RR 436: Determining Pricing with Michael Herold
Michael Herold is married to an economist and is a staff engineer at Flywheel where he writes Ruby programs to support PHP programs. He gave a talk at RailsConf 2018 about how to price a product. The frame for the problem is whenever you have a business idea, you eventually have to decide how to price it, and the pricing area is ripe for inefficiency on both customer and business ends. In his talk, he gave a simple framework based on the field of market research that helps give you an idea of what to price your product or service at called the Van Westendorp Price Sensitivity Meter, which is based off of talking with your customers about how they would value your product. He explains the difference between consumer surplus and producer surplus.
The panel discusses other ways of determining pricing, such as basing your price off the price of a similar product. They discuss the pros and cons of different complex pricing they've seen. While complex pricing can be a turn off for many customers, it can also weed out less serious customers, and so it can be a good thing. Michael talks about what the Van Westendorp Price Sensitivity Meter actually looks like and how it works. It is based off a 4 question survey where customers are what price is too cheap, what price is a good deal, what price is getting expensive, and what price is too expensive. The answers are charted and you look for intersections in the curves (inflection curves) and it gives you an understanding of how people feel about the price of the product.
Determining pricing gets more complicated on a global scale, and the panelists discuss methods to handle it, such as giving discounts and adjusting prices by country. They discuss the importance of choosing the right price for your service, and a price that is too low can be as bad as over pricing. Michael talks about how his company determined their pricing using the Van Westendorp Price Sensitivity Meter and some of the difficulties they encountered. In the future, he wants to make a tool for how to figure out prices so that people don't have to build their own pricing model. They conclude by discussing the merits of having a sale on your product.
Charles Max Wood
With special guest: Michael Herold
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What is the Van Westendorp Price Sensitivity Meter?
The Van Westendorp Price Sensitivity Meter is based off of talking with your customers about how they would value your product. It is based off a 4 question survey. The answers are charted and you look for intersections in the curves (inflection curves) and it gives you an understanding of how people feel about the price of the product.
What are the four questions that the Van westendorp Price Sensitivity Meter is based off of?
What price is too cheap? What price is a good deal? What price is getting expensive? What price is out of your budget?
Why is it important not to price your product too low?
Low prices may indicate to customers that something is wrong with your product or that it does not have proper support and maintenance. As a result, they have less confidence in your product.
Is it ok to base your pricing off that of a similar product?
The panel agrees that there’s nothing morally wrong with basing your price off a similar product.