Month: March 2011
NOTE: The following is a guest post from Laurie Peterson. If you want to submit your own guest post, click here for more information.
In business school they teach us to set prices by plotting the demand curve and then choosing an output level and price where your marginal costs are equal to your marginal revenue in order to achieve profit maximization. HUH?
I should have lost you at “demand curve” because in real life nobody has detailed enough data to create this sort of graph (Amazon is an exception).
So if micro-economics is letting us down, what can we turn to instead to guide our price setting?
Answer: our customers’ EMOTIONS!
Below I’ve highlighted a handful of consumer behaviors and related price setting tactics. I was lucky to learn from the best: world renown Pricing Professor Teck Ho. I am happy to pass along a few tidbits of his wisdom.
1. Your customer uses reference pricing to determine if they are getting a good deal
How your customer values your product is relative to the products they consider to be similar.
For example, tonight I was trying to book a couple of airline flights, departing from San Francisco. One flight was going to Las Vegas, and the other to Los Angeles. The trip to Vegas was going to cost me $200 more, so I didn’t book it. Why? Because it didn’t seem fair that the price was so much higher than the one to L.A.
Even though I value the trip to Vegas more, (who wouldn’t? Vegas, baby!) I can’t stomach paying more because the service provided seems about the same. My reference price is similar products currently available (other flights, like the one to L.A.) and my past experience with this product’s pricing (I’ve had lower fares on past trips).
Even though it’s perfectly rational for the airline to charge more for Vegas based on the demand, my emotions tell me, “Don’t book. You are not getting a fair deal!”
What this means for product managers is that you should identify what products/services your customers consider to be references. You can try to influence this (like generics do by placing themselves right next to the branded version in the grocery store isles), but ultimately you need to listen to your customer to determine who your references are.
Next, calculate the additional (or negative) economic value you provide to your customer compared to those references. For example, if the flight to Vegas was twice as long as the flight to L.A. I could justify paying a higher price because it’s taking me twice as far.
2. If you do too many price promotions customers will only buy when you have a sale
If you are a frequent shopper at Macy’s like I am, than you know this to be true. Macy’s has so many great sales you would have to be a moron or independently wealthy not to wait to shop during one.
This relates back to reference prices. It’s not just your competitor who is setting them. By discounting your product you may be setting a new reference price that is lower than your full list price.
If you are having a sale, be sure to present higher alternative prices alongside the actual selling price. Or, display your regular item alongside a more expensive item to create a higher frame of reference.
3. For some goods, price = quality
There are some goods that you have to experience in order to place a value on them. For example, you can’t read the ingredients on a perfume bottle and know if it is going to smell good, attract a date for Saturday night, and not result in hives.
For these “experiential” products, consumers use price as an indication of quality. The higher the price, the better the quality. If your product falls into this category you may actually hurt your sales, and reputation, by pricing too low.
4. Sometimes, $100 doesn’t equal $100
The mind is tricky. A $100 discount on an iPod touch seems like an AMAZING deal! But give me that same $100 discount on a Toyota Corolla and I will be less than impressed. When a customer evaluates markdowns it’s in relative percentage terms based on the overall ticket price, rather than absolute dollars.
This works the other way around as well, for price increases. For example, upgrades on cars are more likely when ticket price is high: “sure, throw it in!”
Similarly, if you are in the B2B world, consider how much your product or service costs relative to your customer’s overall buy. If it’s a small percentage of the overall buy the customer will be less price sensitive.
5. It’s hard to raise prices, but if you do, make sure your costs have increased as well
Customers can be influenced to believe a price increase is “fair” if it is known that your cost of goods have increased (publicize your cost increases). As an example, just recently the chocolate maker Hershey’s stated it was raising prices by about 10% across the board, due to price increases in raw materials, fuel, transportation costs etc.
6. Odd is best, unless your product is the best
$24.99 is perceived as MUCH more affordable than $25. But don’t use this tactic for high quality image products where price is an indication of quality. It will make your product look cheap. You’ll never find Louis Vuitton selling their own handbags for $749.99.
7. The middle of the road is the safest
If given a choice of 3 service options, customers will often choose the one priced in the middle. For example, if a car wash offers three service levels, most people will choose the mid priced one. The least expensive one seems like you are missing out on key washing services, and the highest one seems like you might overpay. The one in the middle feels just right…
Consider if you can increase upsells by adding something expensive to your product line, even if you never sell it.
Tweet this: @onpm Your customer is only human – 7 Emotional Pricing Tactics #prodmgmt #prodmktg #pricing #sales
Laurie Peterson is an award winning product manager for interactive consumer products and websites. She is graduating from Haas School of Business in May of 2011. Check out Laurie’s product management tips and tricks at sfgirl.us/blog
Have you ever heard this story before?
