
Price Before Product - yarapavan
http://firstround.com/review/its-price-before-product-period/
======
jaclaz
I may be wrong, but cherry picking a number of successful products and an
equal number of unsuccessful products and then attribute to the one that
"price first" tag and to the second ones the "not price first" tag doesn't
seem to me a valid method of demonstrating anything, at best is anecdotal data
(and with some major oversimplifying of both the reasons for market success or
failure).

~~~
wanderr
Besides that, they keep saying things like "price first" but then talking
about focusing on what customers actually want, like bigger cup holders. As
far as I can tell bigger cup holders don't have much influence on the price of
a luxury SUV.

~~~
calbear81
It goes beyond what customers want to the intersection of want & willing to
pay for. I find that in a lot of companies, there's a lot of "customers said
they want x, so let's build it" vs. "customers said they want x and we've
validated that they are willing to pay for that feature." If your customers
are not willing to pay, how important was that feature in the first place?

------
jstandard
"Pay attention to price early" rings true. Everything else in the article
seemed very anecdotal or cherry-picked.

This is what makes case studies about product success so difficult. With so
many factors involved, any bold proclamation like "Price before product" is
bound to have enough prominent counterexamples to render it useless in
application.

Studies like this always remind me of Jim Collins' "Good to Great" controversy
where several of the heralded companies went bankrupt a few years after the
book was published.

Setting a good price before releasing a product is a lot easier said than
done. Particularly for startup products which may not have great reference
points. People are also generally not that good at figuring out what they're
willing to pay for something.

I take "Price before product" as simply a catchy reminder to "think about
price" as part of the long list of product requirements.

~~~
krn
> People are also generally not that good at figuring out what they're willing
> to pay for something.

I like to think about it this way:

1) what is the highest price I could charge without looking like an idiot for
charging too much?

2) what is the lowest price I could charge without looking like an idiot for
charging too little?

Now I have a price interval.

If it's SaaS, I set the highest price for the shortest subscription period
(ex., 1 month), and the lowest price for the longest subscription period (ex.,
12 months), while adding additional options in-between (ex., 3 months, 6
months).

This way, I feel like both sides are getting a fair deal, and nobody loses.

~~~
shimon
This sounds reasonable in isolation, but ignores the reality that the price
you set is a big, blunt tool that determines who your users are. For some
products, such as those that are challenging to start using but increase in
value over time, your approach would filter out users who don't already
believe in the longer-term potential of your solution. Is that a good or bad
thing? Likely bad, but it depends on your product and the market it operates
in.

If we distill this whole "pricing before product" idea down I think it's just
a specific part of orienting to the needs and behaviors of users before
designing the solution. Price is sometimes awkward to fit into something like
user-centered design, perhaps because it affects users/needs, business
viability, etc. but really it's one important factor among many. Maybe it's a
very important, hard-to-change factor (likely true in luxury autos) but it can
sometimes be a fairly insignificant or easy-to-change one (e.g. technology
offerings with few substitutes).

~~~
krn
> For some products, such as those that are challenging to start using but
> increase in value over time, your approach would filter out users who don't
> already believe in the longer-term potential of your solution.

This is a great point, and I have actually thought a lot about it. I came to a
conclusion, that a great product should always be priced according to its the
real value, whether users initially understand it or not. Those, who do, will
eventually explain it to those, who don't. Apple is a perfect example: its
hardware is more expensive, but it lasts longer and causes less friction to
the end-user, even if the alternatives have similar specs on paper. The same
could be said about the products by such companies as RAVPower[1], Minaal[2],
and Montbell[3].

[1] [https://www.ravpower.com/](https://www.ravpower.com/)

[2] [https://www.minaal.com/](https://www.minaal.com/)

[3] [https://www.montbell.us/](https://www.montbell.us/)

~~~
jstandard
How do you determine real value and how is your determination of real value
the correct one?

Particularly in the context of the article, where the author is advocating for
startups to set the real value of their products before launch.

I disagree with the Apple example in the sense that Apple typically launches
products in burgeoning or semi-established markets. They have comparables to
base their initial price range on and one of the world's strongest, high-end
brands which typically targets the mid-higher end of the market.

Marketing and branding play a huge part of a product's success and ability to
set prices. What is the real value of a good brand?

This is why it's tough for me to take the bulk of the article seriously. In
theory everything mentioned is great. In practice, the world, customers, and
startups typically don't yield enough information to do "Pricing before
product" beyond anything more than a rough stab.

~~~
krn
> How do you determine real value and how is your determination of real value
> the correct one?

I try to answer the question: "Is it worth this amount of money for what it
does, if it does it perfectly well?". I don't care about marketing and
branding, and focus only on the product itself. If the value seems to be too
low, I try to improve the product, not the marketing.

I think Tinder does an extremely great job at pricing using age-based
segmentation, because that's where the real value of the service defers to the
users. It's not that people above 30 can just afford to pay more - they
literally can't afford not pay, since they don't have as many options.

