Monetizing Innovation: How Smart Companies Design the Product Around the Price

Paid pilots: Instead of giving the product to beta-testers for free, LinkedIn typically goes to market and sells the beta version of the product. Why? It provides another layer of validation for the monetizing potential of the new service based on the value delivered. In the words of Josh Gold, “Our beta users have skin in the game by actually payi

Recommendation: Identify the price thresholds for your products and stay on the cliff.

“By doing such voice-of-the-customer research, you can ‘test-sell’ your product even though you haven't even started the product development process yet,” Drews says. “Then, when the customer asks when he can have it, you know you created a very powerful product idea.”

The customer's upfront cost has a much bigger psychological impact than the total cost of ownership. Your pricing strategy should be to land a customer by showcasing the lower upfront costs and then expanding on a higher variable amount.

Instead of displaying prices in the hundreds or thousands of dollars per server, EC2 shows prices in dollars or even fractions of a penny for hourly prices. Aside from fundamentally changing your business model to be like Amazon's, are there easier ways to use pennies-a-day pricing? Absolutely. And the simplest is breaking up time.

Razor/razor blades: Get a foot in the door. Customers are influenced by costs that are immediately in front of them. Even if they calculate their total cost of ownership of a product over time, they will be swayed by the initial costs.

Psychological price thresholds: Avoid falling off the price cliffs. You might wonder why you rarely see prices like $101 in retail; you almost always see $99 or $99.99. The reason is that customers typically have price thresholds in mind.

Make sure you have an anchor product in your new product offering portfolio, and start every B2B sales negotiation for new products with a high anchor price.

Using price to signal quality: If it costs more, it reinforces the customer's perception of quality.