selling products and services
TRANSCRIPT
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