This article is a sponsored by iA
So, you’ve created a thing. That thing could be anything, say a product the world never knew it needed or maybe a stellar SaaS app that makes everyone way more productive. You had a brilliant idea and took the initiative to make it happen. It’s time to put it on the market!
But wait… how much money are you going to charge for this thing? That’s often a way more difficult question to answer than it might seem. I mean, slap a price on the tin, and that’s it, right?
The truth is that pricing a product or service is one of the more challenging aspects of product development. Pricing is an inexact science, and chances are you will not get it right the first time. But where do you even begin?
That’s where the team at Information Architects — commonly known as iA — found itself when tasked with pricing a new product called iA Presenter. iA already had a hit product on its hands, the popular iA Writer app, with its claim to fame being a minimal, distraction-free writing interface. iA Writer is already a mature offering, having been available for many years and having undergone several significant iterations since its initial release. How does a new offering like iA Presenter fit into the picture?
Let’s use iA Presenter to study the considerations that go into product pricing. Its status as a brand-new product that sits alongside an existing product with an established history makes iA Presenter an interesting case study on pricing. Plus, the iA team was generous enough to share a bunch of the research and work that went into their pricing for iA Presenter.
Finding Pricing Parallels
The first step to pricing might be looking at what others are doing. Chances are that you are not the only player in the market, and you can certainly learn by observing what others are doing. I know that’s what I did when getting into the pricing of a SaaS-based app. There were plenty of competitors in that particular market, and mapping them out in a spreadsheet was a nice way to compare the similarities and differences — not only in the prices themselves but the pricing models as well. Some were one-time purchases, but many were recurring subscriptions. Some offered free trials, while others relied on a generous return policy. Some required a credit card upfront, and others allowed you to jump right into the app. You get the idea. There’s more to pricing than meets the eye.
The key is to find parallels between what others are doing and what aligns with what you’re doing. If everyone else is selling subscriptions, then maybe that’s clear enough for you to do the same. Or perhaps it’s more of an opportunity to differentiate your product, offering a pricing model that might appeal to an overlooked segment of the market.
The purpose of finding parallels is to prevent sticker shock by setting a price that is far outlier from what the rest of the market has already set.
iA says it extremely well in a blog post that’s incredibly transparent with their findings:
“As you can see, the pricing ranges from $5 to $25 per user. There are outliers on the upper scale. Some of them offer a free model for individuals or low-usage cases. As you already know, they can do that because they have venture capital or run on an ad-based model (Google). Google and PowerPoint come as part of a suite.”
—iA, “Presenter Pricing (I)”
Ah! There’s always a story lurking in the details. Outliers can exist, and they might actually be on the low end of the spectrum. Competing on price alone always feels like a risky call; just ask any company that’s had to play along with Walmart’s aggressive tactics to be a low-price leader.
Perhaps the most important lesson from my own pricing research is that finding parallels in the market will also provide a clearer picture of what value your product provides. Does your product do something that the others don’t? Is it so much easier to use than the rest that the user experience is where the value comes from?
Add those things to the spreadsheet! The spreadsheet becomes more of a matrix than a competitor list. You can use it to surface what’s unique about your product and lean into it when determining the overall value your product offers compared to everyone else.
Again, the iA team throws a bit of a curveball based on its recent experience:
“Whether a price is low, high, or right depends on what [customers] compare it to. Customers will compare apples and oranges”.
—iA, “Presenter Pricing (I)”
Did you catch that last point? You may need to find pricing parallels with products that are tangentially related to your market because you can’t control what you might be compared to. My own pricing journey was on a hosted calendar, and while it has way less in common with something like Google Calendar, customers would inevitably compare our offering to it because Google Calendar is such a common point of reference when talking about anything related to online calendars.
Starting The Conversation
The topic of pricing usually comes up during product development but could certainly come much sooner. The closer the finish line for development gets, the more the reality sets in that there’s work to do to get the product to market, and pricing is one step that simply cannot be skipped — how else will customer compensate you for the pleasure of getting their hands on a product?
You could start spewing numbers until one resonates with you, but that’s rather subjective. Will your customers see the same value in the product that you do? It’s worth checking, and sometimes it works to directly ask your customers — whether it’s existing customers or a target audience you’ve identified.
That’s what iA did when they published the question “How Much Would You Charge for iA Presenter?” in the aforementioned blog post from November 2022. The post provides oodles of context for readers to get an idea of what the iA team was already considering and what they’ve learned from an initial round of research on different pricing models.
What I like about this approach is the transparency, sure, but also how it leads to two other things:
- Setting expectations
iA had already introduced iA Presenter in another post that precedes the call for pricing opinions. But in bringing pricing to the forefront, the team is giving existing and potential customers a heads-up of what’s to come. So, even if they settled on a high price point that is an outlier in the market, at least everyone is already familiar with the thinking behind it.
Posing the question means they had opened the door for customers to weigh in. That’s the sort of feedback that can be designed as a survey, with the data helping inform pricing experiments and identify insightful patterns.
Have you ever had to design a survey? Good gosh, that can be a frustrating experience. The challenge is to get useful feedback that leads to insights that allow you to make better decisions. But the process is all too easy to mess up, from choosing the wrong type of form input for a particular question or, worse, injecting your own biases into how things are worded. Surveys can be as much a balancing act as product pricing!