The lead came in, and it looked hot. We gave it to our best rep, who called right away. Gotta strike while the iron is hot, as they say. The rep asked all the qualifying questions, and it looks like a huge opportunity. They have budget and are ready to move. She sets up a meeting, the SE does a few slides and a demo, everyone seems happy. They ask for a quote, we send it.
You know what comes next, right?
Welcome to the stuck deal. Sales reps, sale teams, sales managers, and sales VPs see this all the time. In the midst of some win/loss analysis work, several of my clients have started to send these deals to me. “See what you can find out,” they say.
Here are a couple of the most common findings:
No access to decision maker or other key players
- Once the demo and presentation are done and the quote is sent, the buyer has everything they need.
- Unfortunately the seller doesn’t have what they need. What they need is a PO, or access to the people who can reprioritize investments to make the deal happen. Often they are stuck at a lower organizational level.
- Even more unfortunate, it’s hard if not impossible for the seller to reset the conversation. That’s because they’ve given everything they have to the buyer without asking for anything in return.
- The person we are selling to lacks the courage, acumen, or clout to access internal company resources.
- While the opportunity was qualified, the champion was not. Our qualification questions need work. In fact, we should be DISqualifying rather than qualifying the champion.
Cost/Benefit is not demonstrated or not believed
- As much as the champion likes our product, they haven’t been able to justify it to the people who can really make the decisions internally.
- In some cases, we’ve given them cost/benefit numbers, but they were simply not believed internally.
- Like it or not, that’s our failure rather than our champion’s failure.
What happens here is that two parties end up in a stalemate. In negotiation theory, this is described as arriving at two different, or diverging, positions. It’s like they’ve walked up to the top of two mountains and are now separated by a valley in between.
In most cases, because the seller is selling, they have lost the ability, or the permission from the buyer, to move down the mountain from the divergent position to the underlying interests of the buyer. A really good seller can do this sometimes, but often the buyer simply stops responding at a certain point, and if you can’t get the conversation started, it doesn’t matter how good you are.
What’s needed in these cases is to walk down the mountain to the underlying interests. These conversations reset the discussion and re-build the relationship map from the ground up.
When I have these conversations I have an advantage over the seller: I’m not selling. So it is a little easier, perhaps, to reset the conversation. In some cases, the overlapping interests are so small that they do not justify further sales activities. We “put a fork in it”, as they say. The account may need to go back to marketing for further nurturing, or maybe it really is just dead. If so, move on! In sales, my favorite four letter word is “N-E-X-T”, because we don’t have time to waste on non-opportunities.
In many cases, however, the overlapping interests are significant, and when reexamined in this way, the buying discussion can be reset. I’ve helped a client reset, and eventually close, a $5M deal as the result of a one hour phone call. Without that call, the CEO told me, they would have lost the business.
But the secret to unsticking the stuck deal is the same, regardless of who does it:
- Reset the discussion entirely. The seller can, for example, withdraw an earlier quote after a certain time. This is a really invigorating thing to do for a seller because it tells the buyer that they no longer have all the power.
- Go back to square one and re-diagnose, re-qualify, and even try to DISqualify the opportunity. The seller missed something big in the first round of qualification and selling, so all assumptions about the account need to be thrown out the window. It can sometimes be hard for the same rep to do this work because they may need a fresh set of eyes to see the account.
- Look at the common pitfalls listed above. What happened the first time? How can you avoid the same thing happening again.
- Most importantly, rebalance the power in the buyer/seller relationship. Sellers are often so insecure that they undervalue what they have to offer, including their own time and many company resources. The attitude needs to change if you are going to unstick the deal.
I will be touching on this topic at Product Camp Silicon Valley on Saturday April 2. My talk is called “It’s never about price: The real reasons behind 250 B2B buyer interviews“, and will be held at 11am. Hope to see you there.
Previous articles in this series:
Tweet this: New post @onpm: “Unsticking the stuck deal” http://bit.ly/unstick by @AWArmstrong #sales #marketing #prodmgmt #prodmktg #negotiation
Over the years, I’ve watched the social interaction of individuals and teams and how they succeed and where they struggle. Whether you’re a product manager, product marketing manager or you lead a team, there’s a definite social element to the role and each persons contribution and ultimate success. While you might associate sales, marketing, sales engineering and other outward facing roles as social, should product leaders become the ultimate social animal?.
As an acclaimed New York Times columnist and author, David delivers humor and insights into human nature from the cognitive sciences, with a massive dose of economics and politics that product management should understand. As you listen to and view the talk, listen to the several areas David shares and that I outline below. Each applies to product management and product marketing and how you may better influence and lead your products, services and teams as a social animal.
