Eric Ries, author "The Lean Startup": test & experiment, turn your feeling into a hypothesis

TL;DR

Pricing should be based on the value delivered to the customer, not production costs, and may not always align with logical expectations.

Transcript

the internet marketing and everything related to customer behavior is it's just it's weird that way like I mean I was working with a product a start-up once and they were charging I came up with Richard X dollars per person per month to use their product some kind of commercial product and I was like how much experimentation have you done with that... Read More

Key Insights

• 🚚 Pricing should be based on the value delivered to the customer, not production costs or personal opinions.
• ❓ Customers' willingness to pay may not always align with logical expectations.
• 😥 Experimenting with different price points can help identify the optimal price for a product.
• ✋ Perceived value can be much higher than production costs, leading to higher prices for certain products like coffee and software.
• 🐕‍🦺 Supporting products or services financially can further their growth and development.
• 🧑‍🏭 Emotional factors contribute to customers' perceived value and willingness to pay.
• ✋ Customers may complain about high prices but still find the product worth the cost.

Questions & Answers

Q: Why did the startup refuse to experiment with their pricing?

The startup believed they had already found the optimal price point and were not open to testing different options. They ignored customer complaints and assumptions about the product's value.

Q: How can you determine the optimal price for a product?

The author suggests conducting experiments at different price points to observe the conversion rate. By plotting conversion rate against price, a curve can be identified to determine the optimal price point.

Q: Why do customers often complain about high prices, yet still pay for the product?

Perceived value to the customer is often higher than production costs. Emotional factors and the actual value the product brings to the customer play a significant role in their willingness to pay.

Q: Why do some customers prefer to negotiate for a lower price?

While customers may feel the need to negotiate, they often understand the value of supporting the product or service they love. They want to pay the minimum possible but also want to contribute to the growth and success of the product.

Summary & Key Takeaways

• The author shares a story about a startup that refused to experiment with their pricing, despite customer complaints about high costs.

• The author suggests that pricing should be proportional to the value delivered to the customer, not production costs or personal opinions.

• The example of high-priced coffee demonstrates that perceived value can be much higher than production costs.