.
Dan: Oh man. So freemium is a monetization model. I had the joy of, it was actually my first experience in the official pricing world. I was doing my MBA internship out in Silicon Valley for a very successful Silicon Valley startup. And they had a problem where they had to go to market through several large partners.
And one of those partners was a low-cost value player and forced all of their partners to have a freemium offering. So the question on the table, the CEO on down was, ” Yeah, okay. We have to do this for one of the partners. Should we do this across all of our products?” So we spent a good amount of time investigating the ins and outs of the freemium approach.
I found it’s generally a terrible idea. I do not recommend it except in a few rare cases.
It has a few problems. Freemium causes a lot of problems internally. There’s this constant temptation. Companies are always trying to acquire new users and anybody who’s been on the marketing side of the equation knows how challenging it is to go and acquire customers.
You get all of these free users, and there’s always this temptation of, ” We’ve got this giant pool of free users. How can we convert them to being paid?” But it’s an illusion. Best-in-class for freemium is one to 3% of those free customers will convert. It creates a lot of useless energy in trying to move those customers to paid that I believe generally it could be better spent elsewhere.
Laurier: An even bigger challenge is businesses that start out selling with kind of a one-time entry price, and then they’re locked into customers that have come in, paid their ticket years ago. It’s a very big challenge to monetize them ever again. And it’s hard to upgrade those people. Do you have a strategy for doing that?
Dan: That’s a great point. I think this is the general appeal of folks moving to a subscription model. So in B2B, traditionally, even with perpetual licenses, many companies, including some of the past companies I’ve worked for have had perpetual license plus a maintenance stream, but that maintenance stream can be difficult, much like it’s difficult to keep customers over time with subscription. If you don’t have a maintenance stream, which sort of acts like a annuity, similar to a subscription, yes. It can be very difficult, especially for single shot products that there’s not a huge benefit to improving them. There’s little tools I have on my computer for example, I use a little tool that helps to take screenshots. There’s not really an upgrade path. There’s not a whole lot that that company is going to be able to do to add value added features because it’s sort of a one-shot deal.
It does what it says it does. And there’s not really a need for me to upgrade to the next version. They ask a lot, but I don’t, because I don’t need to.
Laurier: My suggestion to that has been to create a premium version where you do add extra features and you allow people to either keep the existing version, which you haven’t promised to support forever. and allow them to upgrade maybe at a discount to this new subscription model on the premium version, or to stay with the existing one that is going to become increasingly obsolete.
Dan: Well, I think this is the magic that in the public market we saw, I think Adobe was the company that did this the best, where they now have Adobe Creative Cloud. Photoshop, et cetera. And they just made a hard pivot. Right. And they’re like, we’re not going to sell the perpetual licenses anymore.
We’re moving entirely subscription. And I think the other company that’s done this incredibly well is Microsoft with the move to office 365. I don’t know about you, but maybe they’re still adding features to Microsoft word and Excel, but I wouldn’t even probably notice at this point, they do what I need them to do. But yet Microsoft has managed to move the majority of its customer base to a subscription model for a product that hasn’t really changed.
Laurier: They’ve done it by not supporting the prior versions and leaving it with all the vulnerabilities. Right. So you’re crazy to stay with the old version because you’re going to get attacked through it. So you kind of have to go with the subscription model.
Dan: Exactly. And I think going back to the point on, you’ve got an even more extreme case of that, because in freemium you didn’t even get people to whip out their credit card one time. In freemium, we have this problem called the penny gap, where it’s an infinitely more amount of money to go from free to a penny.
And so it almost is starting the entire marketing motion over again. Now I will say all this, generally when freemium gets brought up, almost every argument folks have for freemium, you could fix with a 14 to 30 day free trial. And generally, that’s a good idea. The concept of both the free trial and freemium rely on what software is usually called an experience good. There’s a term economists will use.
So the experience good means that the value perceived by the user changes as I use the product. And so the free trial will accomplish that. It’s just got a deadline that forces an action, which is clarifying for both the customer and the seller, because then everyone can be coordinated in driving nurturing behaviors during the time of that trial to an action.
And then if the customer doesn’t convert, well, the energy is not spent continually trying to convert them.
Laurier: When you have a model that, you know, with the free trial model, a lot of businesses like to let people in, even without entering a credit card. But they get to have the experience and get hooked on it, and they can see the value, they can experience the value, but they can’t go beyond a certain point.
That’s the deal all along, you’re not changing the game on them. You’re just allowing them to try it and discover if they like it. And once they’re engaged and they’ve experienced the value they get from the product, now they can move into a paid model. And I understand why that makes a lot more sense to the user and to the software creator.