~~~
jstandard
> I don't care about marketing and branding, and focus only on the product
> itself.

That's where I find your framework breaks down. You can't ignore marketing and
branding. Apple, Tesla, countless companies would be nothing without strong
marketing and branding.

A product is nothing if it doesn't reach consumers. A similar point was made
upthread that pricing de facto segments your market. You can set the price to
whatever you think is best. If you aren't reaching the right people or have
trust issues with your brand, ex. a new, untrusted product, then no one will
buy your product no matter how many features it has.

~~~
krn
> You can't ignore marketing and branding.

Well, of course you can. Look at Craiglist[1]:

> In 2015, the AIM Group, which has calculated Craigslist revenue since 2007,
> estimated that the company pulled in sales of about $396 million. Its 2016
> estimate of $694 million—an increase of 75% over the prior year—came down to
> the fact that Craigslist bumped job posting fees in certain cities and
> instituted them for the first time in others.

I am claiming, that marketing and branding should not determine the price of
the product, not that it should not be used to communicate the real value of
it.

[1] [https://www.forbes.com/sites/ryanmac/2017/05/03/how-does-
cra...](https://www.forbes.com/sites/ryanmac/2017/05/03/how-does-craigslist-
make-money/)

------
cs702
Why is this on the front page?

As others have commented here, this blog post reads like something you would
normally see on a trade rag, making grandiose-sounding claims that are really
kind of obvious ("think about price before launching a product") and backing
them with cherry-picked anecdotes and questionable logic.

~~~
orasis
20+ year entrepreneur here - I now evaluate every new product I create based
on expected pricing and margins.

If I don’t expect to have the highest margin product in the category I won’t
launch it.

Why? Because ad prices reflect the margins of the top company and its winner
takes all.

------
fhood
I hate the initial comparison. Look, everybody knows that SUVs are the easiest
type of car to sell, and compacts are the most viciously difficult. So
starting your article with a comparison that is so obviously flawed hardly
lends credibility to the point you are trying to make.

Edit: I still can't believe that they chose to compare it to Chrysler's
complete inability to make a compact car that would sell in the early 2000s.
As if putting price first would have fixed the Dodge Neon.

~~~
pkulak
Sure they are now, but in the mid 90s? Porsche legitimately took a risk with
the Cayenne when they started development.

The Rav4 was the first CUV (unibody SUV) and it only came out in '94\. The
fact that a sports car maker was right there with Toyota is kinda amazing.

~~~
fhood
Sure but SUVs in general sold like crazy, they had a few years to watch the
rav4 sell extremely well, BMW came out with the M3 at the same time, and
Mercedes was already making a ton of money selling luxury SUVs. I just don't
see how this is a good example of price before product, or how much of a risk
it was given what was happening in the market.

------
costcopizza
The Porsche vs Chrysler comparison is beyond silly. Luxury SUVs were (and
still are) an emerging market in the early 2000s.

Compact cars in 2009, were not. And that's besides the fact that a bankrupt
Chrysler was sure as hell designing every car they had to a strict budget.
There's plenty of cars (most) that are built to a price first, then product,
and many of them sell and perform unremarkably.

Up until the late 20th century Mercedes-Benz didn't set a price for their car
before all their R&D and engineering was finished. They ended up producing
some of the best built cars out there, that indeed did sell.

------
lsb
This is how IKEA designs its products.

 _At IKEA we design the price tag first and then develop the product to suit
that price._ _IKEA product developers and designers work directly with
suppliers to ensure that creating the low prices starts on the factory floor._
_They consider maximising production equipment, using raw materials
efficiently and applying technical innovations and the best possible design._

[https://www.ikea.com/ms/en_SG/about_ikea/the_ikea_way/our_bu...](https://www.ikea.com/ms/en_SG/about_ikea/the_ikea_way/our_business_idea/our_low_prices.html)

~~~
tgsovlerkhgsel
That makes a lot of sense. I know IKEA is often decried as low-quality
furniture, but I'd disagree. In my experience, IKEA furniture is excellent
quality _for the price it 's being sold at_, and they seem to have (at least)
a two-tier system - extremely cheap stuff, and quality-oriented stuff at a
higher price point.

Both provide ridiculously good value for their respective price points, IMO.

------
rsweeney21
This is good advice for startup founders. Sure, you can nit-pick the examples
used in the article, but you'd be missing out on the wisdom you could gain
from it.

Innovative pricing can lead to completely new startup opportunities.
Salesforce is an older example. Robinhood and Divvy[1] are recent examples.

Not everything has to be a per user subscription.

[1] [http://getdivvy.com](http://getdivvy.com)

