- Many B2B product managers don’t price their products until right before launch
- SiriusDecisions’ research shows that considering product price early in development more often leads to higher-value products
- Soliciting buyer input into the price metric and price levels helps product managers build a more realistic business case
At SiriusDecisions Summit a few years ago, we polled the audience to gain a better understanding of when product managers begin to tackle the pricing and packaging of a new product. The options were “Early in the development process,” “As part of the business case” and “Right before launch.” More than 50 percent of respondents selected the third option. Because we at SiriusDecisions know that considering product price early in the development process more often leads to higher-value products, we had a lot to discuss with the audience. As part of the SiriusDecisions Product Marketing and Management (PMM) Model, we recommend that organizations consider pricing early in the strategy phase of the development process. Here’s why:
- Confirm that buyers will pay for your product before spending money on it. Sometimes what initially looks like a great product idea ends up providing less value to buyers than expected. Maybe the product solves a problem that isn’t all that important to the buyer, maybe lower-cost options exist, or perhaps implementation costs outweigh the product’s potential value. These problems can only be uncovered by talking to prospective buyers about their key issues, needs and priorities and what they want to invest in. When product managers start pricing their products early, there’s enough time to interview buyers and gain insights into their most critical needs and the potential value of those needs.
- Learn which features are most important from a value perspective. Value-driver interviews, conducted early in the process, can also play a role in defining product requirements and driving the development plan. By talking to customers about what problems are most critical to solve – and which solutions they are most willing to pay for – product managers often are able to see which capabilities and features might be most lucrative for the organization to address.
- Learn how different segments value the product and its components. When organizations define pricing and packaging by segment early in the process, product management can ensure segment needs are addressed with specific offerings that are priced according to each segment’s priorities and willingness to pay. Additionally, early definition of audience segments and their value profiles helps product management focus more directly on the most lucrative segments.
- Gain clarity on the best price metric. The price metric – the unit to which the price is applied (e.g. seats, contacts, storage) – is a key component of product packaging, and, when effectively developed, communicates the core value of the offering. A strong price metric aligns to buyer value: as the buyer purchases additional units, the units gain additional value. Organizations must understand how buyers attach value to their offering to create a price metric that matches that value. This price metric decision also has implications for how a product is developed and packaged. When product management can identify the best price metric early in development, the likelihood is much greater that the development team can build the product easily and effectively and include the proper tracking mechanisms to provide necessary data to sales, marketing and product teams.
- Build a realistic business case. Without a pricing model based on actual customer input, the business case is theoretical. When organizations solicit buyer input into the price metric and price levels, the business case becomes far more realistic in terms of determining market capture and customer adoption rates. Often downstream goals and activities (e.g. sales quotas, launch plans) are tied to the financial business case, and when it’s merely theoretical, resourcing may be too great or too small to meet actual needs.
- Develop a stronger value proposition. When product managers explore pricing and product value early in the process, they can obtain confirmation that a product provides a specific dollar value and use this as input into an offering value proposition. For example, if a concept is tested with buyers, who confirm it provides operating improvements that could result in a 20 percent decrease in costs, this information can go into the development of an effective value proposition. Often these details are not explored until a product is ready to launch or even after launch.
Want to learn more about SiriusDecisions’ best practice recommendations? Attend my webcast, SiriusFoundations: Product Management, on Tuesday, June 20, in which I will present an overview of the critical elements of effective product management.