Dan: Yeah. In the freemium world you have this constant tax on your development team as well, because every feature you develop now has to go through a discussion of what percent of that feature should be on the free side versus the pay side.
Laurier: Exactly. And you’re not giving those people the full experience either, so they’re not able to recognize the full value the product delivers. They’re getting a watered-down version. And from that they have to decide how much they’re willing to go from, as you said, from zero to more than a penny in order to get something that’s, either marginally better because they don’t know yet.
Or it could be tremendously better. And then why have you given them the watered-down experience in the first place?
Dan: And it’s rarely an easy decision to make of where to draw that line. So let’s just use something simple and say, okay, people could use the product for free for an hour per day, versus they could use it for 30 hours per month. You might have different customer behaviors. Ostensibly, those look kind of similar, if you look at the high level perspective of a month. That’s just a simple toy example, but you’re constantly having that discussion of where do you draw the line? It’s one of these discussions that I think is a hidden tax. You’re not going to see that show up anywhere in your accounting.
It’s just going to be slower on every feature that you develop because the team is needing to go through those discussions every single time.
Laurier: Welcome back to Product: Knowledge, the podcast about creating and marketing products that people truly need. Today, I’m talking with Dan Balcauski, pricing expert and founder of Product Tranquility.
Laurier: I’m interested in knowing how you get to the point with your clients of establishing a dollar value for the value delivered by the product, and turning that into what the customer is going to be willing to pay on an ongoing basis. How do you come up with that ideal value? Do you do that through AB testing, do you do that through a dart board on the wall with numbers all over it?
Where do you settle, usually, in coming up with a price that customers are willing to pay, and that you won’t be needing to change really rapidly and throw customers off.
Dan: This is a huge question. I’ll directly answer your question, but I think the first thing is when it comes to SaaS pricing, most executives think what you charge will determine your success.
In fact, who and how you charge determines your success.
So where most clients start is on the price level. So it’ll be $40 a user or a hundred dollars a user, or a thousand dollars a user, and that’s usually the end of a pricing process. That being said. One, I would say, have Willingness To Pay conversations with your customers. I’m always shocked at the number of companies that don’t even ask questions. And I’m of the opinion that it’s as much a mindset problem as it is the techniques.
I’ll talk about the techniques, but I think the techniques are fairly standard they’re not that complicated.
Laurier: I think people are afraid to ask their customers what they’re willing to pay, because they are afraid the customer is going to say, “Well, nothing” or “Well, much less than what you want to charge me.” It’s kind of like, you know, me asking you the client, what the budget is. It’s like, “Well, I’m not going to tell you because that’s what you’re going to charge me.”
They’re thinking if they don’t tell you, they’re going to get a better value. How do you overcome that kind of question with your customers?
Dan: There’s a few basic techniques that you can use. Say you’re building a feature or a customer, and you have shown them maybe a prototype or a beta. You can put a number out there. “Hey, great. Thank you. That was excellent feedback. We’ll take all that back to the engineering team and we’ll make those tweaks. By the way, when we release this, we’re thinking about having it as an add-on for our existing product. And we’re thinking of,” let’s assume your current pricing metric is per user, “We’re thinking of that as being an additional $10 per user. Is this something that you would consider for you and your team?” And put a number out there.
Doesn’t matter if it’s 10 or a hundred, right? If you had a few of these conversations, you’d be able to get those reactions and the idea would be, judging not only what they say, but also the emotion in their voice. They’d be like, “Oh, $10. Yeah, no problem.” Like, “This would not be an issue. That’s a rounding error for us.” You might have some space north of that. If they’re, you know, “$10, that’s crazy. No, we would never use that.” Or, “We’d never buy that for $10.” Well, now you’ve got a data point as well. So simply by putting a number on there, and gauging reaction, is one way to go about it.
A couple of other techniques.
A Dutch economist named van Westendorp, he came up with what’s called a Pricing Sensitivity Meter. In an interview, it’s a little bit burdensome to ask all the van Westendorp questions. There’s, there’s four of them, plus a couple extras. But in an interview process, you may ask something along the lines of, ” What would be the p rice of this product or feature below which you’d question the value that we would be able to actually support? ” What would be a price that is getting to a point where you’d view it as expensive?” And now you have a range value. Most people tend to think of ranges. I spent a lot of time watching “The Price is Right,” growing up. I realized most people have terrible recollection about prices in the marketplace, especially even, EVEN products they buy every day, which is usually not the markets that I play in. Not helping to price milk and deodorant here. Most people don’t have good knowledge of prices, even for those types of products. But that could at least give you a sense of ranges, right? And you have a series of conversations that you could then build up a set of data points to get to a range. And there’s a formula and a system that you use along with those questions to help identify what potential ranges might be.
