[HN Gopher] Principles of Pricing
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Principles of Pricing
Author : talhof8
Score : 222 points
Date : 2022-11-07 07:54 UTC (1 days ago)
(HTM) web link (www.principlesofpricing.com)
(TXT) w3m dump (www.principlesofpricing.com)
| m0llusk wrote:
| > ... business ... purpose is ... to survive, and ... to maximise
| profit ...
|
| That is kind of like saying the purpose of human life is
| breathing. Yes, breathing is critical and fully integrated into
| existence, but there is so much more to living well. Similarly
| the purpose of business is to create value. Survival through
| flows of money comes as a result of that. Money dominated
| conversations can help, but often miss fundamental issues. For
| example, there is a big psychological difference between a
| software service with regular payments versus occasional software
| releases that can be bought and owned. With the right pricing the
| two are essentially the same, but customers tend to have very
| different feelings toward each model.
| schuke wrote:
| While I agree a business should have something higher and
| valuable, business is usually so competitive that mere
| breathing is hard enough. Most die before even mastering that.
| Closi wrote:
| The bit of the sentance you stripped out was the bit where they
| emphasised that they were describing a basic and simplified
| definition because there is actually an entire chapter on what
| you are talking about - i.e. consumer preferences and different
| considerations for different models (including "What does the
| customer perceive it as fair/value when considering SaaS vs
| perpetual licencing?").
|
| Sometimes you start with overly simplified concepts to help
| people frame/grasp later ones, i.e. when teaching a child
| science it's better to teach them that there are 4 fundamental
| states of matter first, before they later learn that there are
| 29 known including the Bose-Einstein condensate, Fermionic
| condensate and Rydberg molecule.
| scarface74 wrote:
| > but customers tend to have very different feelings toward
| each model.
|
| Seeing the success that Microsoft and Adobe have had once they
| moved to subscription pricing, it seems like a better business
| model.
|
| Even small software companies have found that subscriptions are
| much more sustainable.
| TeMPOraL wrote:
| > _That is kind of like saying the purpose of human life is
| breathing. Yes, breathing is critical and fully integrated into
| existence, but there is so much more to living well._
|
| Yeah, this is inaccurate at a systems level. It would be better
| to say that human life is about ensuring your genes pass on to
| the next generation. That's life in a nutshell, and from the
| POV of nature, you're either contributing to that endeavor, or
| a waste of resources for those who do.
|
| All the higher things of human experience are _running on top
| of_ the substrate that 's self-optimizing to propagate itself
| further. The purpose is what we ascribe to what we see; nature
| has no obligation to agree, and as much as it doesn't, we can
| either suffer, change our understanding of purpose, or - thanks
| to technology - work to realign nature to our sensibilities.
|
| > _Similarly the purpose of business is to create value.
| Survival through flows of money comes as a result of that._
|
| Similarly here, the importance is reversed. Money flow and
| profit are _fundamental_ , they're the substrate. They're what
| the system will do naturally. Value creation is the meaning we
| ascribe to it, which is not necessary for businesses to run
| (this one should be plainly obvious, as a lot of well-known
| businesses, including many hot startups, are arguably net
| negative). Making the market better align with our ideals takes
| _work_ , because it's counter to its natural dynamics.
| SMAAART wrote:
| I see your point and I agree. Alas, while not perfect, money is
| the closest proxy to measure value, not so much from the
| seller's POV, but the buyer's; how much money-value are they
| willing to part in order to acquire the goods/services being
| sold.
| m0llusk wrote:
| Another example might illustrate the difference better: When
| Steve Jobs returned to Apple he found extremely diverse
| product offerings intended to offer solutions optimized for
| features and cost to all segments of the small computer
| market. Unfortunately this resulted in a confusing mess that
| even he was unable to navigate. Which Mac should someone buy?
| Even Steve Jobs could not figure that out, and that is a sign
| of a serious problem.
