Tuesday, May 25, 2010

Pricing your products - Some Key Players

Pricing - It's one of the hardest challenges that face a product manager. There are many typical pitfalls you have to carefully negotiate depending your company. This post is not about how your price your feature, but rather about getting to a price.

I'd like to share a couple of that I have had to deal with in my past:
  • The Finance Folks - Your most important friend - The finance team is your most important ally, that is until they figure out how much your product/feature cost to build and then just add their desired gross margin target to it and tell you what the price is going to be. Ultimately with many small companies, it is the finance team that really drives the pricing to ensure proper company valuation and key metrics. My advice to you is simple, partner with Finance and work with them. They can help you learn more and if they don't "bless" the pricing, the pricing will not get approved.
  • The Sales Team - Listen Carefully - The sales team is typically the most connected with customers, they understand the nuance of pricing including how the buyer and user personas will react to pricing. They can help guide both business model and pricing decisions. But tread lightly, sometimes it is Sales' best interest to have as low as price as possible. Understand that profitability is not always their most important goals, sometimes the lower the price the better. This is especially true if they are used to selling a non-differentiated product.
  • The Competition - Be Wary - First and foremost, know your competition! What are their target markets and key customers and how does their pricing "match" their goals/markets. You'll need to understand how your proposed pricing fits in the market in a way that can help differentiate your product. Also, be mindful of the "rivalry" of your market. If the market is very competitive and crowded, be careful how your pricing will cause your competitors to respond.
  • The Brand - Be mindful - Pricing causes pretty strong emotions. Do you want to be the low price product (e.g. Dell) or more niche and differentiated (e.g. Apple)? Think about the emotion that you want your prospects to feel when they see the price for the very first time. Price is perhaps the most powerful emotion generator and plays a major role in defining your brand. Be mindful!
  • The Reality - Leadership Time - You are going to have balance many differing and competing "forces" and opinions. You will not please everyone. Everyone is a cook and you have to somehow run the kitchen and create good food. Realize that you will have to cooperate and collaborate. Time to put your leadership skills to the test and listen!
Good Luck!,

Peter Ghali