Price Before Product
firstround.com
firstround.com
These experts are very good to pick good examples and make "vague" predictions - not entirely unlike economists and astrologists (not exactly the same category, but seemingly very, very similar in accuracy) - the key problem remains the oversimplification in attributing the success (or failure) of anything (particularly such a complex item as a car or a computer product) to a single (or a handful of) reason(s).
JFYI, here is Armand Gracious' take on the Internet, Linux and security:
This is what makes case studies about product success so difficult. With so many factors involved, any bold proclamation like "Price before product" is bound to have enough prominent counterexamples to render it useless in application.
Studies like this always remind me of Jim Collins' "Good to Great" controversy where several of the heralded companies went bankrupt a few years after the book was published.
Setting a good price before releasing a product is a lot easier said than done. Particularly for startup products which may not have great reference points. People are also generally not that good at figuring out what they're willing to pay for something.
I take "Price before product" as simply a catchy reminder to "think about price" as part of the long list of product requirements.
I like to think about it this way:
1) what is the highest price I could charge without looking like an idiot for charging too much?
2) what is the lowest price I could charge without looking like an idiot for charging too little?
Now I have a price interval.
If it's SaaS, I set the highest price for the shortest subscription period (ex., 1 month), and the lowest price for the longest subscription period (ex., 12 months), while adding additional options in-between (ex., 3 months, 6 months).
This way, I feel like both sides are getting a fair deal, and nobody loses.
If we distill this whole "pricing before product" idea down I think it's just a specific part of orienting to the needs and behaviors of users before designing the solution. Price is sometimes awkward to fit into something like user-centered design, perhaps because it affects users/needs, business viability, etc. but really it's one important factor among many. Maybe it's a very important, hard-to-change factor (likely true in luxury autos) but it can sometimes be a fairly insignificant or easy-to-change one (e.g. technology offerings with few substitutes).
This is a great point, and I have actually thought a lot about it. I came to a conclusion, that a great product should always be priced according to its the real value, whether users initially understand it or not. Those, who do, will eventually explain it to those, who don't. Apple is a perfect example: its hardware is more expensive, but it lasts longer and causes less friction to the end-user, even if the alternatives have similar specs on paper. The same could be said about the products by such companies as RAVPower[1], Minaal[2], and Montbell[3].
Particularly in the context of the article, where the author is advocating for startups to set the real value of their products before launch.
I disagree with the Apple example in the sense that Apple typically launches products in burgeoning or semi-established markets. They have comparables to base their initial price range on and one of the world's strongest, high-end brands which typically targets the mid-higher end of the market.
Marketing and branding play a huge part of a product's success and ability to set prices. What is the real value of a good brand?
This is why it's tough for me to take the bulk of the article seriously. In theory everything mentioned is great. In practice, the world, customers, and startups typically don't yield enough information to do "Pricing before product" beyond anything more than a rough stab.
I try to answer the question: "Is it worth this amount of money for what it does, if it does it perfectly well?". I don't care about marketing and branding, and focus only on the product itself. If the value seems to be too low, I try to improve the product, not the marketing.
I think Tinder does an extremely great job at pricing using age-based segmentation, because that's where the real value of the service defers to the users. It's not that people above 30 can just afford to pay more - they literally can't afford not pay, since they don't have as many options.
That's where I find your framework breaks down. You can't ignore marketing and branding. Apple, Tesla, countless companies would be nothing without strong marketing and branding.
A product is nothing if it doesn't reach consumers. A similar point was made upthread that pricing de facto segments your market. You can set the price to whatever you think is best. If you aren't reaching the right people or have trust issues with your brand, ex. a new, untrusted product, then no one will buy your product no matter how many features it has.
Well, of course you can. Look at Craiglist[1]:
> In 2015, the AIM Group, which has calculated Craigslist revenue since 2007, estimated that the company pulled in sales of about $396 million. Its 2016 estimate of $694 million—an increase of 75% over the prior year—came down to the fact that Craigslist bumped job posting fees in certain cities and instituted them for the first time in others.
I am claiming, that marketing and branding should not determine the price of the product, not that it should not be used to communicate the real value of it.
[1] https://www.forbes.com/sites/ryanmac/2017/05/03/how-does-cra...
As others have commented here, this blog post reads like something you would normally see on a trade rag, making grandiose-sounding claims that are really kind of obvious ("think about price before launching a product") and backing them with cherry-picked anecdotes and questionable logic.
If I don’t expect to have the highest margin product in the category I won’t launch it.
Why? Because ad prices reflect the margins of the top company and its winner takes all.
Edit: I still can't believe that they chose to compare it to Chrysler's complete inability to make a compact car that would sell in the early 2000s. As if putting price first would have fixed the Dodge Neon.
But this is a losing proposition in terms of profit, you know, trying to serve customers with this price point.
The Rav4 was the first CUV (unibody SUV) and it only came out in '94. The fact that a sports car maker was right there with Toyota is kinda amazing.
Compact cars in 2009, were not. And that's besides the fact that a bankrupt Chrysler was sure as hell designing every car they had to a strict budget. There's plenty of cars (most) that are built to a price first, then product, and many of them sell and perform unremarkably.
Up until the late 20th century Mercedes-Benz didn't set a price for their car before all their R&D and engineering was finished. They ended up producing some of the best built cars out there, that indeed did sell.
