Dan Balcauski, How to Price and Package Your Products for Maximum Profit – InnovaBuzz 496
Dan Balcauski, Product Tranquility
In this episode, I’m really excited to have as my guest, Dan Balcauski, the principal consultant for Product Tranquility based in Austin, Texas. He focuses on helping high-volume B2B SaaS CEOs define pricing and packaging for new products. Over his career, he has worked in both consumer and B2B companies, across consumer internet, mobile, IT software, and test and measurement hardware and software in addition to company sizes ranging from startups to publicly traded multi-national enterprises. He also teaches Product Strategy for Kellogg Executive Education online.
In our discussion, Dan talked to me about:
- How defining pricing and packaging starts with understanding our customer segments and the problems we solve
- Differentiating customer segments by buying behaviour and motivation
- The emotional forces driving the buying decision
Listen to the podcast to find out more.
Listen to the PodcastYour entire potential market is not homogenous. Your different customer segments will value your product differently. They have different drivers of value that they rank in different orders. @Dan_Balcauski on #InnovaBuzz podcast Click To Tweet
Show Notes from this episode with Dan Balcauski of Product Tranquility
Key points and takeaways from this episode include:
- It is who and how you charge that will determine your success.
- Price level isn’t the most important thing. It’s more important to understand which customers you are serving and your overall pricing and packaging model to be able to match the value you are delivering with your capability to get the fair value from that transaction.
- Your entire potential market is not homogenous. Your different customer segments will value your product differently. They have different drivers of value that they rank in different orders.
- Focus on understanding the identifiable customer segments that you have in your market so that you can understand how each of those groups will value your product differently and which of them have different competitive alternatives.
- Competitive alternatives are not just your direct competition.
- Understand the differentiated value that you bring into the market.
- A pricing strategy is a set of decisions that you make given the potential target customers that you are trying to serve, the competitive alternatives that are relevant to them, and your differentiated value proposition to that customer segment. These three things encompass having a successful monetisation model.
- Your product isn’t meant for everyone. If you’re a small startup, stop comparing yourself to big companies like Google or Amazon. They’re already at a different stage of growth. They’ve grown to have products for everyone, but that is not where they started.
- The 2 general ways to approach segmenting your customers:
- The Priority Approach – takes into account the existing observable characteristics of the market e.g industry, company size.
- Post-Talk Approach – starts not with who the customers are but what the customers want. It’s a value-based segmentation approach.
- Jobs-to-Be-Done is a framework that looks at the contexts that customers are in, what they are trying to achieve, the barriers that are in their way, and the outcome that they are trying to get to.
- Looking at your market from an outcome lens gives you an idea of why particular segments buy and others make a different decision.
- The Jobs-to-Be-Done framework also helps you understand the emotional forces that acts on a decision maker when they’re buying a new product. These emotions are either pulling them forward to make a decision or pulling them backward to keep them in place.
- Your product has to be 10x better than what exists in order for customers to move forward. If they don’t have full visibility of all the ways that your company might work differently, they’ll be pulled to stay in the status quo because they are uncertain if your product will work or not.
- 50% of purchase decisions are no decisions.
- A switch to any solution, no matter how good its, incurs emotional costs as well fixed costs such as training, onboarding, systems integration etc.
- Softwares are infinitely malleable. You have the ability to do almost anything magical in a software but it can also be overwhelming.
- Good packaging decisions are key to ensure that your market motion is as efficient as possible.
- The four components of a packaging decision:
- Price metric – the unit value that you charge customers, e.g. per seat, per gigabyte of data, per API
- Overall pricing model – refers to your business model, e.g. subscriptions, perpetual licences, pay-as-you-go
- Offer configurations or bundles – good, better, best packaging.
- Price Fence – charging different customers and setting different prices for the same capability based on identity, time, and volume.
- There’s a cost to educating your market about everything that your product does. It’s important to figure out how you can make that approachable, consumable, and efficient for both your customers and your sales team.
- Who and how you charge is more important than what you charge. Your customer acquisition cost doesn’t scale linearly or absolutely directly with the size of the product they buy.
- Customers don’t care what it costs you or how many hours it took you to make your product. That is not relevant to them.
- It’s not true that you shouldn’t worry about the price of your competitors. You have to! If you don’t understand what your competitors are charging or the value they provide, you won’t be inheriting the same reality that your customers are inheriting.
- It’s important to understand who your customers are and the different competitive alternatives that are relevant to them, even though the value that you provide to your customers is the prime metric that you need to focus on.
The Buzz – Our Innovation Round
Here are Dan’s answers to the questions of our innovation round. Listen to the conversation to get the full scoop.
- #1 thing to be more innovative – Innovation is breaking a previous constraint. Deeply understand the constraints that exist in your industry and the constraints that your customers are facing.
- Best thing for new ideas – Talking to your customers. Listen to your market. Talk to them in a research mode that tries to honour the outcomes that they are trying to achieve and focus your energy on helping them achieve that.
- Favourite tool for innovation – Microsoft OneNote
- Keep project/client on track – Good communication. Set clear expectations upfront. Stay in a regular cadence of contact. Use buckets for regular status communication.
- Differentiate – Pick your lane. Stand for something. Be world-class in that thing for that set of customers. You can combine your skills and be the best in the world for those things, but don’t try to be everything for everyone.
To Be a Leader
Align the outcomes of your business with the outcomes of your customers.
Dan suggested we have a conversation with David A Fields, author of The Irresistible Consultant’s Guide to Winning Clients. So David, keep an eye on your inbox for an invitation from us to the InnovaBuzz Podcast, courtesy of Dan Balcauski.
Cool Things About Dan
- Prior to founding Product Tranquility, he completed a solo round-the-world expedition to 21 countries.
- In 2019, he helped a small Spanish language school in San Carlos, Colombia with their digital marketing.
- He has a Bachelor of Science in Computer Engineering from Iowa State University and an MBA from the Kellogg School of Management at Northwestern University.