How to price throughout the product lifecycle
By Erik Grueter, marketer at Price Intelligently
Price is absolutely critical to the success of your product. By devising a proper pricing strategy, you can not only reap greater profits from your product, but you’ll also increase your product’s lifespan while supercharging customer satisfaction. Let’s walk through the launch, growth and maturity stages in the product lifecycle, and see how pricing strategy plays a pivotal role in product success at every point.
Product launch: keep it simple, data-driven, and customer-focused #
Determining your pricing strategy during your launch phase is difficult, but absolutely critical. When you are introducing your product to market for the first time, things will be tough. Costs to your company are going to be high, sales will come slowly, and you’ll be running around like a headless chicken trying to make sure nothing breaks down for those early customers. At this early stage, when you are starved of growth and traction, take a step back before you consider going to the dark side of freemium.
Freemium has its place in well thought-out implementations, but consider the importance of establishing a proper pricing strategy first. Pricing is something you can’t put off while you acquire users who pay you nothing. As we’ve written about before: freemium is not a revenue model, it’s an acquisition strategy. You need to spend time during product launch determining how much your customers are willing to pay.
Customer Value: a strategy that offers incentives to purchase other than just getting the base product being paid forPrice Intelligently
Your customer is the one who puts down money to buy your product. That’s why it’s vital to your success for you to employ customer value when pricing your product. Remember that your customer wants to trade their money for a unit of value. It is your job to determine what that single unit of value measurement is for your business. If you sell eggs, that unit might be one egg. If you sell video embedding software like Wistia, that unit might be total monthly bandwidth.
Once you have determined that unit of value, scale the number of units you provide to ensure your product is delivering value consistent with your increase in price. Perform this step before moving on to the growth stage, because if you don’t, you’re leaving money on the table from day one.
Have a look at Wistia’s pricing page:
Keep it simple, too. Simplicity is your greatest asset when just starting out, because you’re already going to be facing other battles. Wistia’s pricing page is visually simple, each tier is distinct in price, and the price change among tiers is quite pronounced. Most importantly there are only two main value drivers for every customer: number of videos and total bandwidth. Any casual visitor can see that these are the product features being sold. Wistia has clearly identified the primary value their customers look for when making a buying decision.
Before you can drive growth to the next level, you need a clear value proposition. You should have a good idea about the price sensitivity of your intended customer, which means you should have gone out and talked to customers about their willingness to pay for your product. Additionally, you should test your pricing page to gauge customer responses, and maybe even automate the whole thing with pricing optimization software. Once you’ve crossed the huge hurdle of understanding your customers’ buying psychology and willingness to pay, you can start to employ other marketing strategies to push growth even further.
Product growth: step on the gas pedal with segmentation and differentiation #
Once you have determined what features drive your customers, offering a free plan may be an effective strategy. Remember: freemium is not a revenue model, it’s a growth model. The goal is to offer a freemium model in line with your value metric. Having hordes of non-paying users does not help unless you can expect that many of them will eventually see the value in moving up from one tier to another.
Adopting a freemium pricing strategy during the growth period of your company can not only increase profits, but is also likely to lengthen the growth of your product, as you continue to capture new customers at a risk-free price point.
You can also extend and deepen the number of customer segments you target. As you build new user personas and add a more diverse set of customers, you can build a more robust revenue stream. If you have done pricing correctly up to this point, you should be able to open up new tiers based on the units of value that those new segments are expecting you to provide. Remember that pricing is a process; you may need to change and add features to drive growth.
Product maturity: buck the race to the bottom #
Sticking to your pricing strategy at the maturity stage is more vital than ever. As your product matures, the market will become increasingly saturated by competitors. This is the stage in the life of a product where the number of competing products proliferate. Do not fall into the trap associated with competitor-based pricing. Let your competitors follow you rather than selling the farm to grab low-quality bargain-hunters.
There is usually an expectation that during the maturity stage prices in general will fall as more competitors enter the space. Buck the trend. You should draw in customers based on their perception of the value you deliver. Don’t lower your price just because that is what every ‘me-too’ product is doing. Improve features, do the work required to determine what your customer deems valuable. The maturity stage of your product needn’t be followed by decline. Do not race your competitors to the bottom!
As you continue your battle for market share, remember that you need to be continually testing sensitivity to price. As your market develops, new competitors will cause changes in value perception. Test all price related variables, continue to refine and improve on new features. Ensure your pricing page is optimized. Display your pricing in a relevant and compelling manner. Above all remember that pricing is a process and should be revisited frequently.
Constantly fine-tune your pricing strategy #
We’ve come a long way on our journey through your product’s lifecycle. After all, price is the most important strategy you can employ to drive profits, grow market share and extend the life of your product. Focus on finding the unit of value your product provides to its intended user. Competitors will ride your coat-tails. By listening to your customers, you can still compete on price without lowering it. Add more features and provide more units of value. Do not simply lower the price of your product to capture bargain-hunters with no loyalty to your brand. Continually test your product’s value to your market. Update your value proposition to meet changing demand. If you follow these rules, there is no reason why you shouldn’t expect your product to live happily for many years.
By Erik Grueter, marketer at Price Intelligently