Today, a few words on validating ideas and turning them into a real product. Specifically, on pricing. Even though I spent three great years at Yieldigo, where pricing was a daily topic, I have no ambition to call myself an expert. All the more so because I know how complex a science it really is. What I have in mind is one of the six basic pillars we look at when validating an idea.
The question is: how much money is a potential customer willing to pay for our product?
You wouldn't believe how little time and energy companies actually spend on this. Note: we're not asking what it should probably cost. That's the version where we add up the costs, pray we didn't miss anything, throw on the usual margin for our industry and hope for the best.
We're asking about the customer's willingness to pay, meaning what it's worth in their eyes. That's a different discipline.
As with everything else we work on, plenty of experts have thought about this before, and my favorite is a method I privately call the Flying Dutchman. Yes, some of you have already guessed: it's Van Westendorp and his method.
Describe or show your product to a few potential customers, ask them these four questions in exactly this order, and you're all set.
- Too cheap: At what price would the product be so cheap that you'd doubt its quality and wouldn't buy it?
- Good value: At what price would you consider the product a good deal?
- Expensive: At what price does the product start to feel expensive, but you'd still consider buying it?
- Too expensive: At what price is the product so expensive that you would never buy it?
You'll know what to do with it from there. :-)
How do you handle it at your company?