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My presentation on Melbourne Product Camp 2013. Brief intro in pricing : how smart pricing can help increase revenue and profit from your product. Topics touched: price discriminations, two part tariffs, versioning, bundling.
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PRODUCT
PRIC
ING: H
OW
TO E
XTRACT
MORE
VALU
E?
PR
ES
EN
T AT
I ON
BY
AL E
XA
ND
ER
LE
VA
SH
OV
Image credit: vasta
ONE PRICE
Price
Q-ty
P
Q
Dead value
Dead value
Captured value
Captured value (or revenue) = PxQ
3 PRICE LEVELS
Captured value (or revenue) = Ps*Qs + Pp*Qp+Pb*QbDead value reduced ~twice!
Price
Q-ty
Ps
Qs
Dead value
Dead value
Captured value
Pp
Pb
Dead value
Dead value
Captured value
Captured value
Qp Qb
WHEN YOU CAN DO IT
There are 2 conditions that must be met to practice price discrimination:
• There are at least 2 distinct segments of customers
• It is impossible (or at least very hardly possible) to do arbitrage
CONTROVERSY
As a rule customers don’t like it.
What can be done:
• Frame it as a discount rather than price increase
• Don’t show lower price to higher paid customers if it is possible
HOW IT CAN BE DONE
• Classical price discrimination (the same product priced differently)• Student, senior, army force, health card prices• Geographical• Gender based• Tourist prices
• Bulk discounts
• 2 part tariffs
• Coupons
• Versioning
VERSIONING (CONTINUED)
Issues to consider: how many versions?
• Versioning cost (approach to development)• Creation• Support and operation
• Cost to make customer decision process more complex
• Increased sales/marketing cost
BUNDLINGWTP, Joe WTP, Sue
Videoshop $50 $100
Photoprime $100 $50
Price set Joe pays Sue pays Total value
Videoshop= $100 Photoprime=$100
$100 (VS only) $100 (PP only) $200
Videoshop= $50 Photoprime=$50
$50+$50=$100
$50+$50=$100 $200
Bundle- Videoshop +Photoprime = $150
$150 $150 $300
HOW IT WORKS. REAL LIFE EXAMPLE
My side project Altima Lookbook: an extension for Magento e-commerce
More info: http://shop.altima.net.au/altima-lookbook-professional.html
HOW IT WORKS. REAL LIFE EXAMPLE
We have 3 price levels:
• Altima Lookbook Free ($0)
• Altima Lookbook Professional• Community edition $85• Enterprise edition $210
More info: http://shop.altima.net.au/altima-lookbook-professional.html
HOW IT WORKS. REAL LIFE EXAMPLE
Key numbers after 5 months of enterprise licence introduction
More info: http://shop.altima.net.au/altima-lookbook-professional.html
Number of Enterprise licences purchased, % of total paid orders 18%Number of Enterprise licences purchased, % of total revenue 34%Extra value captured (% of total revenue) 20%
QUESTIONS?
?
THAT’S IT
Thanks for your attention
Alex Levashov
LinkedIn: http://au.linkedin.com/in/alevashov/
