Refining products and prices
- Here is the big idea
- Talk to your customers, talk to the whole market. Find out what consumers want.
- Brainstorm, brainstorm, brainstorm some more. Then rectify your ideas with what customers have to say.
- Put together packages and pricing options, and A/B test them.
With all that you and your business have to offer, how can you possibly boil all of that down to a finite set of products and services?
If you’re going to be successful, there’s no choice but to focus and decide how to price and package your product. Without doing this, you’re going to have trouble recruiting new customers and scaling.
One thing that’s important ─ don’t do freemium. You’ve built a product and it’s worth paying for. Freemium devalues your hard work, and we’ve learned that free users don’t give great feedback.
Creating packages and prices is a process and we won’t lie ─ it’s not the easiest. You might go a little crazy along the way, but by the time you’re done, you’ll have clearly defined your revenue channel.
You can’t get everything right the first time, so if your strategy doesn’t work out, don’t be afraid to change you pricing, offerings, and support. Just be sure to stay true to your core beliefs.
It’s time to get going. Roll up your sleeves, whip out your Excel spreadsheets, and lock your team in a room. Here are the steps to refining products and price packages:
Step 1: Talk to your customers
If you haven’t done customer feedback surveys, now’s the time to get on that. Simply design some questions that frame the information you’re looking for and send them out to your customers via email or standard mail. The information you get back can be invaluable to your business, and it’s well worth the effort required to run the survey.
You want to utilize the most meaningful conversations with customers. If you don’t have enough data already, you can always get back on the phone with your most valued customers and dig for some more information.
“Knowing your customers/clients is crucial. Where do they live? What do they do? What do they earn? What are their family circumstances? What do they fear? What are their problems? What is your solution? These and other questions need to be answered before creating any products or services.”– Christine Michaelis of Christine the Coach
Don’t forget ─ you don’t have everything your customer wants, and you can’t tailor your business to fit everyone and anyone’s needs. You’re in search of the feedback that will help you figure out well your product works for your customers.
Step 2: Think bigger ─ Survey the whole market
Once you talk to your customers, you may have some ideas about what to do. At this point, you want to get feedback from a bigger population. How big is the actual market for this idea?
Creating, designing, and refining products requires you to think big. Look beyond your current customers and niche in the industry. That way you can better understand the true potential of what you want to do.
You probably understand what needs to be done intuitively as an entrepreneur, but it’s still super important to gather data. There’s a lot at stake, so you want to be as informed as possible.
Before productizing your service, you need to build some forecasts to quantify your market. If you don't have access to primary data, rely on what's freely available from organizations like NatCen and the Office for National Statistics. You can also look at secondary sources from market research vendors like Nielsen and Forrester Boyd.
You want to be able to develop a blueprint of the potential market, right down to forecasting actual pound value. You have all the information, so make a judgment call on what type of mathematical model will work best for your business.
Whilst accuracy is important, you don’t need to be spot on at this point in the game. The key is to have an educated guess and to stand by it. That way you can establish some direction and know that you’re not wasting your time or money.
Step 3: Brainstorm until you collapse
Hopefully your office has a whiteboard… or a chalkboard… or windows. This may just be the biggest brainstorming session you’ll ever be a part of. Now is the time for you and your team to gather all the bravery you can muster.
Write out a list of the most valuable offerings and strengths of your company, and include everything you think you should be doing. Don’t even think about customers yet at this point. Right now, you’re sequestered, closed off from the rest of the world.
Things to keep in mind as you brainstorm:
- There is no such thing as a wrong answer at this stage in the game. If you think it, spew it. Say it out loud, and word-vomit to your heart's content.
- Nobody is wrong. At all costs, do not shoot anyone down. If you hear something that sounds ridiculous, just keep quiet. The minute you smack talk somebody's idea, the circle of trust will break.
You want to do everything possible to establish and maintain a steady flow of ideas. Here’s a hint: coffee is your friend ─ your very good friend. When it’s time to stop, you’ll know. You will feel a natural stopping point.
Step 4: Play matchmaker
Now you’re going to use the list you just brainstormed. You want to marry it with the inferences that you’ve drawn from Steps 1 and 2.
