Product managers today play an important role in determining the pricing strategy of their products. We speak to Nichole Mace, VP of Product Growth at Pendo, about the history of pricing and product, the struggles, and her tips to influence your pricing model that provide the most value for your users.
Product managers and pricing
Product teams having such an influence over pricing models is still a fairly new collaboration, and the part that product plays very much depends on company size, Nichole says. The larger the company, the more that pricing lies in the park of product. Big organisations, for example, tend to have product teams that focus on product growth and pricing packages. Despite companies managing this product collaboration in different ways, it’s an important area that product managers all need to know and learn about, she says.
Even organisations that don’t have product growth teams should still understand the strategy behind the company’s pricing model. This understanding ensures that product teams are focused on how users interact with different payment models in the product.
What’s changed in the pricing model space? Nichole says usage-based pricing is a popular strategy for many organisations. The usage-based pricing model, where customers are charged only when they use a product or service, is the usual model for music and movie streaming platforms like Spotify and Netflix. It creates a more flexible payment model where users can opt in and opt out when they feel like doing so.
Due to the rise in this model, product managers play an important role in ensuring that product features perform well. Says Nichole: “Product managers directly influence these feature updates that users see instantly. We as product managers are naturally suited to build products with a usage-based pricing model as we want people to invest in our product and use it more. It’s a purer exchange of value that feels good for those who are looking to provide fair value to their end users.”
Organisations have realised over time that it’s the product experience that typically moves users through their payment packages. “It’s much cheaper to retain and grow an existing customer than to make a brand new sale,” Nichole says, “this shift into product teams playing a key role in pricing is making every organisation that inherits this culture more focused on the user over anything else.”
Opportunities and pitfalls
From her experience from setting and iterating on pricing models, Nichole knows how important it is to look at the competitive space from a value standpoint. “When you look at what you’re offering compared to the offerings of other companies, you can plot where you think your plan should sit,” she says. Competitors may opt for a high price and high value. Alternatively, others may choose a lower value and lower price. Determining where you sit in this spectrum is a key starting point. You can also use this stage of the process to find a gap in the market.
Nichole adds that it’s important for early-stage companies to differentiate between free and paid versions early on. It’s difficult to introduce a paywall later on if users have spent several years enjoying a product or service for free. For example, streaming platform Netflix has recently received heavy backlash due to updating its password-sharing policy. So realistically you want to stay on top of who is paying for your product and who isn’t. This is how you grow as a business and build loyal users, Nichole says.
This is why aspects of pricing strategy need to sit inside product, so these teams can keep on top of the data to gain a pulse check on how users are feeling about the pricing of a product. Nichole shares a few key areas that she stays focused on when looking at users:
- How many users do we have?
- How many of those users are active?
- How many of those active users are free?
Asking these questions indicates how a pricing strategy is performing, and if changes are required for users to engage more with it.
When a paywall is introduced, there’s always the risk that it will receive bad press. The challenge for a product manager is to figure out how to communicate payment changes elegantly. She reiterates: “However if you include a paywall early on, then you don’t have to face that hurdle later on.”
Getting started in pricing
Nichole explains that many organisations work with external companies that specialise in pricing strategy research. To improve your understanding, she recommends always raising your hand to be a liaison in these conversations.
Additionally, don’t take things too seriously. She explains the many times that she’s tried features that haven’t worked. Going through this made her learn and grow as a product manager. “The reality is that you can do all of the research and all of the tests, but there’s no guarantee that you will get it the right first time. You just have to accept that, and get feedback on your first pricing model, then iterate going forward,” Nichole says.
Having the flexibility to test and learn is critical. Creating your pricing strategy is no different than working on a new feature. “You need to try different pricing, offer new limited offers, and introduce new pay packages regularly to get things right. So from that standpoint, take the pressure off of yourself and learn as much as you can.”
From her experience of working with pricing models, she has had a huge boost by having that flexible mindset. “You’re talking to customers, doing customer surveys, and seeing who’s buying what. Treat pricing like a usual product responsibility. It takes the pressure off and allows you to provide true value for your customers with your well-thought-out and iterative pricing strategy.”
If you want to find out more about pricing strategy, we wrote another guide on this. Check it out below along with other great content published on Mind the Product: