This question was asked by a startup company this past week. They have the majority of a pretty broad software application already completed. How do they decide what to cut or add when determining the good, better, and best offerings?
Here are three steps to get them there:
1. Identify all pricing levers. This is a brainstorming exercise. Of course you can add or delete features to create the different levels, but don’t stop there. Which features can you decrease or increase? Can you alter the number of users? Alter the speed or memory? Control the number of uses per week? You get the idea. Think of every way you could create different products. Don’t worry about how valuable they are in this step. Just brainstorm.
2. Go talk to your market. Create (or mock up) a product and find out what they value. What do they not value? Start by asking open ended questions and then ask specific questions concerning the levers you identified in step 1.
You should also ask which features are required to make a useful product? You’re looking for the smallest set of functionality that someone would still consider useful.
Finally, you need an estimate of what they would be willing to pay. Ask the question this way: “What do you think is the most that other companies like yours would pay for something like this?” You can interpret the answer to this question as how much they would be willing to pay.
3. Look for correlations between how much customers are willing to pay and which of the pricing levers they value. You are looking for the levers that are not highly valued by those with low WTP (Willingness to Pay) but are highly valued by those who are WTP more. Obviously, your good, better, best products are created such that the good has the lowest capability but is still useful to those with very low WTP. Then add capabilities based on the amount of value they have for the better and best categories.
Of course it’s never this simple, but it’s not that hard. Remember your goal in creating good, better, best packages is to create a good that is good enough, and then add enough additional value that those with higher WTP choose to buy the better and best.
Photo by Flowizm