Mark Stiving

September 17, 2020

Video Transcript

Speaker: Mark Stiving, Chief Pricing Educator, Impact Pricing

Tell us a little bit about yourself and why you're helping PMC?

Mark Stiving: I remember being about 12 years old, going to the grocery store with my mother and seeing prices that ended in nine or 99 cents. And I always wondered why companies do that. Do they think we're stupid? fast forward A whole bunch of years. I found myself in a PhD program at U C. Berkeley and I had a chance to play with scanner panel data. This is the data that grocery stores collect when you use your loyalty cards. And I got to statistically, Test is this nine cent thing work. Turns out it does. It's fascinating, but I became addicted to understanding how people use price to make decisions. and once you get go down that path, then it becomes obvious. The next step is well, how should companies make pricing decisions? Given that we understand how buyers air using price to make decisions. Now I'm helping PMC because I got to say every company I deal with doesn't understand value and in the world of marketing, if you understand value, you can talk about value to your marketplace instead of talking about your product and your product features, and the only way that really happens is once you understand what value means to a customer. So I love the idea of helping companies truly understand how our buyers are making decisions. And Price was just the thing that led me. There is the lead point for me. But in today's world of subscriptions, product managers, product marketers are finding themselves more and more involved in pricing decisions and packaging decisions, these are the things that are really important to understand, and they all come from a really big understanding of value.

What is the biggest problem you see around pricing and packaging? 

Mark Stiving: The biggest problem I see in companies trying to do pricing and packaging for their products is they don't understand what value means, and value should be driving those decisions. When I think of value first, the first thing I think of is it's what a customer is willing to pay. And then the question becomes, Well, how do we figure that out? It may be impossible to get their precisely because I can't read somebody's mind. But what I can do is get closer and closer by understanding how people make decisions in this world of value. There are two really big decisions that most buyers make before they purchase something. The first decision is Am I gonna buy something in the product category? I call that a will. I decision. The second decision is, Which one am I going to go by? So once you've decided you want to buy a new car, then you go shop around and say which card I want to go by. So buyers tend to make both of those decisions, and what we have to understand is when our buyers air making that which one decision they tend to be more price sensitive. They're comparing us to a competitive alternative. We need to know how much value we have relative to that competitors and what the competitors prices. But the really big news is there are often times where buyers only make a will I decision. They only say, am I gonna buy it? And then they say Yes, and that means we don't get compared To a competitor in this case, buyers air not as price sensitive. They're much more willing to pay us higher prices. We have the ability to create products or situations where buyers only make will I decisions and absolutely worst case. We need to be recognizing when buyers make those will I decisions because that's when we have the ability to charge a little bit. Higher prices, not discount us much, and our pricing and our packaging are driven, should be completely driven by understanding deeply these two concepts of value and how our buyers perceive them

What are the key strategic decisions that drive value? 

Mark Stiving: Once you commit to building a value based business, you're gonna realize that your job is really to create value, communicate value and capture value in the marketplace. It turns out the creating value we can do it in the communications. We could do it in a lot of the different things that we do as businesses. And so these three really big strategic decisions you have to make to determine how you create and deliver value to your customers. The first one is market segmentation. If you could define your market segments more narrowly than what happens is we could build products that satisfy your delight that tiny market segment way better than we could if we built a bigger market segment. Okay, wherever the market segments are, though, that's going to define how much value you can create for that market segment. However big you define them, however, well, you've defined them. So this is a really important decision we have to think through hard. How many are we gonna go after? How big are they gonna be? Market segments really drive how much value we can deliver. The second of our key value drivers is packaging. How do you offer your products to your customers? I almost always recommend to my clients that we're gonna use good, better best packaging, plus some options here, and they're good. Better Best does many wonderful things, but that's just a packaging technique. We could be selling all the cart. We could be selling one price. You get everything, but we have to make the decision on how are we gonna package are features to deliver those to the marketplace? And that is a big value decision. The third decision is crucial, especially if we're talking about SAS companies, and that's called a pricing metric. The pricing metric is, what are we going to charge for in more traditional businesses? What we charge for is pretty traditional, especially if it's a hardware business. You're selling cars you charge by the car, right? If you're selling hamburgers, you charge by the hamburger. But when you switch to sass, what are you going to charge for? Salesforce charges by the user linkedin charges by the inmail, dropbox charges by the gigabyte, constant contact charges by the size of your email list, there are many, many different things you could choose to charge for that's called the pricing metric. And when we get that decision right, we get to grow with our customers. We get to charge more to our customers is they're getting more value from our products All three of these value drivers are crucial decisions. What I find fascinating about him is every company makes these decisions. Sometimes you do it thoughtfully, and sometimes you just do it by default. But those are your three value drivers, market segmentation, packaging and pricing metrics.

How are subscriptions different?  

Mark Stiving: In one way Subscriptions aren't different at all from any other business. And that is, we still need to focus on value. How much value our our buyers and our users getting from our products, or how do they perceive the value they're getting from our products? But subscriptions also have these nuances to them. That turns out, makes them very different. The single biggest difference that drives a lot of things that we have to do in the world of subscriptions is that in a traditional business, we typically focus most of our efforts on how do we win new customers? Because I need to go sell the next car. I need to go sell the next hamburger. However, when we shift to subscriptions, of course I need to win new customers, but when I win a customer, I don't win all the money upfront. I only win a small portion of it. So now I have to keep my customer have to get them buying from the month after month after month, and then the great subscription companies figure out how to grow their customers where they get their customers instead of paying them $100 a month. They're paying them $150 a month. We could grow those customers over time, so we grow our revenue stream as well. Subscriptions are a fascinating business model but this wind keep and grow drives a ton of our decisions. Most companies don't focus enough on the growth side. And once you say, hey, I need to go grow my customers I need to a lot of consultants what's called this expansion revenue. I need to increase my expansion revenue. Then what we're focused on is maybe I could raise my prices to my current customers. Maybe I've chosen the right pricing metric and so I can convince my buyers to use more, and that means they end up paying me more. Maybe I've created my packaging with good, better best packaging, and I can convince people to up sell themselves or upgrade from good to better to best or if we've been in business long enough. Maybe we built new products that are targeted really well at that same market segment, and now we're cross selling products so that we can get more money from our current customers turns out subscriptions are a ton of fun. They're not easy, and the decisions we have to make really are a little bit different than more traditional businesses.

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