At IKEA we design the price tag first and then develop the product to suit that price. IKEA product developers and designers work directly with suppliers to ensure that creating the low prices starts on the factory floor. They consider maximising production equipment, using raw materials efficiently and applying technical innovations and the best possible design.
https://www.ikea.com/ms/en_SG/about_ikea/the_ikea_way/our_bu...
Both provide ridiculously good value for their respective price points, IMO.
Innovative pricing can lead to completely new startup opportunities. Salesforce is an older example. Robinhood and Divvy[1] are recent examples.
Not everything has to be a per user subscription.
The Firm in question is almost exclusively focused on pricing projects and "price before product" framing is probably helpful in convincing potential clients. Take with a grain of salt.
im a senior product leader at a successful saas post-IPO company that used "simon kucher" (author's employer), and specifically had the author as the lead consultant.
the work they did was "fine", but hardly earth shattering: they recommended effectively what we already knew we needed to do but leadership was too afriad to do. so the board convinced the c-levels to spend $500k+ on these consultants to effectively validate the findings.
pro tip: strong product leaders already have a really good idea what the pricing model should be. you dont have to spend a fortune to have someone unfamiliar with your business and market tell you.
[edit: technically Madhavan isnt the author but i dont really know who is]
They did their job well in that case. And seemingly nobody in the company could do it so their fee was worth it.
The author says that customers weren't willing to pay for a fancy racing transmission. That's correct, people will ultimately choose the cheaper option if they aren't getting any utility out of the racing transmission.
But you can't go all the way to the other side and put in an unreliable transmission like for example Jaguar did in the X-Type. Those cars sold well at first, but now their resale is basically non-existent because the transmission goes poof about 3x faster than a Toyota's.
Given that the two main examples in the article are so controversial, can you give any examples where it was true, and successful? As consumers, we obviously don't know what price points most consumer products were intended for.
I've read that the Macintosh was intended [1] to be $500, but ended up selling for $2495. It's hard to imagine that a personal computer costing half the price of an Apple II in 1984 would have been able to include hardware/software that had such a significant impact on the industry.
[1]: https://www.folklore.org/StoryView.py?project=Macintosh&stor...
There's different bands of consumers, really. Like there are literally billions of customers on this planet who can't spend more than $1,000 on anything, full stop, period, even if it would radically improve their life.
So, the differences of an OS or a car are lost to them. The best they can ever afford is Linux or a chromebook or XP, not windows 10 or a macbook air. They'll never purchase a Porche, they're stuck with a beat up Camry or Monte Carlo if they're really unlucky.
Taking your statement in its literal form, there's nothing wrong with marketing in itself. It's wildly successful in getting people to buy more and pay more for what they buy, which is the entire point of it. What's wrong is how marketing, unregulated capitalism and free corporate speech, and human psychology interact. But addressing those other things is difficult.
Yes, marketing is a problem and bullshit, but saying that won't change anything. The levers to change how marketing is done have nothing to do with marketing. They hit the third rails of free speech and free market capitalism, which mainstream culture is loathe to question.
Nah. People aren't objective about their purchasing decisions like that. The only way to find about willingness to pay is through actual experimentation.
Please consider using HTTPS.
Love, The exposed user
But overall I'll admit that it's great metric for decision making especially for us engineers that get caught up in the design of the ideal product.
Unless you're moviepass.
10 or 15 years ago, there was a clever Porsche commercial where a kid goes to the dealership to check out the latest 911, and gets a business card, and says "I'll be back in 20 years". I thought that perfectly summed up the Porsche brand. There was something special about Porsche that stuck with you -- all they do is make the best car in the world. When I first heard that Porsche was making an SUV, I remember thinking the brand was dead. It was now just another car company. I no longer have any desire to ever own a Porsche. Their new sports cars are technically impressive but the cachet is gone.
(I suspect the Cayenne works today because the target audience grew up in the Porsche golden era. It's comparable to an X5 or Q7, but noticeably more expensive. Will it continue to sell well in the future, when their market doesn't consist of people who grew up dreaming about the 911?)
The Dodge Dart (clearly the Chrysler subject, though not mentioned here by name) was advertised in its commercial as "under 16 grand", which is a perfectly reasonable price for a compact car. What price would the author of this article have recommended instead? What really sank it in the market, according to the reviews, was reliability. I don't associate the Chrysler brand with reliability, and I didn't believe that "kicking out the finance guys" would solve that overnight.
(Had the car sported a Honda badge, and the same price tag, I truly believe it would have sold like hotcakes.)
You can see the same effect in some other recent car commercials. They take a car, strip off all the logos, and ask "normal people" to review it. They ooh and aah, and wonder if it's the newest BMW. Surprise: it's American!
What I don't understand is: if the biggest liability of American carmakers is literally their name and logo, why do they stick with them? Why do they continue to try to find clever ways to change our minds about things that they know everybody has already made up their minds about? In any other industry, when a brand is no longer valuable, they change it. I know there are older people who will only ever buy a Ford/Chevy/Dodge, but the latest hybrid subcompact or hot hatch is not being marketed to those people, anyway.
The Germans did it right: they had a brand name that people valued highly, so they put it on something these people were buying anyway -- and were willing to pay a premium for. (There's a whole "Porsche Design" subsidiary selling knives and pens and such.) The Americans did it wrong: they had a brand name that wasn't highly valued, so people didn't want a product with that brand name, even at a good price. Brands are mostly immutable. It takes a long time to change anyone's mind.
It certainly works short term, but I wonder if they'll ever try (or be able to) recapture the cachet they once had.