~~~
slow_donkey
Divvy seems to be free on first glance. How does their pricing work?

~~~
codingdave
It is free. They take a cut of the interchange fees.

------
Peteris
I used to work as a management consultant in McKinsey and did several pricing
engagements.

The Firm in question is almost exclusively focused on pricing projects and
"price before product" framing is probably helpful in convincing potential
clients. Take with a grain of salt.

------
anonpricingguy
(posting anon because silicon valley is a small community, sorry take w grain
of salt)

im a senior product leader at a successful saas post-IPO company that used
"simon kucher" (author's employer), and specifically had the author as the
lead consultant.

the work they did was "fine", but hardly earth shattering: they recommended
effectively what we already knew we needed to do but leadership was too afriad
to do. so the board convinced the c-levels to spend $500k+ on these
consultants to effectively validate the findings.

pro tip: strong product leaders already have a really good idea what the
pricing model should be. you dont have to spend a fortune to have someone
unfamiliar with your business and market tell you.

[edit: technically Madhavan isnt the author but i dont really know who is]

~~~
shanghaiaway
>they recommended effectively what we already knew we needed to do but
leadership was too afriad to do. so the board convinced the c-levels to spend
$500k+ on these consultants to effectively validate the findings.

They did their job well in that case. And seemingly nobody in the company
could do it so their fee was worth it.

------
ryanmarsh
Perhaps it's "Price Before Product" for B2C. B2B products and services seem to
have a no limit for price. Just when I think a business wouldn't possibly pay
that much, they do. I just saw a consulting firm charge $40k for a damn
workshop. Nobody batted an eye.

~~~
tomjakubowski
How big a company? Did they have a CFO?

~~~
ryanmarsh
Fortune 100, yes.

------
anoncoward111
The author is correct, it is price before product. But the product needs to be
functional for there to be a price.

The author says that customers weren't willing to pay for a fancy racing
transmission. That's correct, people will ultimately choose the cheaper option
if they aren't getting any utility out of the racing transmission.

But you can't go all the way to the other side and put in an unreliable
transmission like for example Jaguar did in the X-Type. Those cars sold well
at first, but now their resale is basically non-existent because the
transmission goes poof about 3x faster than a Toyota's.

~~~
ken
> The author is correct, it is price before product.

Given that the two main examples in the article are so controversial, can you
give any examples where it was true, and successful? As consumers, we
obviously don't know what price points most consumer products were intended
for.

I've read that the Macintosh was intended [1] to be $500, but ended up selling
for $2495. It's hard to imagine that a personal computer costing half the
price of an Apple II in 1984 would have been able to include hardware/software
that had such a significant impact on the industry.

[1]:
[https://www.folklore.org/StoryView.py?project=Macintosh&stor...](https://www.folklore.org/StoryView.py?project=Macintosh&story=Price_Fight.txt)

~~~
anoncoward111
I guess it's a complex topic but maybe we can stick with the example I
offered? Or we could talk about Windows and Linux.

There's different bands of consumers, really. Like there are literally
billions of customers on this planet who can't spend more than $1,000 on
anything, full stop, period, even if it would radically improve their life.

So, the differences of an OS or a car are lost to them. The best they can ever
afford is Linux or a chromebook or XP, not windows 10 or a macbook air.
They'll never purchase a Porche, they're stuck with a beat up Camry or Monte
Carlo if they're really unlucky.

------
bitxbit
This is what’s wrong with modern marketing.

~~~
harshreality
Marketers are just doing what they can to make money at the expense of
everyone's problematic psychological tendencies.

Taking your statement in its literal form, there's nothing wrong with
marketing in itself. It's wildly successful in getting people to buy more and
pay more for what they buy, which is the entire point of it. What's wrong is
how marketing, unregulated capitalism and free corporate speech, and human
psychology interact. But addressing those other things is difficult.

Yes, marketing is a problem and bullshit, but saying that won't change
anything. The levers to change how marketing is done have nothing to do with
marketing. They hit the third rails of free speech and free market capitalism,
which mainstream culture is loathe to question.

------
alpeb
> Ask at the onset whether or not people would pay for the product you intend
> to develop. This is the Willingness-to-Pay talk,” Ramanujam argues.
> “Frontloading this question is powerful because customers won’t be in the
> mindset of negotiating price. Instead, they’ll give you objective feedback
> that you can use to prioritize what you’re building.

Nah. People aren't objective about their purchasing decisions like that. The
only way to find about willingness to pay is through actual experimentation.

------
chrisseldo
Dear firstround.com,

Please consider using HTTPS.

Love, The exposed user

~~~
munk-a
Also, I get that a lot of sites are terrible these days but firstround has a
truly awful design.

