Any Business Owner that’s ever tried to bring a new product to market has had to deal with one frustrating fact – no one knows what to charge for it! No matter how well you think you can predict the market or how much research you’ve done, until people start paying for your product you’re still just guessing.
Even then, when people are actually forking over their hard earned cash for your product, you still don’t know if you’ve optimized for the best possible price to generate the greatest number of sales. Fortunately there are some simple strategies you can employ to quickly arrive at a happy medium and give yourself a little piece of mind.
The Binary Nature of Pricing
The first pass you’ll want to take at pricing is to eliminate all of the people that weren’t going to pay you to begin with. What may shock you is that when it comes to a consumer’s perception of pricing, it’s not always the actual amount that scares people; it’s whether or not they have to pay at all. Pricing is more or less binary for consumers – they are either going to pay or they won’t – the actual price is incidental.
Having launched several companies myself, all in different industries ranging from the MAACO Franchise to Technology and now Technology financial services, I’ve found that in each case you get a group of consumers that are willing to pay just about any reasonable price for the product, and a group of consumers that won’t ever pay a penny.
There’s something that goes off in a customer’s head when they have to pull out their wallet. Up until that point the value you were providing may have gone relatively un-noticed. But when the customer has to break out their credit card and start typing in those 16 magical numbers, they think twice about the value of your product.
Instead of developing your pricing to lure the group of people that just aren’t willing to pay for your product, focus on maximizing the yield of the customer who will pay for your product. It’s a lot easier to get someone to pay 10% more for your product than it is to reduce the price of your product and get more people to pay for it.
The “Freemium” Model
Next you’ll want to figure out how to separate the paying customers from the non-paying customers, without alienating either. Leave it to the overzealous Internet nerds to invent a word like “Freemium” to explain a basic price gateway model. Freemium is a word used to describe giving a portion of your product away for free in order to attract interest, then charging the most passionate customers for premium benefits.
I’m not entirely sure, but I think this model was pioneered by Baskin Robbins every time they handed me a free sample of chocolate ice cream in order to convince me to buy an entire cone. These days the freemium model appears when I want to sample a song on iTunes but have to pay to download the whole song onto my iPod.
The beauty of the freemium model is that allows you to test two pricing strategies simultaneously. You get to see how many customers would be interested in your product for nothing at all to gauge the overall interest in your product. It then allows you to learn exactly what about your product people are most interested in paying money for.
Try every Possible Price
Once you’ve separated the paying customers from the non-paying customers, you still need to settle on the right price to charge them. There’s one simple answer here: try every possible price.
I’ll give you an example. At MAACO, a retail auto-paint shop that gives consumers a low-entry paint job for their car. MAACO would drive marketing to a 199.00 paint job and give free estimates. Our early estimates figured we would probably get around 399.00 per car average because everyone wanted to upgrade the paint service. We found that our 199.00 paint service actually drove our average price per car to 699.00, who would have thought. We actually break even on the 199.00. Who wants to sell something for breakeven? The only thing that kept us from simply making four times as much per sale was our willingness to test the sensitivity of price. Had we gone with our gut instincts we would have vastly undervalued the product and left a whole lot of money on the table.
It Pays to Try Everything
The only thing you can rely on when picking the price of your product is having to change it – a lot. If you can develop a system to test as many possible price points with as many consumers as possible, you can hopefully uncover that hidden gem that is your perfect price. Until then, keep trying something new. It’s the only surefire way to win.
Monday, October 19, 2009
Tuesday, September 8, 2009
Why Just Copying Someone Else Doesn’t Work
Can you just copy what someone else does and become successful...... This kind of thinking goes that if they simply copy the Web site verbatim, they’ll essentially enjoy the same success. This sounds good in theory except for one truth - in 12 years across three different companies noone could copy our creativeness and passion for what we did. That doesn’t mean people haven’t tried.
The reason these companies fail isn’t because they didn’t make a good enough copy. It’s because they mistook copying the product for copying the business. As a business owner it’s important to understand the difference between what your competition can replicate and what they cannot.
You Can’t Copy Execution
Making a clone of a product is the easy part. The hard part is executing properly on a business in order for it to grow. In the case of our duplicate competitors, they usually die on the vine in a matter of months. They don’t seem to realize that even if you were to copy our product verbatim, using an identical logo and domain name, that the actual daily management and execution is what separates one company from another.
What we do day in and day out – marketing, branding, product development and customer service – is what drives the company toward success.
If your plan is to copy someone’s formula and use it for yourself, you had better have a much better plan for execution than they do. When Overture (now a part of Yahoo!) invented the model of putting paid text ads next to the results in your Web searches, Google flat-out stole the concept.
