Pricing Determines Your Experience
We talk a lot about customer experience at BP3. A recent post by Jason Cohen of WP Engine explains, contrary to conventional wisdom, that pricing determines your business:
But I disagree. Price is as important as any other feature to determine product/market “fit.”
He makes a great case. In particular:
Price is inextricably linked to brand, product, and purchasing decisions — by whom, why, how, and when. Price is not an exercise in maximizing some micro-economic supply/demand curve, slapped post-facto onto the product. Rather, it fundamentally determines the nature of the product and the structure of the business that produces it.
This is such a great insight. In that, he’s telling you something you probably know, but putting it into words that reveal the truth of pricing’s relationship to your business. Reuben Swartz of Mimiran often makes similar points about pricing – and Jason is bringing a fresh take to it. And, to the extent that we want to create great experiences for our customers, how does our pricing affect that? Or, from the perspective of a customer, how does the price they pursue for services or products determine the level of service they’re likely to receive?
Jason goes on to describe what the price-points mean in terms of your business, from $0/month, to $1, to $10, to $100, to $1000, to $10,000, to $100,000. Read the blog post! It is worth the time.
You can’t read something like Jason’s post and not examine your own business. So where does BP3 fit in? For most of our product/service offerings we’re in that $10,000 to $100,000/month category or close to it. While Jason does a fantastic job of explaining what these price points mean for sales cycles, there are two other elements that he doesn’t touch on that I think are equally relevant.
First, as a vendor. At $10,000/month or $100,000/month, if you can sell efficiently you will have the wherewithal to invest in technology and processes to impact customer experience, and improve your odds of winning in the future, not to mention, producing happier customers. Assuming you’re not burning VC money, these pricing tiers mean that you’re really investing in your business. Your customers need brilliant help from your consulting team, and you can afford to hire the crack troops to make that work. As Jason points out, the $1000/month level is tricky to be profitable at. You can’t hire the cream of the crop on those numbers.
Second, as a customer. As a customer, when you’re moving from most expensive to least expensive, you also have some considerations about the level of service to expect. The less you’re paying, the less you can truly expect from your vendor. To put this in a price-per-hour perspective – when you’re paying $200/hour for consulting, you know the firm you’re hiring is going to be able to invest in their team, their software, and their processes to provide better services over time. At $100/hour, there’s likely nothing left over for investment if they pay prevailing wages – or they may eek out the same margins by bringing much less qualified people to bear. You think you’re saving money by paying less per hour (or per month), but you’re really just losing all of the benefits that are in the heads of that crack consulting team. You’re losing out on the technology investments. The process investments.
In the same way that setting price determines what kind of product offering you can have, choosing the price determines what kind of customer experience and outcomes you’re going to have as a customer. You’re choosing between 8 major process deployments in 12 months, or none. It isn’t a 20% efficiency argument. Or a 30% argument. For some markets (and BPM is one of them), it is binary.