|
| The result was a mass consolidation of products. For a time
| there were high and low end versions of portable and desktop
| computers and that was it. Deciding between a Mac and a Mac
| Pro was not confusing or difficult, and this approach worked
| well with the core values of Apple. The goal of the company
| was to make computing highly available with systems that Just
| Worked in predictable and reliable ways. Structuring
| offerings and price options to make buying decisions easy for
| people who just wanted a computer caused an immediate boost
| to both sales and customer satisfaction.
|
| So price optimization can mean very different things. In this
| case what seemed to be a straightforward targeting of market
| segments resulted in customer confusion that held back both
| sales and customer satisfaction. The solution involved a
| product packaging and pricing strategy that was more aligned
| with the goals of the company rather than tuning prices to
| reflect the diversity of the customer base. For best results
| pricing strategies must be integrated with company goals and
| messaging.
| PeterisP wrote:
| Unlike human life, a business is an artificial construct
| intentionally created for some specific goal. If its creators
| chose profit to be this goal - which often is the case,
| explicitly written in the company founding documentation - then
| that actually _is_ the purpose of that particular business,
| nothing else, and nothing more, only creation of money for its
| creators or future owners.
| lo_zamoyski wrote:
| That's a fair point (artifact vs. living thing, a distinction
| misunderstood by mechanism especially where teleology is
| concerned). However, artificial does not mean arbitrary. What
| is artificial follows from human ends, and human ends are
| ultimately rooted in the ends of human nature (which,
| strangely enough, we can live in opposition to). Thus, the
| _normative_ definition of a business would have to be
| understood in terms of human nature. Of course, financial
| profit is desirable, but not in itself, but as instrument.
| Anyone pursuing profit for its own sake is idolizing money as
| if it were an end in itself.
|
| So the purpose of a business is to create value for others in
| exchange for profit (profit is money which is a medium of
| economic exchange) to be used for other valuable ends. That
| is to say, both of you are partially right, but incomplete.
| jmacd wrote:
| Bessemer has created a similar roundup/guide:
| https://www.bvp.com/pricing-course
|
| For devs who need to implement some type of system to support all
| these pricing models, we recently started working on
| https://priceops.org
| derAndyG wrote:
| Does anybody have a similar article about service or productized
| service oriented pricing for agencies?
| sedeki wrote:
| Are there other good business resources like this for tech
| entrepreneurs?
| petewailes wrote:
| I'd say it's worth noting that this _only_ applies to SAAS. There
| 's a giant pile of things missing from this if you have
| inventory, manufacturing or anything else more complex than
| software and developers.
|
| Pricing is an unbelievably complex subject which this doesn't get
| close to discussing properly.
| sacrosanct wrote:
| > https://www.principlesofpricing.com/the-price
|
| The USD 5.00 per month thing is relatively 'cheap' but the
| designers of the pricing model don't take into account all the
| _other_ services people are signed up to. This is why super cheap
| tiers are great, like $1.00 /mo tiers where I may not get all
| features, but at least I get to save some money. Spotify,
| Netflix, Hosting, Domain Renewals, etc all start to add up.
| kensai wrote:
| Interesting wrap-up. Most of these things are probably known eve
| to certain laymen, but good to have them altogether.
| Aulig wrote:
| If you're looking for another in-depth (139 pages), data-driven
| pricing guide, I can recommend ProfitWells Price Intelligently
| guide: https://www.priceintelligently.com/hubfs/Price-
| Intelligently...
| petewailes wrote:
| I'd second this. It's a bit waffle-y, but the shout for
| starting with a Van Westendorp PSM is pretty solid. Would like
| to have seen a mention of Gabor-Granger as that then helps
| bring a secondary element of profit maximisation into the mix.
|
| Van Westendorp is great for understanding what prices the
| market will accept, but not great for allowing you to model
| what will maximise your returns.
|
| Overall though it's a good intro to the subject.
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