Pricing: It’s all about trust.

I led a pricing discussion last week at pCamp Amsterdam. Pricing is a topic that everyone has interest in, even if they don't have responsibility for pricing. There are research tools, notably conjoint analysis, that will help you set the right price but most product managers seem to follow try a logical rather than quantitative approach.

Apple products are often brought up in most pricing discussions. How do they charge a premium? Frankly, it's always difficult to use Apple as a reference point. They are huge; they spend money on research; they often seem to develop products specifically for Steve Jobs; they have a rabid fan base. Do you? Can you apply Apple's success to your own situation?

More important, how is it that Apple can charge premium prices, especially for new products?

The Apple iPad is a premium priced product that had hundreds of thousands of orders before anyone in the general public had actually seen it. How in the world…?

For one thing, Apple gave an incredible demo when the product was announced. Apple's keynotes are in fact 90-minute product commercials. You can see the products being used in real life. But even though they hadn't seen the iPad, an amazing number of people pre-ordered the product. Why?

I think Apple has created a loyalty from its customer base. Apple customers know the first product will be great and that subsequent products will be even better. We trust that they've designed another great product.

Can you say the same about your company? Your products? Will the first release be great? Or merely adequate?

As much as anything, pricing is aligned with trust. How much do you trust Apple or RIM or Microsoft or Oracle or SAP?

I just bought a new Jawbone wireless speaker. Sight-unseen. But I have trust. I bought Aliph's Jawbone ICON. Love it. So when they told me about the new speaker, I was inclined to trust them. And I didn't look elsewhere. I didn't compare "feeds and speeds" with other units. I went, "Yes I have this problem" and "I like Aliph products."

Who do you trust?

Not everyone feels this way, which is why it's important for you to research your customers' expectations rather than yours and mine. Research isn't just about product features; it's also about pricing, packaging, distribution channel, access to customer support, and so on.

Pricing is a complex issue. It involves comparison to competitive products and alternative products (I could buy the Aliph or the Jabra headet). It includes the cost of alternative uses of the money (I could buy a Bluetooth headset or a Netflix subscription). It involves trust (Do I believe it'll be worth the money? How does this compare to other products I've purchased in the past).

Start with these questions: competitive, alternatives, and trust. And then test the idea with your customers-to-be. You may be surprised with their answers.

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Steve Johnson

Steve Johnson

Steve Johnson was a founding instructor at Pragmatic Institute, a role he held for more than 15 years before he left to start Under10 Playbook. In his return to Pragmatic Institute, Steve supports the complete learning path for product teams, ensuring they are fully armed for success. 

Over the course of his career, Steve has helped thousands of companies and tens of thousands of product professionals implement product management processes. He has worked in the high-tech arena since 1981, rising through the ranks from product manager to chief marketing officer. Steve has experience in technical, sales and marketing management positions at companies that specialize in both hardware and software. In addition, he is an author, speaker and advisor on product strategy and product management.

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