I may be wrong, but cherry picking a number of successful products and an equal number of unsuccessful products and then attribute to the one that "price first" tag and to the second ones the "not price first" tag doesn't seem to me a valid method of demonstrating anything, at best is anecdotal data (and with some major oversimplifying of both the reasons for market success or failure).
Besides that, they keep saying things like "price first" but then talking about focusing on what customers actually want, like bigger cup holders. As far as I can tell bigger cup holders don't have much influence on the price of a luxury SUV.
It goes beyond what customers want to the intersection of want & willing to pay for. I find that in a lot of companies, there's a lot of "customers said they want x, so let's build it" vs. "customers said they want x and we've validated that they are willing to pay for that feature." If your customers are not willing to pay, how important was that feature in the first place?
This is what bothers me about many business books. It’s easy to look at the winners and say, in hindsight, that the key to their success was X, then find a few failures and, again in hindsight, say they failed because they didn’t have X. See: “Good to Great.” I’ll be impressed when any of these experts could predict the winners and losers in advance.
In Italy we say "con il senno di poi ..." that translates to "in hindsight" or "in retrospect" but that literally means "with the wits (or wisdom) of afterwards" that somehow is more expressive.
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:
His example for Asus sounds particularly off. According to him they outsold $299 product leaving money on the table. In reality in a hyper competitive market that is incredibly price sensitive the price point and the matching features were likely the main reason for it selling like hotcakes. Increasing the price even $25-50 could completely wreck that equation.
Yeah, as soon as I read that I assumed it was the EEE PC. The fact that it was $299 was the reason it sold so well. It wasn't a great machine, but it was pretty cool and good enough for a $299 laptop. Within the framework of the article, I'd argue that Asus nailed the "price first" idea and instead failed to predict just how popular a $299 laptop would be.
"Pay attention to price early" rings true. Everything else in the article seemed very anecdotal or cherry-picked.
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.
> People are also generally not that good at figuring out what they're willing to pay for something.
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.
This sounds reasonable in isolation, but ignores the reality that the price you set is a big, blunt tool that determines who your users are. For some products, such as those that are challenging to start using but increase in value over time, your approach would filter out users who don't already believe in the longer-term potential of your solution. Is that a good or bad thing? Likely bad, but it depends on your product and the market it operates in.
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).
> For some products, such as those that are challenging to start using but increase in value over time, your approach would filter out users who don't already believe in the longer-term potential of your solution.
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].
How do you determine real value and how is your determination of real value the correct one?
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.
> How do you determine real value and how is your determination of real value the correct one?
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.
> I don't care about marketing and branding, and focus only on the product itself.
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.
> 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.
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.
I hate the initial comparison. Look, everybody knows that SUVs are the easiest type of car to sell, and compacts are the most viciously difficult. So starting your article with a comparison that is so obviously flawed hardly lends credibility to the point you are trying to make.
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.
You are definitely correct, but there are some people whose price point is so far below the median market offering that theyll basically buy whatever barely functional 1991 honda they can find with 200k miles and rotted paint.
But this is a losing proposition in terms of profit, you know, trying to serve customers with this price point.
Sure but SUVs in general sold like crazy, they had a few years to watch the rav4 sell extremely well, BMW came out with the M3 at the same time, and Mercedes was already making a ton of money selling luxury SUVs. I just don't see how this is a good example of price before product, or how much of a risk it was given what was happening in the market.
The Jeep Grand Cherokee has always been a unibody SUV and it came out in '92. You could make an argument that it was the first crossover, but it certainly wasn't the first unibody SUV.
The Porsche vs Chrysler comparison is beyond silly. Luxury SUVs were (and still are) an emerging market in the early 2000s.
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.
That makes a lot of sense. I know IKEA is often decried as low-quality furniture, but I'd disagree. In my experience, IKEA furniture is excellent quality for the price it's being sold at, and they seem to have (at least) a two-tier system - extremely cheap stuff, and quality-oriented stuff at a higher price point.
Both provide ridiculously good value for their respective price points, IMO.
This is good advice for startup founders. Sure, you can nit-pick the examples used in the article, but you'd be missing out on the wisdom you could gain from it.
Innovative pricing can lead to completely new startup opportunities. Salesforce is an older example. Robinhood and Divvy[1] are recent examples.
I used to work as a management consultant in McKinsey and did several pricing engagements.
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.
(posting anon because silicon valley is a small community, sorry take w 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 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.
They did their job well in that case. And seemingly nobody in the company could do it so their fee was worth it.
Perhaps it's "Price Before Product" for B2C. B2B products and services seem to have a no limit for price. Just when I think a business wouldn't possibly pay that much, they do. I just saw a consulting firm charge $40k for a damn workshop. Nobody batted an eye.
The author is correct, it is price before product. But the product needs to be functional for there to be a price.
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.
> The author is correct, it is price before product.
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.
I guess it's a complex topic but maybe we can stick with the example I offered? Or we could talk about Windows and Linux.
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.
Marketers are just doing what they can to make money at the expense of everyone's problematic psychological tendencies.
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.
> Ask at the onset whether or not people would pay for the product you intend to develop. This is the Willingness-to-Pay talk,” Ramanujam argues. “Frontloading this question is powerful because customers won’t be in the mindset of negotiating price. Instead, they’ll give you objective feedback that you can use to prioritize what you’re building.
Nah. People aren't objective about their purchasing decisions like that. The only way to find about willingness to pay is through actual experimentation.
It's more important to consider what is more important for your product and the market it serves. The takeaway here is that you shouldn't forget about price and the end user at all. But it is ultimately one of several decisions to make with its own tradeoffs.
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.
I think this is why selling stuff you haven't made yet is such a common business strategy in software and most other fields where it is possible. It essentially eliminates the cost of developing features no one is willing to pay for (and equivalents in other fields). Any company that builds before they sell will be completed out of business unless they never miscalculate the demand for a feature.
Most of the examples given in the article are about physical products. It's hard to see the direct translation for pricing software, especially since most of the largest tech companies primarily offer "free" products, and whose revenue is a result not of pricing strategy but of user behavior, engagement, and numbers.
I understand this is not the point of the article, but whenever I see one of those SUVs on the road I feel a twinge of saddness; it seems a car in internal dissonance, it wants to be sleek and sporty, but it's this huge beast of a vehicle.
Pretty sure amazon, google, facebook, twitter built a product first before price. Sometimes it really is about innovation, once you do that, the money follows.
I would make the argument that price is part of the product...
No one cares (or at best you'll have a really limited market) if you can't make your product affordable.
"Limited" is relative, and in this new world you can have perfectly successful product while not being "affordable". But ofcourse you have to have other things, like brand awareness or a good value/dollar
The story of Porsche and Chrysler ignores their history. These brands don't exist in a vacuum. Customers aren't approaching these products only by looking at features and prices.
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.
Porsche was a luxury brand moving downmarket, expanding their reach at the expense of their brand. We're seeing the same thing with Aston Martin, Maserati, and many fashion brands.
It certainly works short term, but I wonder if they'll ever try (or be able to) recapture the cachet they once had.
