selling products and services 2013

5 — Selling Products

From Code to Product gidgreen.com/course

Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 2 gidgreen.com/course

Desktop software

From Code to Product Lecture 5 — Selling Products — Slide 3 gidgreen.com/course

In-app purchases

From Code to Product Lecture 5 — Selling Products — Slide 4 gidgreen.com/course

Software as a service

From Code to Product Lecture 5 — Selling Products — Slide 5 gidgreen.com/course

App store products

From Code to Product Lecture 5 — Selling Products — Slide 6 gidgreen.com/course

SaaS and mobile app growth

From Code to Product Lecture 5 — Selling Products — Slide 7 gidgreen.com/course

0

$5 billion

$10 billion

$15 billion

2006 2007 2008 2009 2010 2011 2012

Software as a Service

Mobile applications

Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 8 gidgreen.com/course

Payment models

From Code to Product Lecture 5 — Selling Products — Slide 9 gidgreen.com/course

$0

$20

$40

0 6 12 18 24 30 36

Revenue

Month

One time

Subscription

Pay as you go

One-time purchases

•  Payment = ownership •  Low transaction costs •  Unstable cash flow – Publicity bursts – Upgrades

•  Problem of ongoing costs – Technical support – Online elements

From Code to Product Lecture 5 — Selling Products — Slide 10 gidgreen.com/course

Subscriptions

•  Payment = membership •  Periodicity – Monthly, quarterly, annual – Discounts for longer

•  Stable cash flow – Forgotten subscriptions

•  Problem of churn – Active or passive

From Code to Product Lecture 5 — Selling Products — Slide 11 gidgreen.com/course

Pay as you go

•  Payment = usage – No easy money!

•  Credits or after-billing – Credit expiry?

•  Volume discounts •  Semi-stable cash flow •  Problem of tiny customers – Minimum credit purchase

From Code to Product Lecture 5 — Selling Products — Slide 12 gidgreen.com/course

The free version

•  Cournot theorem – Price ⟶ marginal cost – Marginal cost ≈ zero

•  Engine of publicity – Everyone loves free

•  Get people ‘hooked’ – No barrier to usage – Upsell later on

From Code to Product Lecture 5 — Selling Products — Slide 13 gidgreen.com/course

Time limited

From Code to Product Lecture 5 — Selling Products — Slide 14 gidgreen.com/course

Capacity limited

From Code to Product Lecture 5 — Selling Products — Slide 15 gidgreen.com/course

mailchimp.com

Feature limited

From Code to Product Lecture 5 — Selling Products — Slide 16 gidgreen.com/course

fres

hboo

ks.c

om

Collaboration limited

From Code to Product Lecture 5 — Selling Products — Slide 17 gidgreen.com/course

high

rise

hq.c

om

Ad supported

From Code to Product Lecture 5 — Selling Products — Slide 18 gidgreen.com/course

Making freemium work

•  Problem: moving off free – Fixed value notion – Search for alternatives – Especially time limits

•  Possible solutions – Data lock-in –  Increased usage over time – Collaborative momentum

From Code to Product Lecture 5 — Selling Products — Slide 19 gidgreen.com/course

Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 20 gidgreen.com/course

$0

$5

$10

$15

$20

0 200,000 400,000 600,000 800,000 1,000,000

Pric

e

Sales volume

Demand curve

From Code to Product Lecture 5 — Selling Products — Slide 21 gidgreen.com/course

$4 × 500k = $2m

$12 × 125k

= $1.5m

$0.0m

$0.5m

$1.0m

$1.5m

$2.0m

$2.5m

$0 $5 $10 $15 $20

Revenue

Price

Optimal price

From Code to Product Lecture 5 — Selling Products — Slide 22 gidgreen.com/course

Optimal price

$0

$5

$10

$15

$20

0 200,000 400,000 600,000 800,000 1,000,000

Pric

e

Sales volume

From Code to Product Lecture 5 — Selling Products — Slide 23 gidgreen.com/course

$5.77 × 370k = $2.13m

Demand curve reality

•  Low prices look bad – Charge more, sell more?