- Mindsight – is learning about others, their models and how to relate. Product leaders must have or acquire mind-sight to be used in discover problems, formulating solutions or staging conversations with others. Often, we dive into an activity when we lack an understanding of roles, past experiences, models for learning or action, etc.
- Equipoise is a state of balance, equilibrium or a counterbalance. If you consider product leadership, isn’t it a state of balance? Think about it. We balance strategic and tactical, vision and backlog, as well as balancing business influence and marketing execution. Each requires a balance and balancing rationale and purposeful views into the areas where we learn and apply what we hear, see and understand. This balance support decision-making.
- Metis – is an ordinary Greek word for a quality that combines wisdom and cunning. “It’s a sensitivity to environment” and in modern terms, we’d say street smarts or street savvy. While there’s a non-ending debate in the product management community on domain expertise product leaders must obtain wisdom from market exposure, customer experiences and build attributes of street smarts that may be a higher level of gut instinct. As a product leader, do you have Metis?
- Sympathy – while you make not equate sympathy as a gift or talent of social animals, the “ability to work in groups and this is tremendously handy because groups are smarter than individuals, and groups that communicate electronically ” are key for conversations and communications share David. To build the foundation found in gifts 1 and 2, product leaders should have the ability to work in fluid groups, especially face-to-face. Considering that most intelligent assumptions or ideas are validate in customer facing conversations, product leaders should carry a level of sympathy or perhaps acquire an understanding of customer problems and “walk a mile in their shoes” before telling them your a shoemaker their to build a new pair of shoes.
- Blending – is “the source of innovation.” As a product leader do you know how to blend market trends, personal insights, artifacts, ideas and teams to innovate or drive vision? As David states, “blending isn’r easy.” I believe we have to unlearn in certain areas and open our minds-eye to those things that limit our abilities to progress.
- Limerence is the final talent or gift. It’s drive and motivation. To me, these are the glue that holds product leaders together. How often do we give in or give up when we should push forward giving more and working to overcome politics, opinions and those who lack the evidence or insight you hold.
How do we uncover the social animal in product management? Here’s a few things I believe we can do.
- Schedule less meetings and initiate more conversations. Remember to apply the gift that we have two ears and one mouth.
- Review the balance in your product leadership. (Yes, a personal assessment) Are you unbalanced in one way or another? Identify three areas and work on one in the next 30 days. Need help, connect with a peer in the Product Management community (#prodmgmt or #prodmktg work well on Twitter), or a mentor. If you need a mentor, email me and I”ll find one that’s compatible for you.
- Get outside yourself and the office. It’s amazing what you’ll see, hear and experience when you listen to those who love, hate or are ambivalent to your products or service. Who knows, you may become more sympathetic and come home with a renewed sense and determination to be a source of innovation and new growth for your organization.
- Take time to re-listen to David’s talk or read the book. I just ordered it and hope to uncover more.
As always, I welcome your thoughts and insights. In no way am I an authority on cognitive sciences. As always, I welcome your comments to the post and sharing my post and ideas through the social web, where all types of animals can be found.
Tweet this: @jim_holland “Uncovering the Social Animal in Product Management” http://wp.me/pXBON-2kq #prodmgmt #prodmktg
Tweet this: @PGopalan 5 tips for acing the job interview http://wp.me/pXBON-2gI #prodmgmt #jobadvice #jobsearch #careers
Last week I talked about searching for a job. Now that you landed that job interview, I’ll share 5 uncommon tips about acing the interview. I am not going to spend time on the obvious ones. These are my five uncommon tips for interview success:
1) Research the company
How often have you attended an interview without knowing much about the company’s leadership team, annual revenues (segmented) or overall strategy? The first step in interview preparation is researching the company. By research I mean a comprehensive research, not just reading what was in the newspaper (if you still read one) or the company website. If it is a publicly listed company, read the investor section of the website. Understand what areas the company plans to invest, grow and where the executive team is planning to take the company. Figure out what products bring the moolah and what trends have shaped the company’s portfolio over the past few years.
The primary benefit of this research is you fully understand if the job you are interviewing for is going to be interesting for you given where the company is heading or plans to invest. One secondary benefit of doing this homework is so you can intelligently talk during the interview on how you see the company strategy being relevant to the products you might end up managing. You’ll get a clear idea of where your products are, in which portion of the company’s investment mix – cash cow, growth, divest or sunset, they belong. You will not have buyer’s remorse if you enter the contract with full knowledge.
2) Research the culture
All start ups aren’t the same. All large companies aren’t the same. Culture is that one thing you don’t want to take lightly and be unhappy later. Take the time to understand the company culture. When you get a chance to ask questions in the interview process, make sure you ask questions about culture.