In Google’s case, however, they executed far better than Overture did on the very concept they stole. In this case, they were able to win not because they stole the concept, but because they executed on the concept better than Overture.
People Buy more than just Products
You’ll often find that copying the product alone, even if it’s an identical twin, isn’t enough. When people buy a product they are not just buying the item itself. They are buying the entire package it comes with.
In the case of a product like a Nike sneaker, they are buying the brand of Nike, not just the sneaker. You can build an identical pair of sneakers, charge half the price for them, and Nike will still outsell you. The product is only a fraction of the purchase. People are also buying the authenticity of the brand that they feel strongly about.
In other cases people are paying for efficacy. You may be able to copy the barebones format of the craigslist.org Web site, but you don’t have the traffic or the efficacy that craigslist does. You also don’t have millions of users who have successfully posted ads on craigslist and gotten what they wanted. That kind of activity requires an incredible amount of time and success to replicate, which copying a product verbatim doesn’t allow for.
Good Ideas will always be Copied
On the flip side, if you have a good idea you can pretty much guarantee someone will copy it. But your concern shouldn’t be whether or not you will be copied, it should be whether or not the person copying you is better at delivering your product than you are.
You can try to protect your idea with all of the patents, trademarks and copyrights you want, but at the end of the day if you’re not out-executing your competition, you’re going to get beat. Even patents will eventually expire!
Bad Competition is a Favor
To some degree you can think of bad competition as a favor. The more poor attempts your competitors make at copying your product, the better your original product looks by comparison.
Additionally, lots of bad competition makes the marketplace look artificially saturated to other would-be competitors. If someone performs a search for your product and sees ten other companies are offering the same thing, they may think twice about becoming the 11th. Little do they know that most of those companies are just cannon fodder in the war for customers!
What really matters is the competitor that enters the space fully loaded with the right management and experience to take you on. While having a good, original product is a great first step, it really is the people behind the product that make all the difference.
Ramsey
The reason these companies fail isn’t because they didn’t make a good enough copy. It’s because they mistook copying the product for copying the business. As a business owner it’s important to understand the difference between what your competition can replicate and what they cannot.
You Can’t Copy Execution
Making a clone of a product is the easy part. The hard part is executing properly on a business in order for it to grow. In the case of our duplicate competitors, they usually die on the vine in a matter of months. They don’t seem to realize that even if you were to copy our product verbatim, using an identical logo and domain name, that the actual daily management and execution is what separates one company from another.
What we do day in and day out – marketing, branding, product development and customer service – is what drives the company toward success.
If your plan is to copy someone’s formula and use it for yourself, you had better have a much better plan for execution than they do. When Overture (now a part of Yahoo!) invented the model of putting paid text ads next to the results in your Web searches, Google flat-out stole the concept.
In Google’s case, however, they executed far better than Overture did on the very concept they stole. In this case, they were able to win not because they stole the concept, but because they executed on the concept better than Overture.
People Buy more than just Products
You’ll often find that copying the product alone, even if it’s an identical twin, isn’t enough. When people buy a product they are not just buying the item itself. They are buying the entire package it comes with.
In the case of a product like a Nike sneaker, they are buying the brand of Nike, not just the sneaker. You can build an identical pair of sneakers, charge half the price for them, and Nike will still outsell you. The product is only a fraction of the purchase. People are also buying the authenticity of the brand that they feel strongly about.
In other cases people are paying for efficacy. You may be able to copy the barebones format of the craigslist.org Web site, but you don’t have the traffic or the efficacy that craigslist does. You also don’t have millions of users who have successfully posted ads on craigslist and gotten what they wanted. That kind of activity requires an incredible amount of time and success to replicate, which copying a product verbatim doesn’t allow for.
Good Ideas will always be Copied
On the flip side, if you have a good idea you can pretty much guarantee someone will copy it. But your concern shouldn’t be whether or not you will be copied, it should be whether or not the person copying you is better at delivering your product than you are.
You can try to protect your idea with all of the patents, trademarks and copyrights you want, but at the end of the day if you’re not out-executing your competition, you’re going to get beat. Even patents will eventually expire!
Bad Competition is a Favor
To some degree you can think of bad competition as a favor. The more poor attempts your competitors make at copying your product, the better your original product looks by comparison.
Additionally, lots of bad competition makes the marketplace look artificially saturated to other would-be competitors. If someone performs a search for your product and sees ten other companies are offering the same thing, they may think twice about becoming the 11th. Little do they know that most of those companies are just cannon fodder in the war for customers!
What really matters is the competitor that enters the space fully loaded with the right management and experience to take you on. While having a good, original product is a great first step, it really is the people behind the product that make all the difference.