•  Curve not so smooth – $x.99 effect – Competing products

•  Curve unknown – Testing possible, sometimes

From Code to Product Lecture 5 — Selling Products — Slide 24 gidgreen.com/course

$0

$5

$10

$15

$20

0 200,000 400,000 600,000 800,000 1,000,000

Pric

e

Sales volume

Multiple price points

From Code to Product Lecture 5 — Selling Products — Slide 25 gidgreen.com/course

$4 × 250k = $1m

$8 × 125k

= $1m

$12 × 125k

= $1.5m

Total = $3.5m

Customer segmentation

•  People know what they want to pay – Give them a reason to pay it!

•  Multiple levels – Capacity increases – Extra features – Type of user – “VIP support”

•  Clear comparisons

From Code to Product Lecture 5 — Selling Products — Slide 26 gidgreen.com/course

Customer segmentation

From Code to Product Lecture 5 — Selling Products — Slide 27 gidgreen.com/course

wufoo.com

Solid mid-range product

in middle

Cheap/crappy option (decoy)

Some people always want

the best

Choosing prices

•  Perceived value – Marketing – Support

•  Competing products – How do you compare? – Sense of fairness

•  Keep it simple •  Don’t lose money per sale!

From Code to Product Lecture 5 — Selling Products — Slide 28 gidgreen.com/course

Price vs Process

From Code to Product Lecture 5 — Selling Products — Slide 29 gidgreen.com/course

$1

$10

$100

$1,000

$10,000

$100,000

Impulse purchase

Personal credit card

Claim back from company

Use company credit card

Approval from dept head

Approval from CEO

Justifying high prices

•  Lack of competition – Or become the standard

•  More features •  Differentiate – Have a personality – Create a tribe – Great support

•  Competing on price is dangerous!

From Code to Product Lecture 5 — Selling Products — Slide 30 gidgreen.com/course

Other price games

•  Razors and blades •  Fives and nines •  Supermarket signposts •  Bundling •  Volume discounts? •  Upgrades/sidegrades •  Time-limited sales

From Code to Product Lecture 5 — Selling Products — Slide 31 gidgreen.com/course

Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 32 gidgreen.com/course

Credit cards

Visa $2,040B MasterCard

$901B

AmEx $540B

Discover $114B

US Purchases 2011 nilsonreport.com

From Code to Product Lecture 5 — Selling Products — Slide 33 gidgreen.com/course

Credit card payment process

From Code to Product Lecture 5 — Selling Products — Slide 34 gidgreen.com/course

Shopping cart

Credit card form

Product & Price

Payment gateway

Card & Amount Payment

processor

Card & Amount

Merchant account

Cash − charges

Your account Cash −

charges?

Online payment processors

From Code to Product Lecture 5 — Selling Products — Slide 35 gidgreen.com/course

Shopping cart

Credit card form

Payment gateway

Payment processor

Merchant account

Your account Cash −

5 to 10%

•  Simplest and easiest •  Paid weekly or monthly

Your own merchant account

From Code to Product Lecture 5 — Selling Products — Slide 36 gidgreen.com/course

Shopping cart

Credit card form

Payment gateway

Payment processor

Merchant account

Your account Cash

Cash − 2 to 5%

•  Merchant account approval •  Harder for non-US

Collecting card details

From Code to Product Lecture 5 — Selling Products — Slide 37 gidgreen.com/course

Shopping cart

Credit card form

Payment gateway

Payment processor

Merchant account

Your account Cash

Cash − 2 to 5%

•  Control e.g. recurring •  PCI DSS compliance

Selling via PayPal

•  Pay with PayPal balance – Popular with non-Western customers – You can also use it

•  Credit cards also accepted •  Low fees (2.5% to 5%) •  Problem: account freezes – Receive but no withdrawal – You are at their mercy

From Code to Product Lecture 5 — Selling Products — Slide 38 gidgreen.com/course

iOS/Android app stores

•  Controlled software marketplaces •  Hit-driven, e.g. Top 25 paid – Advertise on other apps, not in-store – Promote via free version

•  Apple/Google take 30% – No credit card / distribution fees – Same for in-app purchases

•  Avg prices $2—$4 (2012) but most free

From Code to Product Lecture 5 — Selling Products — Slide 39 gidgreen.com/course

Games and games on iOS

From Code to Product Lecture 5 — Selling Products — Slide 40 gidgreen.com/course

A mix on Android

From Code to Product Lecture 5 — Selling Products — Slide 41 gidgreen.com/course

Invoicing

•  (Semi-)manual process – Only worthwhile for bigger customers

•  Paid by check or bank transfer – No %-based processing fees!

