Decoding the mysteries of pricing strategies - Dan Balcauski on The Product Experience
Oct 4, 2023
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Dan Balcauski, Founder and Chief Pricing Officer at Product Tranquility, discusses common pricing misconceptions, aligning pricing strategy with business objectives, and the impact of pricing on customer acquisition costs, sales cycles, and revenue expansion. They also explore metrics for measuring pricing effectiveness and conclude by highlighting the podcast's theme music and promoting Product Tank Community.
Value-based pricing should be the goal, focusing on creating differentiated value for customers.
Pricing research methods like Van Westendorp and discrete choice can help in determining customer willingness to pay and analyzing product features and price points.
Deep dives
Pricing Expertise and Guidance for B2B SaaS Companies
Dan Balkowski, founder and chief pricing officer at Product Tranquility, joins the podcast to discuss the importance of pricing in B2B SaaS companies. He emphasizes that pricing is determined by who and how you charge, rather than the price tag itself. Dan explains that competition-based pricing is a common mistake and that value-based pricing should be the goal. He suggests conducting pricing research using methodologies like Van Westendorp or discrete choice methods. To measure pricing effectiveness, Dan recommends analyzing metrics such as competitive win rate, percentage of deals lost to pricing, and discounting percentage. Overall, he emphasizes the need for alignment, research, and ongoing refinement in pricing strategies.
Understanding Pricing Orientations and their Impact
Dan discusses three primary pricing orientations: cost-based pricing, competition-based pricing, and value-based pricing. He explains that companies often start with cost-based pricing but should aim to progress toward value-based pricing, which focuses on creating differentiated value for customers. Dan cautions against blindly following competitors' pricing strategies, as it can lead to a commodity market. He encourages product managers to understand their pricing orientation and adapt their strategies accordingly.
Using Research Methods to Determine Customer Value
Dan outlines two types of pricing research: direct and indirect questioning methods. He discusses the Van Westendorp methodology, which involves asking respondents about price thresholds that define a product as cheap, expensive, or prohibitively expensive. Dan notes that customer willingness to pay is not a universal constant and suggests considering customer context and segment when conducting research. He also mentions the use of discrete choice methods to analyze customers' choices among different product features and price points.
Measuring Pricing Effectiveness
Dan highlights key metrics to measure pricing effectiveness, including competitive win rate, percentage of deals lost to pricing, and discounting percentage. He advises caution when interpreting these metrics due to data hygiene issues and biases. Dan encourages a holistic approach to pricing analysis, considering goal alignment and trends in pricing performance. He emphasizes the importance of iterating and refining pricing strategies based on research findings and market dynamics.
In this week's podcast, we were joined by Dan Balcauski, Founder and Chief Pricing Officer at Product Tranquility. Dan sheds light on the common misconceptions around pricing and gives valuable advice on aligning your pricing strategy with your business objectives.
Featured Links: Follow Dan on LinkedIn | Product Tranquility | 'How To Price Your Product: A Guide To The Van Westendorp Pricing Model'feature at Forbes | 'Identifying and multiplying your best customers' - Tamara Grominsky on The Product Experience | Buy 'What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services' book by Anthony Ulwick
Our Hosts Lily Smith enjoys working as a consultant product manager with early-stage and growing startups and as a mentor to other product managers. She’s currently Chief Product Officer at BBC Maestro, and has spent 13 years in the tech industry working with startups in the SaaS and mobile space. She’s worked on a diverse range of products – leading the product teams through discovery, prototyping, testing and delivery. Lily also founded ProductTank Bristol and runs ProductCamp in Bristol and Bath.
Randy Silver is a Leadership & Product Coach and Consultant. He gets teams unstuck, helping you to supercharge your results. Randy's held interim CPO and Leadership roles at scale-ups and SMEs, advised start-ups, and been Head of Product at HSBC and Sainsbury’s. He participated in Silicon Valley Product Group’s Coaching the Coaches forum, and speaks frequently at conferences and events. You can join one of communities he runs for CPOs (CPO Circles), Product Managers (Product In the {A}ether) and Product Coaches. He’s the author of What Do We Do Now? A Product Manager’s Guide to Strategy in the Time of COVID-19. A recovering music journalist and editor, Randy also launched Amazon’s music stores in the US & UK.
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