That’s why I find iA’s approach so interesting. They had the idea to ship not one version of the survey but three. This is what they shared with us:
“We divided our newsletter’s subscribers into different groups of roughly 5000 people each and sent them different versions of the form. The first group received the Version 0 of the form, and each time we updated this one, we sent it to a different group.
In retrospect, it’s clear why, but we didn’t expect the form design to affect the price suggestions so much. A lot has been written about A/B testing, form design, and questionnaire design. But here we were right in the middle of a form/questionnaire experiment and saw how directly the design affected the results. It was amazing to see all of this happening in real-time.”
It was a genius move, even if it wasn’t obvious at first. Sending three versions sent to different segments of the audience does a few things:
- It considers different scenarios.
Rather than asking its audience what pricing model they prefer, iA assumed a pricing model and put it in front of users. This way, they get a reaction to the various pricing scenarios they are considering and gain a response that is just as useful as directly asking.
- It challenges assumptions.
The iA team put a lot of legwork into researching pricing models and evaluating their pros and cons. That certainly helped the team form some opinions about which strategies might be the most effective to implement. But even all the research digging in the world doesn’t guarantee a particular outcome. Evaluating responses from a clearly defined target audience using three versions of the form allowed iA to put its assumptions to the test. Is a subscription-based model really the best way to go? Now they know!
- It reveals customer biases.
Anything you ask will have a degree of bias in it, so why not embrace that fact and let the customers show you their biases in the process? One version of the iA Presenter survey was based on a subscription pricing model, and the team found that some users hate subscriptions so much that they refused to fill out this form and were quite vocal about it.
I love the way iA sums up the patterns they found in the survey results and how those results were influenced by differentiating the surveys:
“We offered a form that required you to fill out monthly and yearly subscriptions plus ownership. […] We offered a second version that didn’t require you to fill out all fields. What happened there raised brows. The price suggestions changed. They got lower. We continued changing the form, and every time, the result changed.”
And with that, iA had unlocked what they needed to determine a price for iA Presenter. From a follow-up blog post that reports their findings:
“All data combined, you decided that iA Presenter should charge the industry standard of 5.- for a single license. Multiplying 5.- times twelve for a year and times three to make it worthwhile would make iA Presenter make a 150.- app.”
—iA, “Presenter Pricing (II)”
Aligning Data With Strategy
Great! iA was able to determine a specific price point with some level of scientific certainty. It would be easy enough to slap that on a price tag and start selling, but that doesn’t do justice to the full picture the data provides. Specifically, iA learned that the price point they determined would not align with all of the audience segments they surveyed.
Here’s more of what they were willing to share with us about their audience’s feelings on pricing:
- The collective audience suggested charging the industry standard of $5 for a single license.
- Some think that the $50 price for the existing iA Writer app is high. $100 is not that much in Switzerland, but in some countries, $100 can be a big chunk of a monthly salary. That means local pricing adjustments ought to be considered.
- Suggestions for business subscriptions varied between $10 and $20 per month per license.
- Students want a free tier of access.
iA is lucky enough to have an internal source of useful data, thanks to the long sales history it has with iA Writer. They found that new customers tend to prefer a subscription model, while existing (or “convinced”) customers show a preference for a single purchase.
So, it’s more like they were looking at different pricing tiers instead of a flat rate. Their audience is all over the map as far as what their pricing expectations are, and a pricing model that offers choices based on the type of customer you are (e.g., business vs. student) and where people are geographically is likely to cast a wider net to attract more customers than they would get from a single price point. So, even if verified students are able to get the product for free, that should be offset by the price points for single-license customers and businesses.
What we’ve looked at are several important considerations that go into product pricing. The work it takes to determine a price goes way past subjective guesses. Pricing is one of the “Four Ps of Marketing” that influence a product’s market position and how customers perceive it.
Setting a price is a statement of the product’s quality and the value it adds to the market.
That’s the sort of thing you can’t leave to chance.
That said, it’s clear that determining a product price is far from an exact science. The challenge is to elicit the right information that leads to insights that are more reflective of and aligned with the expectations of the target audience. Will they pay the price you want?
There are many other considerations that go into pricing, to be sure. You might discover that the price the market is willing to pay is unsustainable and does not cover enough of the costs that went into product development or the ongoing costs of maintenance, developing new features, marketing, support, salaries, and so on. You don’t want to enter yourself in a race to the bottom, after all.
iA Presenter makes for a great case study on product pricing. The fact that it’s the type of software that those of us in the web design and development community often work on makes it an extremely relevant example. Plus, iA put so much effort into research and was generous enough to share it with us that it provides a nice recent snapshot of a real-world situation.
And, hey, now that you know everything that went into setting prices for iA Presenter, you should check it out. Do you think they made the right choice? Will the multi-tier pricing strategy work next to market competitors who are more mature and are able to practically give away their stuff for free, like Google Slides? We’ll find out soon as iA Presenter is officially out of beta and has been released to the public on June 1st. You can follow along with their ongoing journey of shipping a new product on their blog or by signing up for their newsletter.