Ramsey
Wednesday, September 2, 2009
Hardware-as-a-Service vs. Lease
This question has popped up several times over the last few weeks. I have posted this reposnse on a couple of sites. So here you go.
Larry Walsh posted this article... for more comments visit http://blogs.channelinsider.com/content001/managed_services/equipment_leasing_and_haas_whats_the_difference.html
Equipment Leasing and HaaS: What's the Difference?
Seems like every year, some vendor or group of solution providers starts pushing the idea of customers leasing hardware - servers, routers, switches, firewalls, storage arrays, etc. Just as you do with cars (or we did before the credit crisis), a business would lease the hardware in their data center and contract with the solution provider for support. At the end of the term, solution providers would give the customer the option of either upgrading equipment or purchasing the hardware and extending the warranties.
In the age of managed services and what some people call "hardware as a service" (HaaS), businesses no longer have to take possession of equipment. It's sort of managed services in reverse; the hardware sits in the service providers' data center, and the customer leases either parts or whole functionality of core equipment.
The question I recently got from a solution provider is, What's the difference between leasing IT equipment and the HaaS model? On the surface, the difference is in the delivery of functionality. But there's more to it than just that.
In practical operational terms, leasing is no different from purchasing or owning the equipment. The consumer takes possession of the hardware, deploys it in operating environments, and is responsible for the management and routine maintenance (although we'd hope they would contract with a solution provider for the routine maintenance). A lease coming to term creates a natural sales opportunity, where the customer must make a choice about taking full possession or replacing with new equipment.
The HaaS model is similar to leasing in that the customer is making regularly payments to a service provider for the use of the equipment. But the only thing the customer is really paying for is functionality and performance. The service provider is responsible for operations, maintenance and performance. Upgrades, equipment in use, maintenance and management are all, theoretically, transparent to the customer. It could be argued that HaaS is more advantageous to customers, since they'll never be caught in the obsolescent cycle.
Leasing and HaaS both convert the purchase from a capital to an operational expense. The cost structure of each model is different, but the business can carry both as a recurring expense rather than a single outlay of cash. That's increasingly a benefit to cash-strapped customers. While some will argue that leasing creates a point in time in which customers and solution providers must talk about the future of the leased equipment, so does HaaS agreements.
There are significant differences between the two and, from a certain perspective, the HaaS model has the edge over leasing in terms of value to both the customer and the solution provider. So the real question is whether HaaS will eliminate the value proposition of leasing.
Here is my response
Wow... It’s not often I see a real discussion on HaaS. Like some of you, I offered HaaS when I was a reseller for 10 years, now today I operate a HaaS reseller program. My Book –“How to HaaS” just went to the publisher last week. So here are my points for what it is worth.
From a Business Process standpoint, HaaS has 3 basic parts. Payment Structure, Operations (Product & Support) and finance. Since we are talking lease comparison, I will stick with financing.....
In order for Leasing Companies to become a part of a HaaS solution, it has to fit with the structure of all the Business Process parts... seamlessly. In order for the reseller to use leasing as the funding arm on the contracts, you have to streamline your business process to meet expectations. Examples……
1. Reseller Branded (lease) Contracts - Because of the increase in service delivery, Clients want to know the relationship is mutual on all aspects of the contract. How effective would Verizon be if they sold their contracts with Bank of America logos on the front?
2. Contracts should only show payment and terms - If you use lease companies to fund contracts, then you must only show payment & term on the contract. Example: How much interest do you pay on your sprint bill? YOU DO NOT want to get into to the finance game with HaaS.
3. Asset assignment - Under a lease the residual/assets should be assigned to the reseller. The reseller needs to be able to manage, support, fix and control the equipment short and long term. This way the reseller also gets to take advantage of Depreciation.
4. Service Pass/through billing - When a reseller sells a deal, they should be able to fund the earned revenue portion and pass through the un-earned portion. Therefore giving them a single payment structure.
5. Funding percentages – This should go away. Most leasing companies demand a percentage of soft-cost vs. hard-cost. If the contracts are based on a dollar buyout, then this should not affect what is soft and what is considered hard.
These are the basic scenarios.. Overall, leasing is a great way to do HaaS based deals. Credit is based on clients, you get cash for your cost plus, you have a contract that has been tested legally and most important a long term stickiness that forces both parties to make things work. I think Chartec has a good model; however you have to be careful you don’t sell yourself out of business with the “I rent to you – You rent to them” model. If your company cannot handle chopping up your profit you receive in cash over a 36 month term, then you have to find the right mix of funded deals vs. rental base deals.