What are the values of the organization, the hiring manager and company? This is not the culture the company claims through full page Wall Street Journal ads or airport terminal billboards of being smart or innovative or inserting other such over used words. It is about the reality that exists within the company, not through a paid advertisement. Watch out for those that give out multimillion ad agency contracts for rebranding and advertising, and spend very little on actual employee or customer well being.
3) Research the interviewers
Chances are high you have been googled extensively by your interviewers. Reciprocate the favor by doing it yourself about the interview team. Practically everyone has a LinkedIn profile these days. That’s a good place to start.
There are two simple reasons for this – a) Learn more about your interviewer before hand so you can predict to fairly reasonable extent what kind of questions you can expect (people usually ask questions from their own background, experiences they are most comfortable with) b) Look for any commonality between the interviewer and you, and break the ice in discussing a shared experience. It is human to look for a shared sense of belonging. Use it to develop a rapport. After all, you might work with this very person.
4) Practice story telling from your resume
You are likely to get questions of this nature pretty much every time – ‘Walk me through your resume’, ‘Tell me something you did at your previous job at Company X that was remarkable’, ‘Can you give me an example when you worked with a team without authority but successfully influenced the outcome?’. Instead of trying to answer the questions on the spot, it may actually be a good idea to prepare a document listing all the frequently asked interview questions about your resume, write answers to them and practice your delivery. Assemble these answers in a story format so it is easy to tell and receive. State the business situation, complication, the action you performed, and the outcome crisply.
Expand each resume bullet in the story format and practice delivery by yourself, with a friend or a colleague. With good story telling and delivery, you’ll make it memorable for the interviewer. Here’s an example – “When I walked in to Company X in August 200x, the product revenues were $4M. I put together a marketing plan that targeted SMB segment, which at that time was unattended, and increased our revenues by $2M in just one year. Selling to the SMB segment was a high touch activity before. But I put together an innovative web based inbound marketing program that was low on cost and high on return. Net result was we rocked the SMB segment”. Pick up a good screen play writing book to get good at story telling. I’m serious!
5) Pick up a white board marker or a sketch book
When you are posed with a question that requires a lot of explanation, don’t hesitate to ask for drawing out the answer on a white board. You are literally taking up the challenge with your own hands. When I interview candidates, I try to see how comfortable the candidate is in going up to the white board or even using a sheet of paper and a pen, and explain to me the problem and subsequent analysis. Visualization on a large scale (like a white board) is a powerful tool for envisioning solutions, especially in team settings. Employ it at every opportunity you get.
…And then the regular stuff
This is the placeholder for all the regular stuff you’d do e.g. learn about the product, process, tools, technology, competitors, send thank you notes etc.
Good luck on your interview! I will cover best practices for the interviewer next week.
Tweet this: @PGopalan 5 tips for acing the job interview http://wp.me/pXBON-2gI #prodmgmt #jobadvice #jobsearch #careers
New Download – Lean Communications – Aligning Diverse Teams and Accelerating Revenue in High Tech Companies
Back in late 2007 & early 2008 I wrote a 6-part series of articles entitled Product Manager vs. Product Management. The intent was to try to elevate discussion around the role of Product Management as opposed to simply what a lone Product Manager should do.
To be honest, that series meandered a bit, but it had it’s good points. Over the last few years, a couple of those parts have seen a lot of traffic. At the beginning of Part 4, I mention that I had received a number of requests for a “20-page document” that I’d mentioned in Part 3. That document defined what I called a “Product Management Deliverables Grid”.
Fundamentally, that document tried to put a structure and definition around the cross-team deliverables (and some activities) that were performed by Product Management over the course of a release cycle. The grid looked something like this:
The aim was to find a standard, scalable, product and release independent means for the PM team to function. Not too ambitious eh?
I did mention in Part 4, that I didn’t want to release the document (at that time) and so, metaphorically, instead of giving people fish, I’d teach them to fish. 🙂
Over the years I’ve updated the grid, generalized the document and created a structure around it which I call Lean Communications. I’ve embedded a slide deck below that goes through the background on the Lean Communication model. And right after that I’ve included a PDF of the “20-page document” (now about 28 pages) for your convenience. Yes, here’s the fish!
But, can I ask a favour?
Can you let others know about it? Via Twitter etc?
If you use Twitter, here’s a suggested message.
I just downloaded “Lean Communications” PDF article from On Product Management http://wp.me/pXBON-2k4 #prodmgmt (@onpm)
The short link points back to this blog post. We’ll track the tweets, and who knows, maybe one or two random tweeters may get rewarded.
|Oh yeah…A reward goes to Jock Busuttil for tweeting that he downloaded my Building a Better Beta PDF. Jock, please get in touch with us to claim your prize. Tell us your shipping address and choice of mug.|
So here’s the presentation.
And here is the PDF. Click on the image to download. Don’t forget to Tweet!