Here are the steps you should take:
- Cross out the super-lame, lofty, or ridiculous ideas. It's time to get down to business and refine your focus.
- Create categories based on the customer needs you've identified. Group your brainstormed solutions into these categories.
- Score everything on your list based on revenue and market potential. At this point in the game, you may not have hard data, and that's fine. You know your business and industry well enough to trust your gut.
- Score everything on your list based on ease and cost of implementation. If there's a now-impossible idea that you're extremely passionate about, put it on the back burner for when you have more resources.
- Now it's time to do some math. It's time to create a matrix. Your dimensions will be ease of implementation and market potential. How you create this chart or calculation is up to you, but the idea is simple – the ideas worth pursuing as products and services will be the ones that are easy to implement with high ROI potential.
It is key here to focus on only a handful of initiatives. You really want to keep it simple.
Step 5: Put your sales hat on
A this point, your product(s) is probably still relatively abstract. A whiteboard full of quickly scribbled ideas isn’t ready to be sold. It isn’t ready to be pitched either.
Now is the time when you polish your idea and make it attractive. That means defining the value proposition for your core products and service.
Gather your team again and start brainstorming potential sales pitches. You really want to hammer on what your customers’ problems are and how your idea or product will solve them. Now is when you want put a shiny case around the engine you’ve built, so it’s time to get sales-y. Everyone should share their ideas and critique each others’. Be relentless until you’ve refined a pitch that you’re happy with and proud of.
Step 6: Create tiers
No matter how small your niche is, your customers are going to fall into different buckets with varying needs and wants. Your market will be segmented by company size, budget, and affordability, among other factors. You need to have a clear understanding of these segments ─ how much are they able to pay versus how much they are willing to pay.
- Put together packages and options that make the most sense for your different segments. Try to create a few options, and go back to customers and prospects. They can validate if you’re headed in the right direction. You can use tools like UserTesting to help you collect customer feedback online instantly.
- Find out the value of each of these segments. Assign pound values to each one. Factor in your development costs, value derived, and pricing for competing products in the market. Basically, do all the research you possibly can before settling on a number.
Step 7. Reduce your options to three (or four!)
Today is a crisis of information overload. The result? Analysis paralysis.
Think about when you stop at the grocery store to pick up shampoo. It’s a simple task to buy shampoo, but when you’re given 300 options that really aren’t that different, it’s insurmountable. You end up confused and stressed.
Once you finally pick one, you probably over-think it all the way home, wondering if you have made the right choice or not.
Analysis paralysis is a serious bane on sales. That’s why you want to keep your productizing and packaging options as simple as you can. Your packages should be able to explain themselves. You should only need one or two short sentences to convey their value.
We’ve tested to find our perfect number of packages is four:
You’re almost there
Now you’ve established the foundation and created the structure. It’s time to throw on the paint, decorate, and add the final touches.
There’s no first impression more lasting than professionalism. You should work with a designer to help you create product kits, pricing tables, and PowerPoints.
Your solid framework is just the first step. It’s super important that your design communicates your ideas and does so concisely, efficiently, and effectively.
You need to finish strong, so you can truly delight your prospects and leave a lasting, positive impression.
Ways to A/B test a pricing model
So you’re all set up. It’s time to start thinking about testing. A/B tests allow you to compare two different versions of something to see which performs better – for example, you could A/B test having three price options versus having seven.
There are a number of different aspects that you can test. Your goal is to improve conversion rates… and make more money of course.
- Test prices that end in 9 vs whole prices
- Test number of pricing options that you offer
- Test number of features that you list on a page
- Test small increases or decreases in price
- Test content on pricing page
- Test where the pricing page is placed on the website
Now is the time when you can really get creative. You can test a million different things to help you ensure that your pricing is right on target. Just be sure that any changes are based on cold, hard research. Pricing changes have the potential to boost sales tremendously, but they could also have a negative effect, so be careful.
- Additional Resources
- Price your product or service │ Start Up Donut
- How to price your small business’ products and services │ Inc.
- Step 3 for a successful startup: The importance of market research │ Forbes