Laurier: Who you ask the question to is as relevant as anything, because if you’re asking somebody who is a potential enterprise prospect what they’re willing to pay, what that range is, that’s going to be tremendously different from somebody who’s a bootstrapped startup and doesn’t have any money to spend.
Then the range of what the sensitivity, of the risk to their business is an entirely different thing, depending on those scenarios. You kind of have to figure out who your market is before you go and ask those types of questions.
Dan: Yeah, a hundred percent. As I mentioned, we sort of started at the end with the price level. So this is actually a good segue to what does the beginning of that process look like? The way I think about pricing is in kind of four areas. So it starts with understanding the customer segments that are in the market.
The reason why it’s important is because different customer segments will value your product differently because they have different rank orders for different value drivers. And so that will change their value of your product to them. Different segments will have different competitive alternatives that they’re using.
And again, I use competitive alternatives in the broader Jobs To Be Done sense where most startups are actually mostly competing with spreadsheets and email, not necessarily that other startup down the road that nobody’s ever heard of, except you, because you spend all day every day in that market.
Laurier: You think they’re huge in everybody’s world and nobody else has ever heard of them, just like they haven’t of you. I see that all the time where businesses obsess with competitors that aren’t real competitors often, that aren’t even in the market sometimes. And they just, can’t sleep at night thinking about these other guys.
Dan: Exactly. And so going back to what I was saying before is, understanding those segments and the value you provide to them, the competitive alternatives they have available those filter down into your pricing strategy. So now we’ve identified the different segments in the market and we can have a conversation around, okay, given… the way I think about segments is a military analogy. If I’m a general, there’s a bunch of different hills I can have my troops go capture. Capturing each of those hills is going to have benefits and trade-offs. I’m going to have a certain amount of loss and there’s going to be certain strategic advantage to capturing that.
And in the business context, I would have to go after a certain group of customers, I’m gonna have to fight certain groups of competitors to win that group of customers. It’s going to cost me a certain amount. I’m gonna have to say certain things, and now we can have a discussion around, all right, given all of the competitors, all the segments we could go after the competitors that are relevant to those segments, where are we the strongest positioned to win? And this is where the strategy aspect, which is the final aspect, comes in. Which is, all right, now we have an understanding of the landscape. Where can we play and win, and what segments are we going to pursue? So this is all about being sure you find the exact target customer you want to go after and then positioning yourself in the minds of customers to give yourself the best chance to win and highlight your differentiated value to them.
Laurier: Yes, Exactly. And as you said, there are costs and risks to any market that you’re going to pursue. So you need to look at which segment is going to be the most profitable to you, the most winnable, the most worthwhile in the end, and will, offer other options for the next step laterally to what other markets you want to take on and win next.
Dan: Exactly. And, tying back to our conversation about pricing as well, you may be having very different conversations over the course of, let’s say you’re developing a product, you’re a product manager or product marketer, it’s important as well, even within a segment to understand that there are different personas involved in the purchase process.
Those could be the job executer, the person who is going to be day in, day out using your software, the financial decision maker, the buyer, and then, like a product lifecycle support team. So if I’m buying a CRM, alright, might have an entire sales, operations team that’s responsible just for keeping that system running, making sure we have the customized fields we want, making sure it has integrations we need to our marketing software or financial software, whatever it might be. When you’re having these Willingness to Pay conversations, you may need to, within these conversations, have conversations with the financial decision maker, more so than just getting user feedback.
If I’m getting feedback on design artifacts because it’s potential, especially in a B2B situation where those two people aren’t the same, and you might be asking the user what they pay, but they’re not responsible for budgets, or the purchase process. They might be your internal user champion, but they’re not responsible for the actual payments.
And so you need to make sure you’re talking to the right person there.
Laurier: And if you’re not talking to that right person about connecting the dots on value too, you need to be in contact and communication and connected to the people who are deciding whether the value is there and whether they’re going to continue with that subscription and continue paying for it.
Because if the person assessing the value is different from the person, making the buying decision, that disconnect can be harmful.
Laurier: What do companies tend to get wrong when they think about pricing?
Dan: I think when thinking about customer segments, folks have a hard time seeing past firmographics. So I say, firmographics, this is something like company size, number of employees, amount of revenue, geographic location.