•  Delivery or payment first? – Customer may expect delivery – Payments need to be chased

•  Also: receipts for prior payments

From Code to Product Lecture 5 — Selling Products — Slide 42 gidgreen.com/course

Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 43 gidgreen.com/course

Customer concerns

•  Am I buying the right thing? •  Is the price what I was promised? •  Are there additional costs, e.g. tax? •  How long is this going to take? •  Who are these guys, anyway? •  Is it safe to enter my credit card? •  Will I be able to get technical help? •  Can I cancel or be refunded?

From Code to Product Lecture 5 — Selling Products — Slide 44 gidgreen.com/course

Entry to purchase

From Code to Product Lecture 5 — Selling Products — Slide 45 gidgreen.com/course

Entry to purchase

From Code to Product Lecture 5 — Selling Products — Slide 46 gidgreen.com/course

Choose a version / level

From Code to Product Lecture 5 — Selling Products — Slide 47 gidgreen.com/course

Order summary

From Code to Product Lecture 5 — Selling Products — Slide 48 gidgreen.com/course

Customer information

From Code to Product Lecture 5 — Selling Products — Slide 49 gidgreen.com/course

Payment information

From Code to Product Lecture 5 — Selling Products — Slide 50 gidgreen.com/course

Subscription concerns

•  Will I be able to cancel? – Will it be a fight? – Can I get a payment refunded?

•  Can I upgrade/downgrade? –  Is there a penalty for that?

•  Will the price go up? •  Will I be informed of each payment?

From Code to Product Lecture 5 — Selling Products — Slide 51 gidgreen.com/course

Subscription concerns

From Code to Product Lecture 5 — Selling Products — Slide 52 gidgreen.com/course

high

rise

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Lecture 5

•  Introduction •  Payment models •  Pricing •  Payment methods •  Conversion funnels •  Problems

From Code to Product Lecture 5 — Selling Products — Slide 53 gidgreen.com/course

Credit card fraud

•  X uses Y’s credit card without permission •  Why do you care? – Y comes after you – You get a chargeback

•  Payment processor solutions – Card security code (not on stripe) – Address confirmation – Verified by Visa / MasterCard SecureCode – Fraud detection algorithms

From Code to Product Lecture 5 — Selling Products — Slide 54 gidgreen.com/course

Risk assessment

From Code to Product Lecture 5 — Selling Products — Slide 55 gidgreen.com/course

•  If possible, review manually – Big orders – Purchase from “unusual” country

Chargebacks

•  Customer asks bank for money back – Card was stolen – Product absent/deficient – Friendly fraud

•  Full price taken back from you – No recourse without customer signature

•  You pay fine, $15—30 – Much higher if too frequent

From Code to Product Lecture 5 — Selling Products — Slide 56 gidgreen.com/course

Refunds

•  Customer asks you for money back •  You can argue, but… –  It’s (probably) not worth your time –  It harms your reputation – They have chargebacks

•  You pay back full price – But no additional fees

•  Easy interface at payment processor

From Code to Product Lecture 5 — Selling Products — Slide 57 gidgreen.com/course

Subscription retention

•  Active churn – Try to intercept – Ask why afterwards

•  Passive churn – Card failed / expired – Notify and request renewal – Special offers

•  Expect average 1—3 years •  Acquisition > Retention cost (generally)

From Code to Product Lecture 5 — Selling Products — Slide 58 gidgreen.com/course

PCI DSS compliance

From Code to Product Lecture 5 — Selling Products — Slide 59 gidgreen.com/course

Customer support

•  Money = obligation – Threat of chargebacks

•  Pre-sales enquiries •  Email + phone is best •  Respond within 1 working day •  Really read / listen – Speak their language

•  Never get angry From Code to Product Lecture 5 — Selling Products — Slide 60 gidgreen.com/course

Bitcoin: The solution?

From Code to Product Lecture 5 — Selling Products — Slide 61 gidgreen.com/course

Pros Cons

Extremely low cost Very limited support

Irreversible Exchange rate fluctuations

Pseudonymous 10 min confirmation delay

Universally available Government interference?

Rapid settlement Easy to steal (like cash)

Decentralized Accounting uncertainty

Coinbase Offering

From Code to Product Lecture 5 — Selling Products — Slide 62 gidgreen.com/course

Books

From Code to Product Lecture 5 — Selling Products — Slide 63 gidgreen.com/course