MSP On Demand's program is based on this type of process and today we have a number of lenders that fund under those conditions.
I hope that helps.
Ramsey Dellinger
Larry Walsh posted this article... for more comments visit http://blogs.channelinsider.com/content001/managed_services/equipment_leasing_and_haas_whats_the_difference.html
Equipment Leasing and HaaS: What's the Difference?
Seems like every year, some vendor or group of solution providers starts pushing the idea of customers leasing hardware - servers, routers, switches, firewalls, storage arrays, etc. Just as you do with cars (or we did before the credit crisis), a business would lease the hardware in their data center and contract with the solution provider for support. At the end of the term, solution providers would give the customer the option of either upgrading equipment or purchasing the hardware and extending the warranties.
In the age of managed services and what some people call "hardware as a service" (HaaS), businesses no longer have to take possession of equipment. It's sort of managed services in reverse; the hardware sits in the service providers' data center, and the customer leases either parts or whole functionality of core equipment.
The question I recently got from a solution provider is, What's the difference between leasing IT equipment and the HaaS model? On the surface, the difference is in the delivery of functionality. But there's more to it than just that.
In practical operational terms, leasing is no different from purchasing or owning the equipment. The consumer takes possession of the hardware, deploys it in operating environments, and is responsible for the management and routine maintenance (although we'd hope they would contract with a solution provider for the routine maintenance). A lease coming to term creates a natural sales opportunity, where the customer must make a choice about taking full possession or replacing with new equipment.
The HaaS model is similar to leasing in that the customer is making regularly payments to a service provider for the use of the equipment. But the only thing the customer is really paying for is functionality and performance. The service provider is responsible for operations, maintenance and performance. Upgrades, equipment in use, maintenance and management are all, theoretically, transparent to the customer. It could be argued that HaaS is more advantageous to customers, since they'll never be caught in the obsolescent cycle.
Leasing and HaaS both convert the purchase from a capital to an operational expense. The cost structure of each model is different, but the business can carry both as a recurring expense rather than a single outlay of cash. That's increasingly a benefit to cash-strapped customers. While some will argue that leasing creates a point in time in which customers and solution providers must talk about the future of the leased equipment, so does HaaS agreements.
There are significant differences between the two and, from a certain perspective, the HaaS model has the edge over leasing in terms of value to both the customer and the solution provider. So the real question is whether HaaS will eliminate the value proposition of leasing.
Here is my response
Wow... It’s not often I see a real discussion on HaaS. Like some of you, I offered HaaS when I was a reseller for 10 years, now today I operate a HaaS reseller program. My Book –“How to HaaS” just went to the publisher last week. So here are my points for what it is worth.
From a Business Process standpoint, HaaS has 3 basic parts. Payment Structure, Operations (Product & Support) and finance. Since we are talking lease comparison, I will stick with financing.....
In order for Leasing Companies to become a part of a HaaS solution, it has to fit with the structure of all the Business Process parts... seamlessly. In order for the reseller to use leasing as the funding arm on the contracts, you have to streamline your business process to meet expectations. Examples……
1. Reseller Branded (lease) Contracts - Because of the increase in service delivery, Clients want to know the relationship is mutual on all aspects of the contract. How effective would Verizon be if they sold their contracts with Bank of America logos on the front?
2. Contracts should only show payment and terms - If you use lease companies to fund contracts, then you must only show payment & term on the contract. Example: How much interest do you pay on your sprint bill? YOU DO NOT want to get into to the finance game with HaaS.
3. Asset assignment - Under a lease the residual/assets should be assigned to the reseller. The reseller needs to be able to manage, support, fix and control the equipment short and long term. This way the reseller also gets to take advantage of Depreciation.
4. Service Pass/through billing - When a reseller sells a deal, they should be able to fund the earned revenue portion and pass through the un-earned portion. Therefore giving them a single payment structure.
5. Funding percentages – This should go away. Most leasing companies demand a percentage of soft-cost vs. hard-cost. If the contracts are based on a dollar buyout, then this should not affect what is soft and what is considered hard.
These are the basic scenarios.. Overall, leasing is a great way to do HaaS based deals. Credit is based on clients, you get cash for your cost plus, you have a contract that has been tested legally and most important a long term stickiness that forces both parties to make things work. I think Chartec has a good model; however you have to be careful you don’t sell yourself out of business with the “I rent to you – You rent to them” model. If your company cannot handle chopping up your profit you receive in cash over a 36 month term, then you have to find the right mix of funded deals vs. rental base deals.
MSP On Demand's program is based on this type of process and today we have a number of lenders that fund under those conditions.
I hope that helps.
Ramsey Dellinger
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