Monetization Strategy: Premium Value Flashcards
Premium value
Premium value is the subset of product features which provide enough value to the customers that they are willing to pay a premium for using it.
Below this threshold, the customer is agnostic towards the product and if asked to pay, would be comfortable discontinuing their use of the product.
Customers can often raise the premium price they are willing to pay depending on the amount of value they are getting. Consider Amazon’s shipping options below. While the standard shipping fee is $3.99, a higher fee (nearly 2x) may be acceptable to the customer if the shipping can be expedited.
What are some of the problems with the ”Most Important / Not Important” survey commonly used to discover premium value?
This survey does not lead to the discovery of premium value for the following reasons:
Survey design problems: The respondents are often not forced to make a choice, so everything ends up being important.
Interpretation bias: The respondents have different interpretations of the rating scale and skew results. The responses below are by a different respondent though directionally they communicate the same preferences as the above respondent.
The bottom line is that this method of asking customers what they value does not reveal the subset of the product that can be considered as ‘premium value’ for them. Hence, we need a more actionable method for discovering the value metrics.
Maximum Difference Scaling (Max -Diff)
Maximum Difference Scaling, or Max-Diff for short, is a technique to evaluate the relative importance of a number of value proposition alternatives, aka product features.
Max-Diff Output
Feature Importance: A ranked list of features based on their importance as well as the importance gap between them. This helps build feature clusters.
Premium Value: The feature cluster that offers the maximum value to the chosen persona as defined by how many times it is valued most important by respondents. This constitutes the set of value metrics for that persona and it helps inform the pricing metric which we will look at in the next lesson.
Max-diff analysis
Once all responses are collected, they are tallied and analyzed for patterns. Several techniques exist for analyzing the output of Max-Diff surveys. We will not go into detail for each as they are outside the scope of this course. Briefly, they are:
Count Analysis: Most commonly used technique, that tallies the number or percent of times each alternative is chosen as most or least important.
Logit Modeling: Model the utility of each alternative using a logit model.
Hierarchical Bayes: More advanced mathematical technique.
What forms the basis for a pricing plan?
Mapping persona segments to value clusters forms the basis of a pricing plan
What is the main benefit of using the Max-Diff survey
Max-Diff better enables the mapping between value clusters and persona segments
Max-Diff constraints
Due to the combinations of alternatives and the resulting number of questions that need to be asked from respondents, Max-Diff is the most efficient method up to 20 alternatives. Beyond that it becomes complex for respondents to understand and give a meaningful response.
five amplification methods
Usage Network Functionality Integrations Financials
Amplifiation: Usage
Encouraging greater usage of the product amplifies the value for users.
Google Photos encourages the use of the product by offering free storage for less-than-original quality. However, as soon as the user desires to store original quality photos they will start using up their storage quota thereby inching closer to paid plans with greater storage capacity.
Amplication: Network
Acquiring a user’s personal or professional network makes the product more valuable for the user. (Slack/Fitbit)
Slack brings its users close to their workplace network. They make it easy to invite colleagues and enable other viral mechanisms for acquiring the workplace network. This strengthens the case for upgrading to pricey Enterprise plans and, in addition, makes it hard for any user in the team to switch to another tool.
Amplication: Function
Offering a complete solution for all needs helps users accrue more value.
Stripe is a good example of going deeper into the functional needs of their customers and offering solutions for more than just payment facilitation. International payments, fraud detection, reporting and analytics – all these needs are deeper in the customer journey on the upgrade & expansion path after the customer has become familiar with the basic payment feature.
Amplicattion: Integrations
By offering to integrate seamlessly with several tools, they reduce the barrier to adoption for prospective customers in case that prospect is deeply tied to one of those tools.
Amplitude offers integrations with tools in several categories ranging across marketing automation, attribution, data warehousing, collaboration, business intelligence and customer data platform. In fact, they support multiple tools in each category.
Amplification: Financials
Improving financials either on the cost or revenue side will help users accrue more value.
LinkedIn offers several ways to amplify the value of the platform. It has been popular for recruiting and general networking. However, sales and marketing teams use it heavily for prospecting and lead generation which in turn helps them generate more revenue.
Goals of a Unit Economics model
A unit economics model measures the economic efficiency of a product’s acquisition and revenue generation.
How much value does a business generate from a single customer?
How much does it cost to acquire a single customer?
How long does it take to pay the cost of acquiring a single customer?
How well can the business compete in the market?
What will be the impact of investing in growth on profits?