Going back to my overall model of how we think about pricing and segmentation is so important. Those attributes tell you who customers are, but it doesn’t tell you what customers want. With pricing, we’re really trying to understand why people are going to fork over money to bring in our solution. So we really need to dig to a deeper level than industry vertical, because you may find that your assumptions about industry vertical, maybe they map to the same segments actually value the same thing, if you segment originally by industry vertical. If you segment by customer size, it’s much more related to the exact context those customers are in. That’s a big sticking point when folks first start thinking about the pricing world. Also, this is a difficult one, but for most B2B products, time spent in your product is not value and is not valuable. Creating an outcome for a customer is valuable. So when folks are thinking about, you know, are customers getting value, I’m a big fan of engagement metrics.
Are people actually using the software, but that doesn’t necessarily mean that they’re getting value out of it or that, there’s a lot of B2B software. Most companies would be happy to never have to log into them. Just handle my accounting.
Laurier: That’s what I was going to say. Yeah. Time spent can be negative value because you’re taking away from their ability to do other things that are making them money. So if they’re spending too much time in the software trying to solve problems or work around bugs or do things the software should be doing for them, it’s not positive value.
Dan: This even reaches a limit in consumer products. So I know for example, Facebook at one point was, or Meta now, had looked purely at time in the app or on the site as the overall growth metric. But they realized that long-term, that wasn’t necessarily a positive metric because at some point there’s negative impact. So then they had to reframe it to positive amount of time on site and how they did that, I’m not a hundred percent sure.
Laurier: Tough one. Cause they can show more ads in more time too, per user. And that’s where the monetization comes from for Meta. So it’s a real juggling act for them, keeping people on for as long as possible without destroying their lives entirely.
Dan: Yeah. So, so it doesn’t help if you spend so much time on Facebook, that eventually you lose your job and realize that Facebook has been the downfall of your life, and now you need to stop. You should to go delete your account. That’s not a long-term successful customer for them. All of these have limits in how you view them.
Laurier: Yes, absolutely. I know you do specific work with clients and you’ve been doing this for some time now. What challenges do clients have in adopting your point of view on pricing?
Dan: Again, I think it goes back to the focus on the price level, and then thinking that that is the most important factor. And also that it’s something you could just tack on at the end. Those elements of packaging that we talked about earlier, the price metrics, the price model, your offer, bundles, configurations, your price structure.
Those are much more relevant to your overall success than the price level. The price level actually ends up being the easiest to change over time. The rest of the stuff has to get embedded in your product, but folks tend to start at the very end. It’s the combination of that and not really understanding their overall customer that they’re targeting or the options and how different customers value their products differently.
Laurier: And obviously they have to be connected. They have to be willing to go through those steps and do the brainwork and some legwork in order to be able to have understanding. They have to put in the effort to understand what segment is going to be the most valuable to them. There’s the amount of work the product maker has to do in order to connect those dots. And if there’s a prize at the end, if they do it right, it’s about being willing to make the commitment to take on this beast of pricing, to take it on fully and to get the most out of it so that you can sell more profitably and help more people.
Dan: Exactly. You know, I would say overall, it’s important to understand the pricing is a process. It’s not a one-and-done exercise. Companies are constantly investing in engineering and product to evolve their products. And oftentimes, they set their pricing at one point and may not revisit it for four or five years, if ever.
The idea is that there’s not necessarily a recommended iteration. Your product is evolving. Your market is evolving, or competitors are evolving. There should be some regular cadence that you’re revisiting your pricing. And then it’s also not just, “Hey, I go have one or two conversations with people and ask a couple of Willingness to Pay conversations.
There is a overall method to how you can go through a structured process, get good enough data to make decisions. Pricing is not a single decision. It’s a intricate web of interrelated decisions. And so treating it like a process like you would your marketing demand generation machine, or your engineering process, and having an owner for it in a company is really important.
Laurier: That’s it for this episode of Product: Knowledge and my conversation with Dan Balcauski, pricing expert and founder of Product Tranquility.
Find out more about Dan and his work at producttranquility.com. You’ll find the link in the show notes. If you liked what you heard, check out Product: Knowledge, Episode 25, Pricing Your Product for Sales and Growth with Ajit Ghuman.
Be sure to also visit Graphos Product dot com, where you’ll find all the podcast episodes with transcripts and get insights from our blog. Reach out to us on Twitter @GraphosProduct, or email us through the form at GraphosProduct.com. Thanks for listening. I’m Laurier Mandin.