selling products and services

7 — BM — Selling Products

From Code to Product gidgreen.com/course

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — Slide 2 gidgreen.com/course

Desktop software

From Code to Product Lecture 7 — BM — Selling — Slide 3 gidgreen.com/course

In-app purchases

From Code to Product Lecture 7 — BM — Selling — Slide 4 gidgreen.com/course

Software as a service

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

App store products

From Code to Product Lecture 7 — BM — Selling — Slide 6 gidgreen.com/course

SaaS and mobile app growth

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

0

$5 billion

$10 billion

$15 billion

$20 billion

2006 2007 2008 2009 2010 2011

Software as a Service

Mobile applications

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — Slide 8 gidgreen.com/course

Payment models

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — Slide 13 gidgreen.com/course

Time limited

From Code to Product Lecture 7 — BM — Selling — Slide 14 gidgreen.com/course

Capacity limited

From Code to Product Lecture 7 — BM — Selling — Slide 15 gidgreen.com/course

mailchimp.com

Feature limited

From Code to Product Lecture 7 — BM — Selling — Slide 16 gidgreen.com/course

fres

hboo

ks.c

om

Collaboration limited

From Code to Product Lecture 7 — BM — Selling — Slide 17 gidgreen.com/course

high

rise

hq.c

om

Ad supported

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 19 gidgreen.com/course

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — Slide 26 gidgreen.com/course

Customer segmentation

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 28 gidgreen.com/course

Price vs Process

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — Slide 31 gidgreen.com/course

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 33 gidgreen.com/course

Credit card payment process

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 – iOS: $1.47, Android: $3.74

From Code to Product Lecture 7 — BM — Selling — Slide 39 gidgreen.com/course

Games and games on iOS

From Code to Product Lecture 7 — BM — Selling — Slide 40 gidgreen.com/course

A mix on Android

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 42 gidgreen.com/course

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 44 gidgreen.com/course

Entry to purchase

From Code to Product Lecture 7 — BM — Selling — Slide 45 gidgreen.com/course

Entry to purchase

From Code to Product Lecture 7 — BM — Selling — Slide 46 gidgreen.com/course

Choose a version / level

From Code to Product Lecture 7 — BM — Selling — Slide 47 gidgreen.com/course

Order summary

From Code to Product Lecture 7 — BM — Selling — Slide 48 gidgreen.com/course

Customer information

From Code to Product Lecture 7 — BM — Selling — Slide 49 gidgreen.com/course

Payment information

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 51 gidgreen.com/course

Subscription concerns

From Code to Product Lecture 7 — BM — Selling — Slide 52 gidgreen.com/course

high

rise

hq.c

om

Lecture 7

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

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 54 gidgreen.com/course

Risk assessment

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — 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 7 — BM — Selling — Slide 58 gidgreen.com/course

PCI DSS compliance

From Code to Product Lecture 7 — BM — Selling — 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 7 — BM — Selling — Slide 60 gidgreen.com/course

Books

From Code to Product Lecture 7 — BM — Selling — Slide 61 gidgreen.com/course