------
nooyurrsdey
It's more important to consider what is more important for your product and
the market it serves. The takeaway here is that you shouldn't forget about
price and the end user at all. But it is ultimately one of several decisions
to make with its own tradeoffs.

But overall I'll admit that it's great metric for decision making especially
for us engineers that get caught up in the design of the ideal product.

------
tormeh
I think this is why selling stuff you haven't made yet is such a common
business strategy in software and most other fields where it is possible. It
essentially eliminates the cost of developing features no one is willing to
pay for (and equivalents in other fields). Any company that builds before they
sell will be completed out of business unless they never miscalculate the
demand for a feature.

------
laurex
Most of the examples given in the article are about physical products. It's
hard to see the direct translation for pricing software, especially since most
of the largest tech companies primarily offer "free" products, and whose
revenue is a result not of pricing strategy but of user behavior, engagement,
and numbers.

------
philodelta
I understand this is not the point of the article, but whenever I see one of
those SUVs on the road I feel a twinge of saddness; it seems a car in internal
dissonance, it wants to be sleek and sporty, but it's this huge beast of a
vehicle.

~~~
fhood
Americans refuse to buy station wagons. Rest in peace CTS-V wagon. You were
far too good for this world.

------
mattmurdog
Pretty sure amazon, google, facebook, twitter built a product first before
price. Sometimes it really is about innovation, once you do that, the money
follows.

Unless you're moviepass.

------
mpolichette
I would make the argument that price is part of the product... No one cares
(or at best you'll have a really limited market) if you can't make your
product affordable.

~~~
O_H_E
"Limited" is relative, and in this new world you can have perfectly successful
product while not being "affordable". But ofcourse you have to have other
things, like brand awareness or a good value/dollar

------
tw1010
What an unnecessarily broad heuristic. I can only assume the author is trying
to do (faux) wisdom signaling by making such a needlessly general rule.

------
cookingrobot
Choosing to build a luxury SUV ($56k-$89k) instead of yet another luxury
sports car is a product decision, not a price decision.

------
forkLding
This is pretty old practice, its called target pricing or target costing in
the business world.

------
ken
The story of Porsche and Chrysler ignores their history. These brands don't
exist in a vacuum. Customers aren't approaching these products only by looking
at features and prices.

10 or 15 years ago, there was a clever Porsche commercial where a kid goes to
the dealership to check out the latest 911, and gets a business card, and says
"I'll be back in 20 years". I thought that perfectly summed up the Porsche
brand. There was something special about Porsche that stuck with you -- all
they do is make the best car in the world. When I first heard that Porsche was
making an SUV, I remember thinking the brand was dead. It was now just another
car company. I no longer have any desire to ever own a Porsche. Their new
sports cars are technically impressive but the cachet is gone.

(I suspect the Cayenne works today because the target audience grew up in the
Porsche golden era. It's comparable to an X5 or Q7, but noticeably more
expensive. Will it continue to sell well in the future, when their market
doesn't consist of people who grew up dreaming about the 911?)

The Dodge Dart (clearly the Chrysler subject, though not mentioned here by
name) was advertised in its commercial as "under 16 grand", which is a
perfectly reasonable price for a compact car. What price would the author of
this article have recommended instead? What really sank it in the market,
according to the reviews, was reliability. I don't associate the Chrysler
brand with reliability, and I didn't believe that "kicking out the finance
guys" would solve that overnight.

(Had the car sported a Honda badge, and the same price tag, I truly believe it
would have sold like hotcakes.)

You can see the same effect in some other recent car commercials. They take a
car, strip off all the logos, and ask "normal people" to review it. They ooh
and aah, and wonder if it's the newest BMW. Surprise: it's American!

What I don't understand is: if the biggest liability of American carmakers is
literally their name and logo, why do they stick with them? Why do they
continue to try to find clever ways to change our minds about things that they
know everybody has already made up their minds about? In any other industry,
when a brand is no longer valuable, they change it. I know there are older
people who will only ever buy a Ford/Chevy/Dodge, but the latest hybrid
subcompact or hot hatch is not being marketed to those people, anyway.

The Germans did it right: they had a brand name that people valued highly, so
they put it on something these people were buying anyway -- and were willing
to pay a premium for. (There's a whole "Porsche Design" subsidiary selling
knives and pens and such.) The Americans did it wrong: they had a brand name
that wasn't highly valued, so people didn't want a product with that brand
name, even at a good price. Brands are mostly immutable. It takes a long time
to change anyone's mind.

~~~
dahdum
Porsche was a luxury brand moving downmarket, expanding their reach at the
expense of their brand. We're seeing the same thing with Aston Martin,
Maserati, and many fashion brands.

It certainly works short term, but I wonder if they'll ever try (or be able
to) recapture the cachet they once had.

