Skip to main content

Negative Pricing

One important step in determining a price for your product is to determine how much it's actually worth. But what does that mean?

Your product is worth exactly the same amount as the cost of not using your product. Analyze the way prospective customers currently achieve the goals your product would satisfy and determine the costs they face in achieving these goals.

No, "negative pricing" does not mean paying your customers to use your product. It's the term I use for basing the price of your product on how much it costs for your customers not to use it.

Comments

Balu said…
What you said is partly right. But its tricky to price your product if ppl miss-understand the concept. For example an excel-automation might save few millions to a company where it hardly save few Tonne to other. In that case how would you place your product. I would be glad if you can post some best methodologies that can be used/currently being used.
Roger L. Cauvin said…
Thanks for pointing out that the "negative price" of a product (the cost to not use the product) varies by customer.

There are at least two ways of dealing with this challenge:

1. Vary the price of the product based on factors (e.g. number of "seats") that reflect the value to the customer.
2. Identify the largest market segment with the highest "negative price" and price the product to that segment.

Popular posts from this blog

Why Spreadsheets Suck for Prioritizing

The Goal As a company executive, you want confidence that your product team (which includes all the people, from all departments, responsible for product success) has a sound basis for deciding which items are on the product roadmap. You also want confidence the team is prioritizing the items in a smart way. What Should We Prioritize? The items the team prioritizes could be features, user stories, epics, market problems, themes, or experiments. Melissa Perri  makes an excellent case for a " problem roadmap ", and, in general, I recommend focusing on the latter types of items. However, the topic of what types of items you should prioritize - and in what situations - is interesting and important but beyond the scope of this blog entry. A Sad but Familiar Story If there is significant controversy about priorities, then almost inevitably, a product manager or other member of the team decides to put together The Spreadsheet. I've done it. Some of the mos

Use Case as a Black Box

Consider the following use case: Purchase Items Actor: Purchaser Precondition: Purchaser types at least thirty words per minute and has a web navigation efficiency rating of at least 40. Postcondition: For the average Purchaser acting at full efficiency, the number of seconds elapsed is no more than 30 + 20 * n, where n is the number of items purchased. The name of the use case represents a functional requirement. What does the product do, or enable the user to do? Purchase items. What are we to make of the preconditions and postconditions? What relationship do they have to the requirements for the product? Answer: the preconditions and postconditions are the nonfunctional requirements attached to the functional requirement . Another way of expressing the nonfunctional requirement would be as an attribute and associated constraint: Usability: For a Purchaser who types at least thirty words per minute and has a web navigation efficiency rating of at least 40, it shall take no

Henry Ford's "Faster Horse" Quote

You may have heard the ( apocryphal ) Henry Ford quote: If I'd asked customers what they wanted, they would have said "a faster horse". Over at the On Product Management blog , Saeed gives his take on this infamous quote. He "hates" it, and gives some compelling reasons. Saeed is spot on in his explanations. Personally, I think the quote is great, but it's a matter of interpretation. The valid point of the quote is not that it's a bad idea to facilitate a conversation with your market to better understand it. The valid points are: You must ask the right questions to get valuable answers. You must interpret the answers thoughtfully - often outside their direct meaning - to glean reliable information. Asking questions is not always the best way to "listen" to your market. (E.g., sometimes pure observational studies are more reliable.) Nonetheless, I find the quote is helpful to combat "armchair product management" in the