Should You Include Upgrades or Charge for Them?

ice cream

Three times in the last few months I’ve been asked a version of the question, “should we charge for new capabilities or include them in the standard product?” Here is one of those questions and my response:

What are your thoughts on building great visionary products but instead of charging for them the company includes them in the core product bundle? They view this as a membership concept and then just try and charge more at renewal time because they put so many cool things in the product!
Curious how you would talk them out of this model?

 

Here are my thoughts: First, if you simply give the new products or
features away, then your customers will come to expect them.
Later in the year when you want to raise prices, you will upset your
customers. They won’t justify the price increase with the new features
because they are already part of the package.  You just gave the feature to them.
Hence, you will find it challenging to raise prices.

Second, I assume some of your customers value your new capabilities more
than other customers. We should find ways to get them to pay different
prices. You are now in a position to do so.

How do you “talk management out of giving it away?” Management
has a vision that we must follow. The best way to talk them out of any
tactic is to help them create a vision around pricing. Here is what I
would recommend.

Vision 1: Good, better, best. By creating three tiers of products, you
will segment your market. It allows you to capture and serve customers who
have low willingness to pay while at the same time generate much more
revenue from the customers with higher willingness to pay. The best way to
get here from a single offering is to consider your current product “good”
and then add some great new capabilities to create the “better” product.
Then, add even more great new attributes for “best”.

Vision 2: Low base price with add-on pricing. By charging a relatively
low price for a base functional product, you can get lots of adoption. The
goal is to build a large user base. Then, sell add-ons to your large
market. The big advantage to add-ons is they are “Will I?” type products,
meaning people aren’t as price sensitive. This way you end up charging
relatively high prices for each add-on and that’s where you really make
your money. This is very similar to a Freemium model, but you’re not
giving the base product away, just charging a low price.

In the end, our bosses get to make whatever decisions they want. It’s our
job (if we accept it) to inform them and recommend the best course of
action.  In the end, we must follow them.

I hope this helps. Good luck.

 

Photo by Makbeth24