What is the importance of defining your product goal and vision and how pricing directly impacts the behavior of your customers? Learn from this presentation.

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How to Define Tech Product Pricing
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7. Frank Sibo Li
TONIGHT’S SPEAKERS

8. How to Define Tech Product
Pricing Strategy
Frank Sibo Li
2/7/2019

9. Disclaimers
Setting some housekeeping rules before we begin
This talk is out of my own personal capacity and not as a representative of Salesforce.com or Amazon
Web Services. The opinions and thoughts here are expressed solely as my own and not of any other
organization.

10. About Me
Senior Manager,
Product Management
Senior Product Manager,
Technical Products
Master of Business Administration
Frank Sibo Li
www.linkedin.com/in/franksli

11. Overview
Setting expectations and context
Today’s talk will be relatively high level. The goal is to provide insights and spark conversation.
It is not supposed to be exhaustive nor the end all be all for pricing.
Many of the topics that I discuss are not mutually exclusive and most innovative products do multiple
things. Again, this presentation is to bring ideas and concepts.
What we will be discussing today:
1. The importance of defining your product goal and vision.
2. How pricing directly impacts the behavior of your customers.
3. Examples and how to set up pricing strategies for subscription and usage based products.

12. Tech Products Before
Software distribution used to be different
Do you remember having to go a store to buy software?
Making software used to be a linear process.
Developers made it and then had to physically package and distribute it.
It used to be difficult to patch, upgrade, or iterate on.

13. Tech Products Today
Think about the tech products you use today.
How often are there updates, patches, or changes?
Why do you think this is?
Why not just sell a product once and forget about it? You got paid after all.

14. All About the Customer
Customer Experience & Multiple Engagements
Wait, do all products need to earn revenue?

15. Product Vision & Strategy

16. Product Goal
You’ve probably heard this a million times...
What is the goal of your product?
It is important that you identify this early on in the product development process.
It will drive what your product is/does and subsequently its pricing.
For instance, many product’s goals are to NOT generate direct revenue.
A single product may look to achieve multiple goals (with some level of prioritization) and may have
multiple or different combinations of

17. Indirect Revenue
Advertisements, Sponsored Content

18. Indirect Revenue
Stickiness of the ecosystem
iMessage: makes the Apple ecosystem that much more
sticky. Buying an Android or a windows PC means that you
will have to give up iMessage and resort to being… one of
those green text messengers…
Google Slides, Docs, & Sheets: They are there to promote
the use of Google Drive and to enhance the Google
ecosystem. Yes, there is also a paid version for Businesses.

19. Indirect Revenue
Data
There are many products out there whose sole purpose is
to gather data about you. What is this data used for?
● Providing you better advertisements
● Making the ecosystem stickier (by telling you new
songs or playlists)
● Recommending products you may want to buy
● Or just selling it.

20. What do these have in common?
Customer Experience & Multiple Engagements
These are just some examples of some products that generate indirect revenue.
The only way that these products can reach their goal is to create a compelling
customer experience so that the user returns and engages with the product
multiple times.

21. All About the Customer
Customer Experience & Multiple Engagements
Now let’s talk about Direct revenue

22. Product Goal
You’ve probably heard this a million times...
What is the goal of your product?
It is important that you identify this early on in the product development process.
It will drive what your product is/does and subsequently its pricing.
For instance, many product’s goals are to NOT generate direct revenue.
A single product may look to achieve multiple goals (with some level of prioritization).

23. Direct Revenue
One Time, Perpetual Licenses
Let’s go back to the physical store example.
You bought Windows 3.1. Back then, once it was shipped, that was it.
Customers paid Microsoft once for the Windows and that was the end of
the relationship.
Microsoft went right back into creating a new version that they could sell.
This is how product management started with Waterfall.
But wait, doesn’t this still happen today?

24. Direct Revenue
One Time, Perpetual Licenses
Isn’t the video game industry still one time purchases?
Buy the game once, and then you own it forever?
Yes, this is very true today. Businesses noticed that they were
leaving money on the table, so they turned to...

25. Direct Revenue
Add On Sales
Expansions, Downloadable Content, Microtransactions
(essentially usage), and Add-On purchases.
This does not only apply to the Video Game Industry.

26. Direct Revenue
Takeaway
● High initial fixed costs
● Waterfall approach and difficult to pivot afterwards
● Product team focuses on creating new version as opposed to enhancing current product
● Higher barrier to entry for customers (eg. $60 price tag for a game)
● If there are servers or infrastructure to maintain, difficult to provide service as not a revenue
stream (think of all the free online games where servers are required to maintain)
● You want your customer to attrite and leave, so you can sell the newer version to increase revenue

27. All About the Customer
Customer Experience & Multiple Engagements

28. Direct Revenue
Subscription
Subscription is all about the recurring relationship. Crosses all industries: physical and digital
● Software as a Service (SaaS) - Salesforce, SAP, Oracle
● Membership - Costco, 24 Hour Fitness, Amazon Fresh, Amazon Pantry
● Services - MoviePass, AMC A-List
● Evergreen - Netflix
● Freemium Model - Spotify, World of Warcraft, Tinder, Hulu
● Physical Delivery of Goods Over Time - New York Times, Blue Apron, Amazon Subscribe & Save

29. Direct Revenue
Subscription

30. Direct Revenue
Subscription

31. Direct Revenue
Subscription
“The reality is ownership is dead; now it’s really about access and experiences as the new imperative.”
Recurring revenue is perhaps one of the most compelling factors in a company valuation. “The more
guaranteed revenue you can offer a potential acquirer, the more valuable your business is going to be,
because a high percentage of the revenue of a subscription-based business is recurring, its value will be
up to eight times that of a comparable business with very little recurring revenue.”
In a project, the goal is to finish, whereas with a Subscription, the goal is to accomplish the objective --
and continue to provide value over time. The Customer and the Businesses now have a continuous touch
points, which are opportunities to better build trust and provide value over time.

32. Direct Revenue
Subscription
Netflix changed the relationship without telling their customer in 2011 by changing its plan. Their stock
tanked 80% and lost 800,000 customers because of this change in relationship

33. All About the Customer
Customer Experience & Multiple Engagements

34. Direct Revenue
Takeaways
● All about the customer recurring relationship
● More focus on the churn rate and customer metrics
● Constant need to improve and provide value
● Lower barrier to entry for customers (many can cancel at any time)
● Customers have low commitment
● More cost following than One Time

35. Direct Revenue
Usage
Usage is all about the customer consumption (pay as you go)
Focus on increasing customer consumption
Usage is perhaps one of the more complex pricing models.
I can easily spend multiple talks about usage.

36. Direct Revenue
Usage
Tiered Pricing

37. Direct Revenue
Usage
Included, Prepaid, or Points/etc.
Overages or additional purchases

38. Direct Revenue
Usage
Dimensions of Usage dictate Customer Behavior
Phone Plan:
$1 per GB
$20 per minute call
$20 per text
What do you think your customers behave?
What customer base do you think you’ll attract?

39. All About the Customer
Customer Experience & Multiple Engagements

40. Direct Revenue
Takeaways
● All about the customer consumption of your product
● Focus on the churn rate and customer metrics
● Constant need to improve and provide value
● Lower barrier to entry for customers
● Customers have low commitment
● Harder for customers to predict
● More cost following than subscription as long as dimension is aligned
● Need a system to manage usage processing

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